On March 11, 2021, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) rescinded its January 24, 2020 Statement of Policy Regarding Prohibition on Abusive Acts or Practices (“Policy Statement”). The Acting Director of the CFPB, David Uejio, has been working quickly to reverse Kraninger-era policies, and the Policy Statement is the latest victim. Under the original Policy Statement, the CFPB said that it would: (1) generally rely on the abusiveness standard to address conduct only where the harm to consumers outweighs the benefit, (2) avoid making abusiveness claims where the claims rely on the same facts that the Bureau alleges are unfair or deceptive, and (3) not seek certain types of monetary relief against a covered person who made a good-faith effort to comply with a reasonable interpretation of the abusiveness standard.
In rescinding the Policy Statement, the CFPB highlighted the Policy Statement failed to (1) provide clarity to regulated entities on the abusiveness standard and (2) prevent consumer harm. In reality, the rescinded guidance is unlikely to have a major impact on the Bureau’s supervisory and enforcement efforts. Below, we highlight key takeaways from the announcement.
Overlap in Abusiveness versus Unfairness or Deception Claims
In rescinding the Policy Statement, the CFPB stated that the “principles set forth in the Policy Statement do not actually deliver clarity to regulated entities.” Instead, the CFPB now asserts that “[n]ot asserting abusiveness claims solely because of their overlap with unfair or deceptive conduct . . . has the effect of slowing the Bureau’s ability to clarify the statutory abusiveness standard by articulating abusiveness claims as well as through the ensuing issuance of judicial and administrative decisions.” This is true insofar as every time the Bureau brings an abusiveness claim, it sheds light on its understanding of how that standard applies. And in cases with judicial decisions, such claims also add to the body of case law defining abusiveness. But asserting that certain conduct is both abusive and also unfair or deceptive does little to answer a question that has bedeviled the Bureau and regulated entities for nearly ten years: what conduct does the prohibition on abusiveness proscribe that was not already proscribed by the pre-existing prohibition on unfair or deceptive acts and practices?
Costs and Benefits
With respect to the Policy Statement’s limitation of citing abusiveness to cases in which the Bureau determined that harm to consumers outweighed the benefits – an element of unfairness but not of the statutory abusiveness standard – the rescission notice says only the CFPB has concluded that there is no basis to treat abusiveness differently than other claims and that it “did not find this principle helpful in practice.” It is unclear whether this aspect of the Policy Statement played any role in limiting the CFPB’s assertions of abusiveness claims during the short period that it was in effect.
The Policy Statement also provided that the CFPB would not seek civil penalties or disgorgement in cases where a party made good-faith efforts to comply with the abusiveness standard but failed. However, in the three abusiveness claims that the Bureau has brought since the Policy Statement was issued – two contested actions filed in federal court and one consent order – the CFPB has sought or imposed civil money penalties. It is thus unclear what impact, if any, the Policy Statement was having. In any event, in rescinding the Policy Statement, the CFPB noted that this limitation “is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies.” This statement is consistent with CFPB Director-nominee Rohit Chopra’s repeated complaints about “no cost” settlements and our expectation that the CFPB will be seeking more aggressive monetary remedies in all enforcement cases – whether or not abusiveness claims are involved.
Neither the Policy Statement nor its rescission effectively address how the CFPB will ensure it uses its abusiveness authority consistently, both across enforcement matters, and across enforcement and supervisory matters. As we’ve previously written, the CFPB has at times asserted that the same conduct violated different prongs of the abusiveness prohibition in different cases, or described conduct as abusive in one case but not in another with similar facts. This sort of pleading undermines the Bureau’s efforts to develop a coherent body of case law around the abusiveness standard.
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As a practical matter, rescinding the Policy Statement is unlikely to have a substantial impact on what enforcement cases the Bureau brings or what conduct it challenges as unlawful. In most instances, the CFPB has asserted that the conduct at issue is both abusive and also unfair or deceptive. And even the stand-alone abusiveness claims or cases it has brought could have been brought as unfairness or deception claims instead. The bottom line for entities subject to the CFPB’s supervisory or enforcement authority is that if they are not committing unfair or deceptive acts or practices, they are unlikely to be committing abusive acts or practices, with or without the Policy Statement. While the abusiveness label may be troubling, a company with a robust UDAP compliance program likely has a robust UDAAP compliance program as a result.