The Consumer Financial Protection Bureau issued an expansive analysis on abusive conduct in consumer financial markets earlier this month.
According to the April 3 policy statement, abusive conduct typically includes materially interfering with the customers’ ability to understand the major features of a product or service, potentially through burying important disclosures in fine print or jargon. According to the regulatory agency, companies cannot take unreasonable advantage of:
- A consumer’s lack of understanding of the costs, conditions or material risks of a product or service.
- The inability of a consumer to protect their interests in selecting or using a service or product.
- A customer’s reliance on a covered person to act in their interests.
“The statutory text of the prohibition does not require that the consumer’s lack of understanding was reasonable to demonstrate abusive conduct,” the agency stated. “Similarly, the prohibition does not require proof that some threshold of people lacked understanding to establish that an act or practice was abusive.”
Abusive conduct can also include the use of ‘set-up-to-fail’ business models such as those seen before the mortgage crisis; profiteering off ensnared customers; along with kickbacks and self-dealing.
The statement did not include new legal requirements.
According to New York City-based law firm Paul Weiss, the guidance “takes an aggressive view of the ‘abusive’ prohibition and maintains — rather than resolves — uncertainty by providing examples of what counts as abusive conduct, rather than defining its parameters.”
According to the law firm, it is unclear whether courts or other regulators will adopt the views. Paul Weiss said heightened disclosures could be needed for banks offering especially complex services or products.
“Banks and other consumer financial service providers should consider incorporating the policy statement’s guidance into their procedures and checklists for reviewing products, practices and disclosures for UDAAP risk,” the law firm stated.