In her commencement speech at the Consumer Financial Protection Bureau's (CFPB) inaugural Abusive Acts or Practices Symposium on June 25, 2019, Director Kraninger stated that she hoped that the symposium would result in "commonsense ideas . . . to help inform the Bureau's policy development process" and that the CFPB will continue to engage the public and experts to fulfill "its important mission of consumer protection."1 The focus of the symposium was the term "abusive" in the Dodd-Frank Act, specifically whether the term warrants clarification and, if so, how the term should be clarified. The CFPB enlisted two panels of law professors, former and current regulators, and private sector lawyers.
Panel One: Policy Background and Considerations
The first panel centered on the policy background and considerations of defining "abusive," and, more specifically, whether an "abusive" act or practice must result in consumer harm, and whether one must have scienter or knowledge to commit an "abusive" act or practice. The panelists generally separated into two camps on each issue; however, there were differences in opinions among members of each camp.
For instance, on the issue of whether "abusive" should be defined, one camp argued that the courts do not have any trouble interpreting "abusive" from the plain reading of the text or deriving congressional intent from the statute. Moreover, this side argued that even if the CFPB wanted to define the term, it lacks legal authority to do so under 12 U.S.C. Section 5531, which grants the CFPB the authority to identify particular acts and practices but does not provide for the ability to define safe harbors or limitations on what is abusive.2 One of the panelists, Adam Levitin of Georgetown University Law School, warned that any new definition of "abusive" the CFPB proposes would not constrain the ability of the state attorneys general to define "abusive" differently, and the CFPB must work in concert with the states for there to be any change or implementation of a new definition. In contrast, the other camp argued that the CFPB should define the term "abusive" to provide more clarity and certainty to both the industry and the CFPB. For example, if "abusive" is defined, internally the CFPB would be able to more uniformly focus its consumer protection mission among staff members, and externally it would be able to articulate to industry how to be in regulatory compliance and predict what constitutes an alleged violation of the law that would be actionable.
There was less salience, however, on the manner to proceed in defining "abusive." Some suggested using the FTC guidance documents on unfairness and deception as a framework for the CFPB. Another panelist favored a more formal approach, such as a policy statement (as long as it is adopted by the next commissioner), because that gives outsiders the most predictability about how the CFPB will enforce its policies. Professor Todd Zywicki of George Mason University Law School took a constructionist view, noting that if the CFPB adheres to the statute, the permanence of its enforcement actions will speak for itself. Professor Patricia McCoy of Boston College Law School favors a tailored approach focused on no action letters, both because doing so does not constrain tomorrow's enforcement to today's definitions, and because a general definition would be too broad to cover specific industries. For example, the types of "abusive acts or practices" that might arise in the small-dollar lending business are distinct from those found in mortgage lending.
Last, the panel discussed how the definition of "abusive" practices overlaps with unfair and deceptive practices. For McCoy and Levitin, the term "abusive" correlates strongly with unfair and deceptive practices, but focuses on company conduct in a way that allows enforcement agencies to target practices where there is no privity between the actor and the consumer, that materially interfere with the ability of consumers to understand, or take unreasonable advantage of consumers. Both noted that while this approach will almost always have an element of consumer harm, there ought to be some vagueness in "abusive practices" to provide the CFPB flexibility in future enforcement actions. In contrast, Zywicki offered a narrower definition of "abusive" practices in the form of a two-prong test that examines (i) whether a product or service was unreasonable for the particular consumer at issue, and (ii) whether the company knew that the product or service was unreasonable. Howard Beales views the term "abusive" as an extension of the prohibition of deceptive and unfair practices, and argues that on a practical level, the CFPB will have to undertake some form of cost-benefit analysis to pursue enforcement cases, given its limited personnel and budget.
Panel Two: Abusive Standard in Practice
The second panel spent the majority of its session discussing the clarity of the Consumer Financial Protection Act (CFPA) regarding abusive acts or practices. Private sector lawyers agreed that clarification is necessary. One of them argued that the statute is textually unclear from a compliance perspective. In particular, she noted that it would be helpful to have more concrete examples of particular cases, because most existing case law only discusses the procedural posture of a motion to dismiss—making it difficult to extract meaningful advice for clients. On the other hand, Nicholas Smyth, the assistant director of the Pennsylvania Office of Attorney General's Bureau of Consumer Protection, vehemently disagreed, and argued that courts have no problems with the statutory text (and have not felt the need to go beyond the language of the statute in interpreting it).
Private sector lawyers were flexible regarding the manner of clarifying "abusive" but reiterated that it is important to have some guidance, preferably with examples of why the CFPB goes after certain types of practices as abusive. One practitioner recommended defining the term by starting with the most vulnerable consumers to determine what sort of abusive standard is required for them, without imposing the standard on the industry as a whole. Furthermore, the definition of the term would need to be limited in scope by (i) the types of consumers it is meant to protect and (ii) the consumers' specific issues or challenges in understanding a product or service.
It is unclear when or how the CFPB may move forward regarding "abusive" acts or practices, or enforcing them, but the symposium provided diverse arguments for and against specific steps, that will likely shape the CFPB's consideration of the issue.