U-Turn: CFPB Rescinds Policy Statement on Abusiveness
On March 11, 2021 the Consumer Financial Protection Bureau (CFPB) announced it was rescinding a policy statement it had issued in January 2020. The rescission of this policy statement could have a significant impact on the bureau’s approach to enforcement under the Biden Administration. For those who have not been following this issue closely, here’s a summary:
The policy statement was originally issue on January 24, 2020 under then-Director Kathleen Kraninger. The document’s stated goal was to reduce uncertainty by providing a framework for the bureau’s supervision and enforcement approach regarding abusive acts or practices. The policy statement discusses the history of the bureau’s authority in this area: Title X of the Dodd-Frank Act, which created the CFPB, empowered the bureau to “take any action authorized… to prevent a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice” in transactions involving consumer financial products or services. Other agencies, such as the Federal Trade Commission (FTC), had previously been empowered to take action against unfair or deceptive acts or practices, and thus there were guidance documents and legal precedents discussing those standards. However, this provision of Dodd-Frank was the first time a federal agency was empowered to take action against “abusive” acts or practices. While Dodd-Frank defined the term “abusive,” many participants in the financial services industry felt the definition alone was too broad and additional guidance was needed to describe which acts or practices would be deemed “abusive.” The bureau did not issue such guidance, but did bring a number of enforcement actions over the years alleging the defendants engaged in “abusive” acts or practices.
The 2020 guidance announced a rulemaking to clarify the abusiveness standard may be forthcoming. Additionally, the guidance identified three changes to the bureau’s approach on this topic. First, the bureau announced it would review the costs to consumers posed by the abusive act or practice, and would only take action if the costs outweighed the benefits. Second, the bureau stated it would avoid bringing claims of “abusiveness” for acts or practices it was also pursuing as being “unfair” or “deceptive.” Third, the bureau announced it would not seek civil money penalties or disgorgement when the covered entity had made a good faith effort to comply with the abusiveness standard. The policy statement also said the bureau would make an effort to discuss the abusive claims it does bring in future issues of Supervisory Highlights.
About fourteen months and one presidential election later, the bureau is now under different leadership. A few weeks ago, Acting Director Dave Uejio signed the bureau’s statement rescinding the original 2020 policy statement. In the rescission statement, the bureau stated the previous policy statement failed to actually deliver the clarity sought by regulated entities, and instead gave the bureau tremendous discretion that resulted in further uncertainty. The bureau also asserted that the definition in the Dodd-Frank act was sufficiently clear, and the rescission will allow the bureau to “better protect consumers and the marketplace from abusive acts or practices, and to enforce the law as Congress wrote it.”
The statement also took aim at the three changes outlined in the 2020 statement. First, the bureau claimed a cost-benefit analysis was not helpful and there was no need to subject abusiveness claims to such an analysis when other claims do not receive similar treatment. Second, it said Dodd-Frank authorizes the CFPB to bring abusiveness claims in conjunction with claims of unfairness or deception, and there may be a benefit in alleging alternate legal causes of action. Third, taking civil money penalties or disgorgement off the table would undermine the bureau’s goal of deterring abusive acts or practices.
For credit unions, this means they should no longer rely on the 2020 statement’s promise that penalties or disgorgement won’t be utilized if the credit union made a good faith attempt to follow the abusiveness standard. Additionally, it also means the bureau may be more aggressive in its supervision and enforcement approach to abusive practices than under the prior leadership, since it no longer must conduct a cost-benefit analysis or avoid double-pleading.
For readers interested in learning more about the topic of UDAAP, check out NAFCU's UDAAP Issue Brief.
The new CFPB leadership differs from the Kraninger-era in a number of philosophical ways, and may take additional actions to roll back guidance or proposed rules issued under the previous administration. The NAFCU Compliance Blog will continue to monitor and discuss regulatory developments coming from the bureau.
About the Author
Nick St. John, was named regulatory compliance counsel in March 2020. In this role, Nick helps credit unions with a variety of compliance issues.