[Federal Register Volume 85, Number 25 (Thursday, February 6, 2020)]
[Rules and Regulations]
[Pages 6733-6738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01661]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 /
Rules and Regulations
[[Page 6733]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Chapter X
Statement of Policy Regarding Prohibition on Abusive Acts or
Practices
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Policy statement.
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SUMMARY: Section 1031(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) provides that the Bureau of
Consumer Financial Protection (Bureau) may use its supervisory and
enforcement authority, among other things, to prevent a covered person
or service provider from committing or engaging in an unfair,
deceptive, or abusive act or practice under Federal law in connection
with any transaction with a consumer for a consumer financial product
or service, or the offering of a consumer financial product or service.
Section 1031(d) of the Dodd-Frank Act sets forth general standards for
when the Bureau may declare that an act or practice is abusive for
purposes of the Dodd-Frank Act. Uncertainty remains as to the scope and
meaning of abusiveness. This uncertainty creates challenges for covered
persons in complying with the law. The Bureau wants to make sure that
such uncertainty does not impede or deter the provision of otherwise
lawful financial products or services that could be beneficial to
consumers. To convey and foster greater certainty about the meaning of
abusiveness, this general statement of policy (Policy Statement)
provides a framework for the Bureau's exercise of its supervisory and
enforcement authority to address abusive acts or practices.
DATES: This Policy Statement is applicable on January 24, 2020.
FOR FURTHER INFORMATION CONTACT: Colin Reardon, Division of
Supervision, Enforcement, and Fair Lending, at (202) 435-9668. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
Section 1031(a) of the Dodd-Frank Act provides that the Bureau may
use its supervisory and enforcement authority, among other things, to
prevent a covered person or service provider from committing or
engaging in an unfair, deceptive, or abusive act or practice under
Federal law in connection with any transaction with a consumer for a
consumer financial product or service, or the offering of a consumer
financial product or service.\1\ Since its inception, the Bureau has
used its supervisory and enforcement authority to identify and seek
relief where covered persons \2\ engage in unfair, deceptive, or
abusive acts or practices (UDAAPs).
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\1\ Public Law 111-203, Tit. X, sec. 1031(a), 124 Stat. 1376,
2005 (2010) (codified at 12 U.S.C. 5531(a)).
\2\ The Bureau intends this Policy Statement to apply with
respect to any person against whom the Bureau cites conduct as
abusive in supervision or challenges conduct as abusive in
enforcement, including, where applicable, covered persons, service
providers, and persons that provide substantial assistance to
abusive conduct by a covered person or service provider. See 12
U.S.C. 5514 through 5516, 5531, 5536. For brevity, this Policy
Statement refers simply to ``covered persons'' throughout.
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The statutory standard for what the Bureau has authority to declare
an ``abusive act or practice'' is set forth in section 1031(d) of the
Dodd-Frank Act. Specifically, section 1031(d) states that the Bureau
shall have no authority under this section to declare an act or
practice abusive in connection with the provision of a consumer
financial product or service, unless the act or practice--(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.\3\
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\3\ 12 U.S.C. 5531(d).
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Through the language in section 1031(d), Congress defined the
abusiveness standard in general terms and did not attempt to include a
complete list of abusive practices. To demonstrate a violation of
section 1031(d), the Bureau therefore must satisfy the specific
elements of sections 1031(d)(1), 1031(d)(2)(A), 1031(d)(2)(B), or
1031(d)(2)(C). This Policy Statement refers to these provisions
collectively as the ``abusiveness standard.''
The Dodd-Frank Act is the first Federal law to prohibit abusive
acts or practices with respect to consumer financial products and
services generally.\4\ Although Congress, through the language in
section 1031(d), provided some indication of the abusiveness standard,
the Dodd-Frank Act does not further elaborate on the meaning of the
terms used in section 1031(d), and there is relatively limited
legislative history discussing the meaning of the language in section
1031(d) (including in distinguishing the abusiveness standard from the
[[Page 6734]]
deception and unfairness standards).\5\ Moreover, the abusiveness
standard does not have the long and rich history of the deception and
unfairness standards. The FTC has used its authority under the FTC Act
to address unfair and deceptive acts or practices (UDAPs) for more than
80 years, over which time policy statements, administrative and
judicial precedent, and statutory amendments have provided important
clarifications about the meaning of unfairness and deception.\6\
Federal prudential regulators have also enforced the UDAP prohibitions
in the FTC Act since before the Bureau's existence.
