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FOS Blog

30 Jul
2020

DISTINGUISHING “ABUSIVE” PRACTICES

DISTINGUISHING “ABUSIVE” PRACTICES

Many leading articles on the subject of the CFPB’s release of its position on “abusive” acts or practices proclaim that the CFPB has defined “abusive.”  This is simply not true.  The Dodd Frank Act already defined “abusive” when it transferred enforcement authority to the CFPB:

  1. materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
  2. takes unreasonable advantage of—
    1. a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
    2. the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
    3. the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

When the CFPB issued its UDAAP standards in 2013, they stated: “It is important to note that, although abusive acts or practices may also be unfair or deceptive, each of these prohibitions are separate and distinct, and are governed by separate legal standards.”

Since the transfer of authority in 2011, the CFPB has brought 32 enforcement actions that included an abusiveness claim.  But what they generally found was that for the majority (30 of 32), a claim of “abusiveness” was tendered in conjunction with a claim for “unfairness” or “deception.”  The same actions that led to the claim of unfairness or deception was the same source for the abusiveness claim.  This became known as “dual-pleading.”  The case for abusive acts or practices (as defined above) could not stand on its own.  Neither has the Bureau issued guidance for the use of abusiveness in UDAAP claims…until now.

But how will the CFPB demonstrate a violation?

On January 27, the CFPB issued a policy statement to clarify their position on abusive:

  • The harms to consumers from the conduct must outweigh its benefits to consumers.
  • The claim of abusive generally relies on all the same facts as unfair or deceptive. Where the Bureau also pleads abusive, it intends to plead those claims in a manner designed to demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim, thus providing more clarity as to the specific factual basis for citing abusiveness.
  • The Bureau does not intend to seek monetary relief where an institution was making a good-faith effort to comply with abusive standards. However, there is nothing to preclude them from taking supervisory or enforcement action if a practice is found to be abusive.

The next “proof” will be how courts rule in UDAAP cases based on these definitions going forward.  Keep watching!

For additional information contact the author at edehmey@fosaudit.com.