CFPB Again Tries to Provide Guidance on ‘Abusive’ Acts or Practices

Agency outlines new interpretation of term following requests for clarification from financial services trade groups.

The CFPB on Monday issued policy guidance that attempts to define what an “abusive” act or practice is—one of the thorniest issues that has faced the agency since it was created as part of the Dodd-Frank Act.

“The CFPB issued today’s guidance to provide an analytical framework to help federal and state agencies hold companies accountable when they violate the law and take advantage of families,” bureau director Rohit Chopra said.

Backstory

In Dodd-Frank, Congress gave the CFPB the responsibility to police Unfair, Deceptive or Abusive Acts or Practices. Both unfair and deceptive acts had definitions in federal law, however abusive acts do not.

“Because the Dodd-Frank Act was the first federal law to broadly prohibit 
abusive acts or practices, there is little, if any, basis for how to approach and apply the standards,” NAFCU explained, in an April 2022 brief on the issue.

This marks the second time the agency has issued guidance on the term “abusive.” The first came in 2020, which critics at the time charged as weakening consumer protection, and the Biden Administration rescinded that guidance shortly after Kathy Kraninger left as CFPB director to be replaced by Dave Uejio.

Breaking Down the Guidance

Agency officials said the policy statement is intended to help financial services firms avoid committing an abusive act or practice. They noted that since the enactment of Dodd-Frank, the CFPB has brought 43 cases and examiners have issued numerous citations on the issue.

The CFPB said that, generally, an abusive act occurs when important features of a financial product are obscured or when a product or service includes features that are purposely difficult for consumers to understand.

The agency further noted violations may occur when a company offering a service withholds, de-emphasizes, or hides information that would assist a consumer in understanding the service.

“Certain terms of a transaction are so consequential that when they are not conveyed to people prominently or clearly, it may be reasonable to presume that the entity engaged in acts or omissions that materially interfere with consumers’ ability to understand,” the guidance reads. “That information includes, but is not limited to, pricing or costs, limitations on the person’s ability to use or benefit from the product or service, and contractually specified consequences of default.”

An abusive act or practice also may include the failure of a company to provide easily understood information about the costs, conditions or material risks of a product or service, and when a company fails to act in a consumer’s best interest in helping them make a decision about a product.

Debate Over the Definition

Financial services trade groups have been pushing for guidance on what constitutes an abusive act or practice ever since the Dodd-Frank Act was enacted.

In January 2020, then-director Kraninger said the agency would only take action in cases where the harm to a consumer outweighed the benefits. She also said that the agency would not charge a company with an abusive act if it was likewise being charged with committing an unfair or deceptive act. She added that the CFPB would not seek certain monetary relief if a financial services company was making a good-faith effort to comply with the abusiveness standard.

Upon taking office, Uejio said that Kraninger’s policy statement was inconsistent with the CFPB’s duty to enforce Congress’s directives.

“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 agency said, at the time.

Monday’s guidance is the first time the agency attempted to define the term since then.

The agency is accepting public comment on the guidance until July 3.