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\4\ Certain other Federal consumer financial laws, including the
Fair Debt Collection Practices Act (FDCPA) and the Home Ownership
and Equity Protection Act (HOEPA), reference either the term
``abusive'' or ``abuse.'' See 15 U.S.C. 1692d (FDCPA), 12 U.S.C.
1639(p)(2)(B) (HOEPA). The Telemarketing and Consumer Fraud and
Abuse Prevention Act also directed the Federal Trade Commission
(FTC) to ``prescribe rules prohibiting deceptive telemarketing acts
or practices and other abusive telemarketing acts or practices.''
See 15 U.S.C. 6102(a)(1).
\5\ See, e.g., S. Rep. No. 111-176, at 172 (Apr. 30, 2010)
(``Current law prohibits unfair or deceptive acts or practices. The
addition of `abusive' will ensure that the Bureau is empowered to
cover practices where providers unreasonably take advantage of
consumers.''); Public Law 111-203, pmbl. (listing, in the preamble
to the Dodd-Frank Act, one of the purposes of the Act as
``protect[ing] consumers from abusive financial services
practices''); see also S. Rep. No. 111-176, at 9 n.19 (``Today's
consumer protection regime . . . could not stem a plague of abusive
and unaffordable mortgages.''); id. at 11 (``This financial crisis
was precipitated by the proliferation of poorly underwritten
mortgages with abusive terms.''); H.R. Rep. No. 111-376, at 91 (Dec.
9, 2009) (``Th[e] disparate regulatory system has been blamed in
part for the lack of aggressive enforcement against abusive and
predatory loan products that contributed to the financial crisis,
such as subprime and nontraditional mortgages.''); H.R. Rep. No.
111-517, at 876-77 (June 29, 2010) (Conf. Rep.) (``The Act also
prohibits financial incentives . . . that may encourage mortgage
originators . . . to steer consumers to higher-cost and more abusive
mortgages.'').
\6\ See, e.g., Letter from the FTC to Hon. Wendell Ford and Hon.
John Danforth, Comm. on Commerce, Science and Transportation, U.S.
Senate, Commission Statement of Policy on the Scope of Consumer
Unfairness Jurisdiction (Dec. 17, 1980), reprinted in In re Int'l
Harvester Co., 104 F.T.C. 949, 1070, 1073 (1984); Letter from the
FTC to Hon. John D. Dingell, Chairman, Comm. on Energy and Commerce,
U.S. House of Representatives (Oct. 14, 1983) (FTC policy statement
on deception), reprinted in In re Cliffdale Assocs., Inc., 103
F.T.C. 110, 174 (1984); Int'l Harvester Co., 104 F.T.C. at 949; Am.
Fin. Servs. Ass'n v. FTC, 767 F.2d 957 (D.C. Cir. 1985); section
5(n) of the FTC Act, 15 U.S.C. 45(n), as enacted by Congress in the
Federal Trade Commission Act Amendments of 1994, Public Law 103-312,
sec. 9, 108 Stat. 1691, 1695.
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The Bureau has applied the abusiveness standard since it commenced
operation in 2011. The Bureau has brought 32 enforcement actions that
included an abusiveness claim, including as recently as fall 2019. But
30 of those 32 enforcement actions had both an abusiveness and an
unfairness or deception claim (i.e., only two enforcement actions
contained just an abusiveness claim). And in many of those 30 actions,
the abusiveness claim arose from the same course of conduct as the
unfairness or deception claim. It is difficult to discern from those
actions unique fact patterns to which only the abusiveness standard
would apply. Given the prevalence of dual-pleading, along with the
relatively nascent nature of this legal authority (and of the Bureau
itself) and the number of matters the Bureau has resolved via
settlement agreement, this enforcement activity has resulted in few
reported judicial or Bureau administrative decisions that address the
contours of the abusiveness standard.\7\ Regarding supervision, the
Bureau's UDAAP examination procedures largely restate the language of
the Dodd-Frank Act. And although the Bureau has issued 18 editions of
Supervisory Highlights since 2012, these documents only rarely have
described citations of abusive acts or practices in a manner that would
provide guidance as to how the Bureau concluded the statutory language
used in section 1031(d) applied to the conduct at issue. Additionally,
the Bureau has mentioned the risk of abusive acts or practices in non-
binding guidance documents but has not set forth a detailed explication
of the abusiveness standard in such documents.\8\
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\7\ These few reported decisions are all from Federal district
courts. See, e.g., CFPB v. ITT Educ. Servs., Inc., 219 F. Supp. 3d
878 (S.D. Ind. 2015).
