All Things FinReg


The Consumer Financial Protection Bureau (CFPB or Bureau) issued a Statement of Policy (Statement) on March 8 making it clear that going forward it will exercise its full authority to penalize covered persons found to have engaged in abusive acts or practices, 12 U.S.C. §5536(a)(1)(B), in violation of its core consumer protection authority. In doing so, the Bureau’s acting director rescinded a January 20, 2020, Policy Statement (2020 Statement) issued by a director appointed by former President Donald Trump, in which the Bureau advised, among other things which we have previously discussed, that it would generally not seek civil penalties for “abusive conduct” unless there had been a lack of a good faith effort to comply with the law.

The new Statement, issued by an acting director appointed by President Joseph Biden, refutes the legal and factual underpinnings of the now-rescinded 2020 Statement, finding that contrary to the 2020 Statement’s conclusion that it would create more certainty for covered persons, the 2020 policy would, in fact, create less certainty. The rescission was not unexpected, given that the acting director recently issued a statement to Bureau staff (which he shared in a blog post early last month) stating that he planned to reverse policies of the previous CFPB leadership “that weakened enforcement and supervision,” including by “rescind[ing] public statements conveying a relaxed approach to enforcement of the laws in [the Bureau’s] care.” The rescission is effective on the date the CFPB’s notice of the rescission is published in the Federal Register.

Now, more than a decade after the Dodd-Frank Act became law, uncertainty still remains as to the scope and meaning of abusiveness and how to distinguish “abusive” from “deceptive” and “unfair” actions. In the wake of the rescission of the 2020 Statement, the Bureau’s sole formal definition of “abusive” is from agency guidance issued in July 2013 under former Director Richard Cordray’s tenure in the context of consumer debt collection. That guidance, however, has been widely considered insufficient to provide meaningful assistance to industry participants in evaluating what practices the CFPB may deem “abusive.” And because the abusiveness standard (unlike the unfairness and deception standards) does not appear in the FTC Act or any other state UDAP statute other than California’s newly enacted California Consumer Financial Protection Law, it has received little agency interpretation beyond Mr. Cordray’s pronouncement. The CFPB has asserted that certain practices with respect to payday, vehicle title, and certain high-cost installment loans would be “abusive,” in the context of a particular rulemaking, and also has included abusiveness claims in a number of its enforcement actions since it began operating in 2011. Because the abusiveness claim arose from the same course of conduct as the unfairness or deception claim in many of those enforcement actions, however, it remains difficult to determine particular or unique fact patterns to which only the abusiveness standard would apply.

Whatever the merits, the acting director’s decision to apply the full measure of the Bureau’s “abusiveness” authority signals a more aggressive approach to enforcement and, with specific respect to penalties, enhanced civil fines which are based on conduct rather than damages.

Combined with enhanced collaboration by the CFPB with other federal financial enforcement and regulatory agencies as well as its state attorney general and state financial services regulators, covered financial institutions should prepare for a more aggressive approach to consumer protection, coupled with higher penalties.