Legal
The CFPB Brings Some Clarity to the ‘Abusiveness’ Standard Under UDAAP By Peter Idziak, Polunsky Beitel Green
O
n January 24, 2020, the Consumer Financial Protection Bureau (CFPB) published a Policy Statement clarifying how it intends to apply the “abusiveness” standard in future enforcement and supervisory matters concerning unfair, deceptive, or abusive acts or practices (UDAAP). The Policy Statement provides that, going forward, the CFPB will generally direct its supervisory and enforcement actions in the following ways: • Focusing on citing or challenging conduct as abusive only if the CFPB concludes the harms to consumers from the conduct outweigh its benefits to consumers. The consideration of harms and benefits will be qualitative as well as quantitative. • Avoiding alleging an abusiveness violation that relies on all or nearly all the same facts as an unfairness or deceptive violation. • Not seeking certain types of monetary relief where the covered person was making a good-faith effort to comply with the abusiveness standard. The Policy Statement was issued in response to
long-running concerns from industry stakeholders that the statutory standard was unclear, that past CFPB guidance had been insufficient, and that past enforcement practices had inconsistently applied the abusiveness standard. For those of us within the mortgage industry, any clarity is welcome. Although to date the vast majority of CFPB actions alleging claims of abusive behavior have involved companies and individuals engaged in nonmortgage consumer lending, the abusiveness standard was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), specifically in response to concerns that mortgage lenders, bankers, and brokers had taken unreasonable advantage of consumers by recommending mortgage products that were illsuited to the consumer. There is always risk that the regulator will decide a particular act or practice that was long thought acceptable by the industry is in fact unfair, deceptive, or abusive.
THE CFPB’S AUTHORITY TO REGULATE UNFAIR, DECEPTIVE, OR ABUSIVE ACTS OF PRACTICES
As part of Dodd-Frank, the CFPB was granted the power to prevent a covered person or service provider from “engag[ing]
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in any unfair deceptive, or abusive act or practice.” This was an expansive grant of authority to the new regulator, with one scholar calling it “the most threatening” of all the CFPB’s powers. The standards for ‘unfair’ and ‘deceptive’ behavior are fairly well-developed in consumer protection law. For over 80 years, the Federal Trade Commission has used its authority under the FTC Act to address unfair and deceptive acts and practices that harm consumers, establishing a robust framework of regulation, caselaw, and agency policy statements that provide a reasonably clear definition of these concepts. However, the term ‘abusive’ was entirely new in consumer protection law, and the limited legislative history did not make clear Congress’ intent in adding the standard. As CFPB Director Kathleen L. Kraninger herself noted, the abusiveness standard “does not have the long and rich history of unfairness or deception,” which has led to “uncertainty creat[ing] impediments to innovation and other salutary developments in the marketplace.” Compounding the problem is that many find the statutory text unclear. Under Dodd-Frank, an “abusive act or practice” requires that the act or practice (1)