\8\ See, e.g., CFPB Bulletin 2014-02, Marketing of Credit Card
Promotional APR Offers (Sept. 3, 2014), https://files.consumerfinance.gov/f/201409_cfpb_bulletin_marketing-credit-card-promotional-apr-offers.pdf (describing ``risk of engaging in an
abusive practice'').
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The Bureau's 2017 Final Rule on Payday, Vehicle Title, and Certain
High-Cost Installment Loans (2017 Final Rule) included identification
of two abusive practices: The first with respect to making a covered
loan without determining a consumer's ability to repay (remedied by
stringent underwriting requirements prescribed by the Bureau), and the
second with respect to making repeated failed attempts to debit a
consumer's account to collect payment on a covered loan.\9\ In the 2017
Final Rule, the Bureau identified the same two practices as unfair
practices. The Bureau has proposed to rescind the ability-to-repay
provisions of the 2017 Final Rule and the identification of the abusive
and unfair practice on which those provisions are based (2019
Rescission Proposal).\10\ One of the Bureau's rationales for the 2019
Rescission Proposal was its preliminary conclusion that legal grounds
do not sustain the 2017 Final Rule's identification as an abusive
practice the making of a covered loan without determining the
consumer's ability to repay (remedied by stringent underwriting
requirements prescribed by the Bureau).
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\9\ Payday, Vehicle Title, and Certain High-Cost Installment
Loans, 82 FR 54472 (Nov. 17, 2017).
\10\ Payday, Vehicle Title, and Certain High-Cost Installment
Loans, 84 FR 4252, 4276 (Feb. 14, 2019).
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Substantial concerns have been raised about the uncertain meaning
of the abusiveness standard. For example, in response to the Bureau's
Spring 2018 Call for Evidence, the Bureau received comments from
stakeholders about these concerns.\11\
[[Page 6735]]
Many commentators and other stakeholders have raised similar concerns
dating back to the early years of the Bureau,\12\ although the
viewpoints have not been uniform.\13\
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\11\ In response to the Bureau's Requests for Information on the
Bureau's Adopted Regulations and New Rulemaking Authorities and the
Bureau's Inherited Regulations and Inherited Rulemaking Authorities,
the Bureau received approximately 15 comments that addressed the
Bureau's UDAAP authorities (nearly all from trade associations or
other industry stakeholders). See generally Request for Information
Regarding the Bureau's Adopted Regulations and New Rulemaking
Authorities, Mar. 21, 2018, Docket CFPB-2018-0011, https://www.regulations.gov/?D=CFPB-2018-0011, and Request for Information
Regarding the Bureau's Inherited Regulations and Inherited
Rulemaking Authorities, Mar. 26, 2018, Docket CFPB-2018-0012,
https://www.regulations.gov/?D=CFPB-2018-0012. The most common
UDAAP-related issue identified by these commenters was the lack of
clarity presented by the abusiveness standard. For example, a credit
card issuer commented that the unclear statutory definition of
``abusive'' practices combined with a lack of Bureau guidance on the
standard ``creates uncertainty, chills beneficial innovation, and
leads to unnecessary compliance burdens for institutions trying in
good faith to comply with the law.'' A trade association
representing credit unions wrote that ``[c]onsumers and industry
need more certainty about exactly what the rules and requirements
are and how the Bureau plans to engage in enforcement actions
surrounding them.'' A policy and research organization commented
that the abusiveness standard leaves financial institutions ``mired
in confusion'' and that ``[a]n ambiguous abusive standard is not
conducive to a well-functioning financial market or regulatory
system.'' Note that some stakeholders raised these concerns in
response to other Spring 2018 Call for Evidence dockets. For
example, a trade association commented in response to the Request
for Information Regarding Bureau Enforcement Processes that the
Bureau should address the ``great deal of uncertainty'' around the
abusiveness standard ``by describing in rulemaking or public
guidance the circumstances under which the Bureau will bring
`abusive' cases under its UDAAP authority.'' See generally Request
for Information Regarding Bureau Enforcement Processes, Feb. 12,
2018, CFPB-2018-0003, https://www.regulations.gov/docket?D=CFPB-2018-0003.
