As those in the consumer financial industry know all too well, the Dodd-Frank Act gave the Consumer Financial Protection Bureau (CFPB) a unique, unprecedented power: to regulate not only unfair and deceptive practices (UDAP), but abusive practices as well.
The CFPB’s interpretation of its “extra A” in UDAP has been and remains unclear, and this uncertainty has resulted in a chilling effect on the financial services industry.
Last week, the CFPB gave the industry some long-awaited guidance on the “extra A,” issuing a Policy Statement on January 24 to help provide clarity on how it intends to define and enforce unfair, deceptive or abusive acts and practices (UDAAPs).
The CFPB’s new policy clarifying how it plans to implement and apply the “abusiveness” standard sets forth the following principles:
- The CFPB intends to focus on matters only when the harm to consumers outweighs the benefit to consumers (including effects of access to credit).
- The CFPB will generally avoid relying on the same facts for enforcing claims for “abusive” acts and “deceptive” or “unfair” acts. According to the CFPB, its past practice of “dual pleading” all or nearly all the same facts has led to confusion and challenges in the marketplace. Instead, the CFPB will focus on pleading “stand-alone” abusiveness violations in such a manner that clearly shows the nexus between the cited facts and the CFPB’s legal analysis of the claim.
- The CFPB will focus on good-faith efforts to comply with the law. In other words, the CFPB does not intend to seek certain types of monetary relief for abusiveness violations where the company made a good-faith effort to comply with the law based on a reasonable — albeit mistaken — interpretation. Nonetheless, the CFPB will continue seeking restitution for identifiable consumer injury caused by the abusive act regardless of whether a company acted in good faith.
The CFPB’s new policy acknowledges the need for clarity and appears to be an olive branch to financial institutions to help navigate this challenging and often confusing area of the law.
Financial institutions and companies providing consumer financial products and services should pay close attention to the CFPB enforcement actions over the months to come to gain further clarity on how this new policy will be enforced.