Editor’s note: This is the first in a two-part series. Click here for part two.
The Consumer Financial Protection Bureau this week held the first of a series of planned symposia on various regulatory themes. The first topic addressed was “unfair, deceptive, or abusive acts or practices”.
The symposium featured one panel addressing policy issues relating to the abusive standard and another panel examining how the abusive standard has been used in practice. Speakers included a variety of UDAAP experts as well as CFPB representaives. Future dates and topics have yet to be released.
“There are a number of outstanding, challenging issues the bureau is facing – some of which Congress directed us to address. I believe that the best way to address these issues is with proactive dialogue,” said CFPB Director Kathy Kraninger when the symposia were announced. “These types of proactive efforts are precisely how we intend to engage.”
In her opening remarks, Kraninger noted that the concepts of “unfairness” and “deception” have been substantially developed by various regulatory agencies over the past 80 years. The result, she said, has been “reasonably clear standards for market participants to use in assessing whether their own conduct comports with laws prohibiting unfair and deceptive acts and practices.”
Although Congress provided a definition of an abusive act or practice in the Dodd-Frank Act, “abusiveness” has not yet been so fully developed. Kraninger noted that the bureau is hearing from stakeholders “that there is uncertainty about abusiveness’s parameters, which makes it harder for businesses that want to comply with the law to do so.”
During the panel discussion, one of the substantial disagreements was whether consumer harm is required for a practice to be abusive. The panel was split on this issue. Some claimed that the terms “unfair” and “deceptive” were focused on their impact on the consumer, whereas the term “abusive” should focus on the actions of a company.
However, consumer harm is not a prerequisite in the statutory language. It was also pointed out that it was odd to focus on company conduct where there is no consumer harm.
There was also a disagreement about whether ’abusive’ requires knowledge on behalf of the company. Again, it was noted that the statute contains no knowledge requirement. One panelist suggested a two-pronged test. A practice would be considered abusive if the product was unreasonable for a specific consumer, and if the provider knew the particular consumer’s situation.
Examples of this include products that might be reasonable for the majority of consumers, but maybe unreasonable for a specific consumer due to their circumstances (e.g., an 80-year-old refinancing a mortgage that was almost paid off).