Today, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a policy statement purporting to summarize, in clear and simple terms, the meaning of the statutory prohibition on abusive conduct. Policy statements are intended to provide background information about laws under the CFPB’s jurisdiction and articulate how the CFPB will enforce those laws, but are not meant to impose new legal requirements. This policy statement appears to replace the 2020 policy statement created by former CFPB Director Kathy Kraninger that the Bureau rescinded in March 2021 after President Biden took office.

In 2010, Congress passed the Consumer Financial Protection Act (CFPA) that banned an “unfair, deceptive, or abusive act or practice.” The CFPA defines an act or practice as “abusive” where the act or practice:

(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

(2) takes unreasonable advantage of —

(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

(B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or

(C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

In its policy statement, the CFPB summarizes the above “at a high level” as (1) obscuring important features of a product or service; or (2) leveraging certain inequalities to take advantage of the consumer, including gaps in understanding, unequal bargaining power, and consumer reliance. According to the CFPB, the conduct that underlies an abusiveness determination may also be found to be “unfair” or “deceptive,” depending on the circumstances.

“Obscuring important features of a product or service”

• Material interference can be shown when an act or omission is intended to impede consumers’ ability to understand terms or conditions.
• According to the CFPB, interference can take numerous forms, such as buried disclosures, physical or digital interference, overshadowing, and various other means of manipulating consumers’ understanding.
  • Buried disclosures include the use of fine print, complex language, jargon, or the timing of the disclosure.
  • Physical interference can include physically hiding or withholding notices.
  • Digital interference can include the use of pop-up or drop-down boxes, multiple click-throughs, or other actions or so-called “dark patterns” that have the effect of making the terms and conditions materially less accessible.
  • Overshadowing includes the prominent placement of certain content that interferes with the comprehension of the terms and conditions.
• According to the CFPB, material interference can be established with evidence that the natural consequence would be to impede a consumers’ ability to understand or with evidence that the act or omission did impede a consumers’ actual understanding. Intent is not required.

“Taking advantage of the consumer”

• According to the CFPB, entities may not take advantage of gaps in understanding regarding the material risks, costs, or conditions of the entity’s product or service.
  • A lack of understanding can be shown by direct evidence of lack of understanding, including complaints and consumer testimony. It can also be shown by evidence that reasonable consumers were not likely to understand. For example, according to the CFPB, if a transaction would entail material risks or costs and people would likely derive minimal benefit from the transaction, it is reasonable to infer that people who went ahead with the transaction did not understand those risks or costs.
• According to the CFPB, entities cannot take unreasonable advantage of circumstances where people lack sufficient bargaining power to protect their interests.
  • The policy statement describes such circumstances as when consumers do not elect to enter into a relationship with an entity, such as with consumer reporting companies, debt collectors, and third-party loan servicers.
  • Other examples provided of unreasonable advantage include, entities using form contracts, entities with outsized market share, or when consumers face high transaction costs to exit a relationship with an entity.
  • The CFPB clarified that such relationships and circumstances are not per se abusive, but entities may not take unreasonable advantage of the absence of choice in these types of relationships.

“Consumer reliance”

• According to the CFPB, where people reasonably expect that a covered entity will make decisions or provide advice in the person’s interest, there is potential for betrayal or exploitation of the person’s trust.
  • An example provided in the policy statement is where an entity assumes the role of helping consumers select providers in the market.

The policy statement has been published in the Federal Register. Interested parties may submit comments until July 3, 2023.

Troutman Pepper’s Consumer Financial Services team will be issuing further analysis of this policy statement through its podcast in the coming weeks, but we believe it is fair to say, as an initial matter, that the Bureau has defined “abusive” in a very broad way that is intended to give the agency the greatest flexibility and latitude to find “abusive” practices.