The Consumer Financial Protection Bureau (CFPB) held a symposium in June on the ambiguity of what is considered “abusive” activity in consumer financial services. Although no hard and fast rules were specified at the symposium, it may lead to clarity in the near future. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Act) prohibits covered persons or service providers from committing unfair, deceptive, or abusive acts or practices (UDAAPs). The CFPB brings enforcement actions under the Act when it alleges that a covered entity’s activity caused significant consumer financial injury, eroded consumer confidence, or undermined fair competition in the financial marketplace. Although Section 1031 of the Act defines “abusive”, the term has not been delineated in practice as much the other terms, “unfair” and “deceptive”. In fact, the CFPB has rarely brought claims solely under the abusive standard; it more frequently brings claims using unfair or deceptive. This has a lot to do with the fact that although abusive is defined in the Act, the term does not have as much history as the other terms. The Federal Trade Commission has developed the enforcement of unfair and deceptive for years with many instances of interpreting case and statutory law, regulations, bulletins, and letters that all paint a clearer picture of acts and practices financial institutions should avoid.
Since financial marketplace stakeholders have consistently urged the CFPB to specify what acts and practices are considered abusive, the CFPB held the symposium for the Director and Deputy Director to discuss with legal and policy experts what might be the best processes for clarifying the abusive standard. Some industry participants believe rulemaking is necessary to lessen arbitrary and unpredictable claims and make abusive standards distinct from unfair and deceptive standards. Others believe it is pre-mature for rulemaking due to the low number of claims that are based only upon abusiveness. The latter group believes no-action letters, guidance, a substantial notice and comment process, and CPFB commentary would be sufficient to address concerns. It was further added that this is especially the case since the concept of abuse can largely only be determined on a case by case, factual basis and it is difficult to predict future scenarios as business methods and models in the consumer financial marketplace are quickly evolving.
Although the symposium was only a discussion and there were no hard and fast rules or explanations provided as a result, just yet, it is a progressive step for the CFPB to formally acknowledge how ambiguity is causing frustration in the consumer finance market to the extent that some industry participants are hesitant to offer or expand some products due to fear of ambiguous compliance risks. The lack of clarity may also be why the CFPB rarely brings claims under the abusiveness standard. Perhaps, notice and commentary is the next step, along with additional agency commentary and no-action letters with the ultimate goal of rulemaking farther down the line. Either way, the CFPB took a large step towards acknowledging industry concerns.
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