As promised by Director Kathleen Kraninger, the CFPB has provided guidance as to how it will exercise its Enforcement and Supervisory authority relating to the "abusive" prong of its ability to prohibit unfair, deceptive, or abusive acts or practices (UDAAP). The recently released Statement of Policy Regarding Prohibition on Abusive Acts or Practices ("Policy Statement") solidifies the CFPB's approach to making sure that all industry actors know the rules within which they can operate.
The Policy Statement follows a June 2019 CFPB-sponsored symposium on whether "abusive" needed further clarification. Many of the topics raised in the symposium are reflected in the Policy Statement. In particular, the CFPB states that it issued the Policy Statement to reduce regulatory uncertainty and encourage consumer-beneficial innovations. This signals a move away from "regulation by enforcement"; in announcing the Policy, Director Kraninger stated that the Bureau's goal is to set "clear rules of the road and foster[ ] a culture of compliance" to help prevent consumer harm.
The Policy Statement includes three guideposts that the CFPB will use to inform its use of the "abusive" prong in enforcement and supervisory activity:
(1) Balancing Benefits to Consumers. The CFPB will use the "abusive" prong if it concludes that acts or practices harm consumers and such harm is not outweighed by the conduct's benefit to consumers.
(2) Stand-Alone Abusive Prong Violations. The CFPB will "generally avoid" overlaps between the "abusive" prong and the "unfairness" or "deceptive" prongs of UDAAP. Claims of "abusive" prong violations will be pleaded to "demonstrate the nexus between the cited facts and the Bureau's legal analysis of the claim."
(3) Good-Faith Efforts. The CFPB will not seek "certain types of monetary relief" for "abusive" prong violations where the covered person made a good-faith effort to comply with the prohibition on abusive acts or practices. The Policy Statement explains: "Absent unusual circumstances, the Bureau does not intend to seek civil penalties or disgorgement if a covered person made good-faith efforts to comply with the abusiveness standard."
The Policy Statement is not a rule, but rather provides information regarding the CFPB's "general plans to exercise its discretion." The preamble to the Policy Statement notes that the CFPB does not foreclose the use of rulemaking to define the "abusive" prong in the future.
The CFPB notes that the Policy Statement will apply to enforcement and supervisory activities "going forward." Currently pending claims will be handled "based on the facts and circumstances of the particular case"—meaning that parties currently involved in enforcement or supervisory issues relating to the "abusive" prong might not see direct benefit from the Policy Statement. However, the CFPB appears to indicate that the Policy Statement's provisions regarding monetary relief would apply to enforcement and supervisory activities currently in process, in addition to future activities.
Given the co-extension between the Bureau's "unfairness" and "abusive" prongs (the Policy Statement notes that only 2 out of 32 cases involving abusiveness did not pair it with claims under the "unfairness" prong), the practical day-to-day effect of the Policy Statement may not be readily apparent. Industry participants will need to evaluate their compliance processes in light of the Policy Statement, but such analysis may focus on engagement with CFPB examiners or enforcement counsel, rather than day-to-day compliance operations.