The Consumer Financial Protection Bureau foreshadowed a return to stronger and more frequent crackdowns on abuse by rescinding a Trump-era policy statement, stakeholders say.
The Biden administration said the 2020 CFPB policy statement "undermined deterrence and was contrary to the CFPB’s mission of protecting consumers."
The rescission "is a way to send a message on the agency’s intention to more aggressively enforce the law," Ori Lev, a partner with Mayer Brown LLP, told S&P Global Market Intelligence. "The CFPB is going to be more active both in supervision and enforcement."
The 2020 policy statement said the government would generally apply the abusiveness standard only in cases where harm to consumers outweighs the benefit. In addition, the CFPB said it would not assert abuse if the case involved the same facts that it alleged were unfair or deceptive.
Under the Dodd-Frank Act, the bureau has the authority to treat as abusive such things as materially interfering with someone’s ability to understand a product or service; taking unreasonable advantage of a consumer’s lack of understanding; or taking unreasonable advantage of someone who reasonably relies on a company to act in their interests.
The policy statement attempted to clarify the way in which the CFPB would assert its authority, but the agency said in its rescission that this was "inconsistent with the Bureau's duty to protect consumers from abusive practices."
Meanwhile, financial institutions are not sure when they could face abusiveness claims, according to Nancy Thomas, a partner with Morrison & Foerster LLP.
"The bureau has not cleared out a separate space for what abusiveness means," she said in an interview. "The industry wants guardrails and guidance. Trying to get that guidance from enforcement actions requires regulated entities to read the tea leaves."
One major question going forward is how the CFPB will now treat abusiveness claims versus enforcement against unfair and deceptive practices.
In the March 11 rescission, the agency said that not asserting abusiveness claims — solely because they overlap with unfairness or deceptiveness — will slow the CFPB’s ability to clarify the statutory standard.
"There is no basis to treat application of the abusiveness standard differently from the normal considerations that guide the Bureau’s general use of its enforcement and supervisory discretion," the CFPB said in the rescission.
However, the bureau’s language "doesn’t have a huge practical impact," Thomas said. "Abusiveness has always been a subset" of unfairness and deceptiveness, she told S&P Global Market Intelligence.
"I don’t think we’re going to see much of a change based on what actions the bureau brings,” Thomas noted.
Other stakeholders said banks will have to adjust to the forthcoming enforcement landscape.
Christopher Peterson, a law professor at the University of Utah, said the agency’s action "reestablishes the plain language and the standard enacted by Congress in the Dodd-Frank Act. It reverts back to the law that’s on the books."
And the bureau plans to use it.
“A policy of declining to enforce the full scope of Congress’s definition of an abusive practice harms both the consumers who were taken advantage of and the honest companies that have to compete against those that violate the law," the CFPB said in announcing the rescission.
Christopher Willis, a partner with Ballard Spahr, said that following the CFPB’s actions, "financial institutions will evaluate risk calculation through a different lens."
"They need to apply that kind of risk analysis to any decisions that they make," he said.
Big companies can expect significant scrutiny, Mayer Brown’s Lev said.
"There will be more of a focus on large market participants and less of a focus on smaller actors," Lev said.
Morrison’s Thomas said that with so many facing financial struggles during the pandemic, she expects the CFPB to take a vigorous enforcement approach so that consumers seeking debt relief are not taken advantage of.
Industry stakeholders called for clarity.
Consumer Bankers Association President and CEO Richard Hunt said it is "very disappointing the CFPB did not define its interpretation of 'abusive' so financial institutions know the rules of the road in advance of any supervision or enforcement action."
The National Association of Federally Insured Credit Unions echoed that viewpoint, saying it plans to work with the agency going forward.
NAFCU will "reiterate its longstanding call for specific examples and defined guidance on prohibited practices, so that the CFPB can prevent abusive behaviors, as opposed to just going after the bad actors in the marketplace," said Carrie Hunt, executive vice president of government affairs and general counsel.
And community banks will continue to be "laser focused" on ensuring their products and services will not fall into any category of unfair, deceptive, or abusive acts and practices, according to the Independent Community Bankers of America.
"The community bank’s approach is effective under the 2020 policy and the 2021 rescission," Rhonda Thomas-Whitley, ICBA’s vice president and regulatory counsel, said.
