In the CFPB’s second attempt to define “abusive” acts or practices, the first being guidance rescinded a year after it was given in 2020, the CFPB has issued a new policy statement in which it turns to statutory analysis and past enforcement actions to provide a framework for determining what constitutes abusive conduct. While the policy statement appears to be immediately effective, the CFPB indicated in its press release that the policy statement will be published in the Federal Register and comments can be submitted until July 3, 2023.
The Consumer Financial Protection Act (CFPA) defines “abusive” acts or practices as conduct that: “(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) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” 12 U.S.C. § 5531(d).
The CFPB states there are two categories of conduct it finds generally abusive: (1) actions that obscure important features of a product or service, and (2) actions taking unreasonable advantage of consumers in certain circumstances. The circumstances in which an entity takes unreasonable advantage of a consumer generally include a consumer’s gaps in understanding the product or service’s terms, unequal bargaining power, or a consumer’s reliance on the company to act in their best interest.
The first category of conduct the CFPB finds abusive arises in situations where an entity “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service.” Id. Practically speaking, such interference would include buried disclosures, physical or digital interference, or overshadowing. Examples of buried disclosures include, but are not limited to, using fine print, complex language or jargon, or providing disclosures after the consumer has made a decision. With respect to physical and digital interference, such conduct includes hiding or withholding notices, creating digital interfaces using pop-up or drop-down boxes, including multiple click-throughs, or using dark patterns. Overshadowing includes placing content prominently in a way that interferes with the comprehension of other content. It is important to note the materiality of this interference would be presumed if the information relates to pricing or costs, limits the consumer’s ability to use or benefit from the product, or relates to the contractually specified consequences of default.
The next category of conduct involves three potential circumstances in which an entity takes unreasonable advantage of the consumer, even if the circumstances were not created by the entity. The first is when a consumer simply does not understand the risks, cost, or conditions associated with the product or service. The next involves unequal bargaining power such that a consumer, for example, lacks the practical ability to switch providers to seek more favorable terms. The final situation involves scenarios in which a consumer relies on an entity to make a decision for them or advises them on how to make a decision. For all three of these categories, the CFPB provides details about the potential scenarios in which an entity could take unreasonable advantage of a consumer.
The CFPB’s analysis of the CFPA’s definition of abusive conduct, summary of past precedent, and background on the underlying policies, provide some additional clues regarding future CFPB enforcement actions as well as a framework of sorts for analyzing whether particular practices could be categorized as abusive. The policy statement does not, however, provide clear guidance regarding all the contours of “abusiveness” and is thus of limited utility to entities in developing compliance programs. Although the statement provides some examples of conduct that might be considered “abusive,” the CFPB is careful not to limit its discretion to find other conduct actionable as well. As such, the scope of what can constitute “abusive” conduct remains extraordinarily broad.
Moreover, the CFPB’s approach to certain terms embedded in the statutory definition of “abusive” allows it to maintain broad interpretive leeway. By way of example, the statement notes that taking “unreasonable advantage” of consumers is determined by the specific facts and circumstances. The CFPB adds that “even a relatively small advantage may be abusive if it is unreasonable” and points out it is not necessary for the agency to find any consumer harm or analyze the relevant costs or benefits to consumers. The end result is continued uncertainty regarding when the CFPB will find that a provider has taken “unreasonable advantage.” Finally, it is worth noting that state enforcement agencies, specifically state attorney generals, may apply this guidance under the CFPA even if their own state laws do not define or prohibit “abusive” conduct
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