On January 24, the Consumer Financial Protection Bureau issued a policy statement that limits the “abusive acts and practices” standard created by the 2010 Dodd-Frank Act. While the policy statement does not define what constitutes an “abusive” act or practice, and in fact leaves many important questions unanswered, it plainly limits the scope of the abusiveness standard, which is welcome news to companies within the scope of the CFPB’s authority.
With the 2010 Dodd-Frank Act, Congress gave the CFPB broad authority to prohibit “unfair, deceptive, or abusive acts or practices.” The unfairness and deception standards were largely carried over from the Federal Trade Commission Act, which prohibits “unfair or deceptive acts or practices.” But the abusiveness standard was something of an innovation, and in fact, the Dodd-Frank Act was the first federal law to prohibit “abusive” acts or practices with respect to all consumer financial products and services.
But the Dodd-Frank Act did not clearly define the abusiveness standard, and the CFPB’s enforcement and supervisory efforts to date have not created a clear standard. That has frustrated many companies subject to the CFPB’s broad enforcement and supervisory authority, who argue that the uncertainty created by the abusiveness standard chills innovation and creates unnecessary compliance burdens.
Responding to those concerns, the CFPB’s policy statement identifies three principles that will now govern the abusiveness standard.
- Focus on Consumer Harm. The CFPB will focus on consumer harm, challenging conduct as abusive only if the harms caused by the conduct outweigh its benefits. This limitation mirrors a limitation Congress imposed on the unfairness standard. And it suggests that the CFPB will not challenge conduct that harms a vulnerable subset of consumers if the conduct provides substantial benefits to consumers generally.
- Avoid Duplicative Claims. The CFPB will avoid duplicative pleading, challenging conduct as abusive only when the conduct does not fall with the broad scope of its authority to prohibit unfair or deceptive conduct. This limitation is intended to bring “more certainty” to the abusiveness standard over time by forcing both the CFPB and the courts to distinguish conduct that falls within the scope of the abusiveness standard from conduct that falls within the scope of the unfairness or deception standards.
- Seek Monetary Relief Only from Bad Actors. The CFPB will not seek monetary remedies in actions alleging standalone abusiveness claims if the target of the action “made a good faith effort to comply with the law based on a reasonable – albeit mistaken – interpretation of the abusiveness standard.” This limitation recognizes that, despite the CFPB’s policy statement, the abusiveness standard is still not clearly defined, such that companies subject to the CFPB’s authority “must make decisions about whether to engage in conduct notwithstanding uncertainty.”
In announcing the policy statement, CFPB Director Kathleen Kraninger encouraged companies subject to the CFPB’s authority to focus on compliance. “I am committed to ensuring we have clear rules of the road and fostering a culture of compliance – a key element in preventing consumer harm,” she said. “We’ve developed a policy that provides a solid framework to prevent consumer harm while promoting the clarity needed to foster consumer beneficial products as well as compliance in the marketplace, now and in the future.” Kraninger’s comments echo statements made in the CFPB’s 2013 Responsible Business Conduct Bulletin, which noted that the CFPB would “consider awarding affirmative credit” in the context of enforcement actions if companies had engaged in “responsible conduct” via compliance programs that included “self-policing, self-reporting, remediation, and cooperation.”
Troutman Sanders regularly defends companies before the CFPB and also regularly assists clients in building out and maintaining their compliance programs.