The Consumer Financial Protection Bureau has finally offered a clarification of the ‘abusive’ standard laid out in the Dodd-Frank Act nearly a decade after its passage.
Through a policy statement, the bureau explained how it intends to apply abusiveness in order to promote compliance and certainty. The bureau cited three principles it plans to use during its supervision and enforcement work.
The CFPB said it would focus on citing or challenging conduct as abusive in supervision and enforcement matters only when “the harm to consumers outweighs the benefit.” It said it would generally avoid “dual pleading” of abusiveness and unfairness or deception violations arising from all or nearly all the same facts, and alleging “stand alone” abusiveness violations that demonstrate clearly the nexus between cited facts and the bureau’s legal analysis. And the agency said it would seek monetary relief for abusiveness only when there has been a lack of a good-faith effort to comply with the law, except when seeking restitution for injured consumers regardless of whether a company acted in good faith or bad faith.
The bureau defined an abusive act as one which materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service. An abusive act is also one which takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; or the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
The CFPB had previously hosted a symposium on abusive acts and practices last summer in an attempt to reach a definition of the standard and how to implement it.
“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,” said CFPB Director Kathleen Kraninger. “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.”
The CFPB left the door open to refining the abusiveness standard through future rulemaking.