On April 3, 2023, the CFPB published a new official statement of policy on the authority that Congress passed in the Consumer Financial Protection Act of 2010 (“CFPA”), codified at 12 U.S.C. § 5536(a)(1)(B), banning “abusive conduct” in connection with the offering or provision of consumer financial products or services. A copy of the new Policy can be found here. It is broad and tilted heavily in favor of consumers.
This is the CFPB’s second effort at promulgating an official statement of policy on abusive acts and practices. On March 11, 2020, the Consumer Financial Protection Bureau (“CFPB”) announced that it was rescinding its January 24, 2020 policy statement, “Statement of Policy Regarding Prohibition on Abusive Acts and Practices,” which was published four days after the Trump administration ended and the Biden administration began. The CFPB withdrew its prior policy based upon its finding that, “The 2020 Policy Statement was inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices.” In doing so, the CFPB announced that, “Going forward, the CFPB intends to exercise its supervisory and enforcement authority consistent with the full scope of its statutory authority under the Dodd-Frank Act as established by Congress.”
Among the highlights:
Under the CFPA, there are two abusive prohibitions. An abusive act or practice: (1) Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) Takes unreasonable advantage of:
- A lack of understanding on the part of the consumer of the material risks, costs or conditions of a product or service;
- The inability of the consumer to protect the interests of the consumer in selecting or using a consumer product or service; or
- The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
The Policy states that unlike with unfairness but similar to deception, abusiveness requires no showing of substantial injury to establish liability, but rather is focused on conduct that Congress presumed to be harmful or distortionary to the proper functioning of the market. The Policy cites as examples omissions that obscure, withhold, de-emphasize, render confusing or hide information relevant to the ability of a consumer to understand terms and conditions (including buried disclosures, physical or digital interference, overshading, and other means of manipulating consumers’ understanding).
Intent is not a required element to show material interference. Terms regarding pricing or costs, limitations on the person’s ability to use or benefit from the product or service, and contractually specified consequences of default are listed as examples of terms of a transaction that 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 the consumers’ ability to understand.
A product or service’s complexity may interference with consumers’ ability to understand if the material information about it cannot be sufficiently explained or if the entity’s business model functions in a manner that is inconsistent with its product’s or service’s apparent terms. And even a small advantage may be abusive if it is unreasonable.
When there are gaps in understanding regarding the material risks, costs, or conditions of the entity’s product or service, entities may not take unreasonable advantage of that gap. “Risks” include but are not limited to the consequences or likelihood of default and the loss of future benefits. Gaps in understanding related to “costs” include any monetary charge to a person as well as non-monetary costs such as lost time, loss of use, or reputational harm. And gaps in understanding with respect to “conditions” include any circumstance, context, or attribute of a product or service, whether express or implicit. For example, “conditions” could include the length of time it would take a person to realize the benefits of a financial product or service, the relationship between the entity and the consumer’s creditors, the fact a debt is not legally enforceable, or the processes that determine when fees will be assessed.
The lack of understanding can be caused by third parties and can exist even when there is no contractual relationship between the person and the entity that takes unreasonable advantage of the person’s lack of understanding. Further, the Policy does not require that the consumer’s lack of understanding was reasonable to demonstrate abusive conduct. Since there can be differences among consumers in the risks, costs, and conditions they face and in their understanding of them, there may be a violation with respect to some consumers even if other consumers do not lack understanding. Congress has outlawed taking unreasonable advantage of circumstances where people lack sufficient bargaining power to protect their interests. Such circumstances may occur at the time of, or prior to, the person selecting the product or service, during their use of the product or service, or both.
The Policy states that the consumer “interests” include monetary and non-monetary interests, including but not limited to property, privacy, or reputational interests. People also have interests in limiting the amount of time or effort necessary to obtain consumer financial products or services or remedy problems related to those products or services. This includes, but is not limited to, the time spent trying to obtain customer support assistance, according to the Policy. The CFPB’s relatively newfound asserted dominion over customer service, now ensconced in a formal statement of policy, is expected to be particularly contentious with the financial services industry.