Bureau Sheds Light on its Abusive Acts or Practices Standard in New Statement of Policy

The CFPB has issued a Statement of Policy which seeks to “convey and foster greater certainty above the meaning of abusiveness”  and provide a framework for its exercise of supervisory and enforcement authority as to abusive acts or practices.  Under Dodd Frank, the CFPB has supervisory and enforcement authority over abusive acts or practices in connection with consumer financial products or services. The Policy reflects an effort by the CFPB to resolve uncertainty as to the scope and meaning of abusiveness in the content of its enforcement actions.

Here’s what you need to know:

·        Historically, the Bureau has included in its enforcement actions an abusiveness claim with its unfair and deceptive claims, but not alleged any specific course of action distinguishing the two claims.  Because of this dual pleading, little clarification has been provided by the Bureau previously as to the abusiveness standard.

·         The Policy sets forth three pillars:

o   First, in its supervision of covered entities and enforcement actions, the Bureau will only challenge conduct as being abusive if it concludes the harm to consumers outweighs the conduct’s benefit.  The Bureau further makes clear that the balancing test will consider not only quantitative analysis but also qualitative analysis.

o   Second, the Bureau will generally avoid challenging conduct as abusive that relies upon the same set of facts as claims for unfair or deceptive.  In other words, it will not “pile on.”  Instead, where it pleads stand-alone abusiveness, it intends to clearly plead such claims in a manner which will clearly demonstrate the nexus between alleged facts and the Bureau’s analysis of the claim. 

o   Finally, the Bureau sets out what may be termed as a sort of “safe harbor” for those who are in good faith attempting to comply with the abusive standard.  In those instances, the Bureau indicates it will not seek certain monetary relief based upon abusiveness where the good faith can be demonstrated.  The Bureau makes clear, however, that this is not an affirmative defense.  What this means, in essence, is that it will be imperative for covered entities to demonstrate through their compliance management system their good faith attempt to adhere to the standard and if that can be demonstrated, the Bureau will be less likely to seek certain civil monetary penalties.  What it does not mean is that the Bureau will not seek relief – the Statement of Policy makes clear that the Bureau still intends to seek legal and/or equitable remedies, including damages and restitution.

·         While the Statement of Policy should be viewed positively by the consumer finance industry, readers should be aware that it is simply that -a statement of policy and does not carry the legal import of a published rule.  Moreover, as a Statement of Policy it is subject to amendment or revocation at any time, particularly in times of political change.