\12\ See, e.g., Joshua L. Roquemore, The CFPB's Ambiguous
``Abusive'' Standard, 22 N.C. Banking Inst. 191, 196 (2018) (``While
there may be benefits to greater regulatory oversight, there are
also risks associated with vague and arbitrary legal standards, and
this is even more pronounced in the highly regulated consumer
finance industry. One factor that has fueled uncertainty surrounding
the new standard is the CFPB's tendency to allege two or more
standards for the same act or practice, thus blurring any lines of
distinction between the terms.''); Patrick M. Corrigan, ``Abusive''
Acts and Practices: Dodd-Frank's Behaviorally Informed Authority
Over Consumer Credit Markets and its Application to Teaser Rates, 18
N.Y.U. J. Legis. & Pub. Policy 125, 151 (2015) (noting that ``the
CFPB has yet to demonstrate a coherent and consistent understanding
of its own abuse authority'' which has led to ``conceptual
confusion'' and resulted in ``an articulation of the abuse standard
that blurs into the deception and unfairness standards''); Rob
Blackwell, U.S. Chamber Pressures CFPB to Define ``Abusive,'' Am.
Banker (July 3, 2012), https://www.americanbanker.com/news/us-chamber-pressures-cfpb-to-define-quot-abusive-quot (describing a
letter from the president and chief executive of the U.S. Chamber of
Commerce's Center for Capital Markets Competitiveness to former
Bureau Director Richard Cordray asserting that a ``policy statement
defining the term . . . will help prevent divergent interpretations
of the `abusive' standard); Joshua Wright, Dodd-Frank's Abusive
Standard: A Call for Certainty, 8 Berkeley Bus. L.J. 164, 169 (2011)
(asserting that unless the Bureau clarifies its enforcement
intentions and creates regulatory safe harbors regarding the
abusiveness standard, ``[b]anks may begin to limit themselves to
`plain vanilla' products and services to avoid scrutiny by the
Bureau and the risk that explanations of more complex products will
not be adequate under the new standards of the Act'').
\13\ See, e.g., Stephen J. Canzona, I'll Know It When I See It:
Defending the Consumer Financial Protection Bureau's Approach of
Interpreting the Scope of Unfair, Deceptive, or Abusive Acts or
Practices (``UDAAP'') through Enforcement Actions, 45 J. Legis. 60,
61, 79 (2018) (arguing that ``the CFPB's practice of interpreting
UDAAP standards through enforcement actions strikes the proper
balance between safeguarding the interests of consumers and
responsible providers of financial services'' and that to date the
Bureau has applied its UDAAP enforcement authority to a ``narrow
range of conduct that . . . is clearly proscribed by the plain
meaning of the terms `unfair,' `deceptive,' and `abusive' . . .
[and] does not present meaningful due process concerns to
responsible financial services providers''); Christopher L.
Peterson, Consumer Financial Protection Bureau Law Enforcement: An
Empirical Review, 90 Tul. L. Rev. 1057, 1100-01 (2016)
(characterizing the Bureau's approach toward the abusiveness
standard as ``cautiously incremental, focused on peripheral
companies with highly offensive practices, oriented toward
protecting vulnerable consumers, largely concomitant with
traditional deception or unfairness claims, and entirely advanced
through either negotiated settlements or under the adjudication of
federal judges'').
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To obtain further information about these concerns, in June 2019
the Bureau held a Symposium on Abusive Acts or Practices
(Symposium).\14\ At the Symposium, eight academics and practitioners
with expertise in UDAAP issues engaged in dialogue on a number of
topics, including the necessity of clarifying the abusiveness standard
(and if so, whether rulemaking or another tool should be used), the
degree of uncertainty posed by the statutory language, the particular
aspects of the standard most in need of clarification, the practical
consequences of this uncertainty on consumer financial markets, and how
the Bureau should enforce the abusiveness standard. These experts also
submitted written statements as part of their participation in the
Symposium.\15\
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\14\ https://www.consumerfinance.gov/about-us/events/archive-past-events/cfpb-symposium-abusive-acts-or-practices/(last visited
Jan. 16, 2020). The Symposium included two panels, each featuring
four outside experts and a Bureau moderator. The first panel
included academics specializing in consumer protection issues. The
second panel featured practitioners with significant experience
applying UDAP laws at the Federal and State levels. Among the
panelists were several former Bureau and FTC officials. The Bureau
selected the panelists to represent diverse viewpoints on the topics
under discussion.
\15\ See id.
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The Symposium participants provided a variety of perspectives. Most
urged the Bureau to take action to clarify the abusiveness standard to
help entities comply with the law.\16\ Others expressed the alternative
view that the statutory definition of abusiveness is sufficiently clear
and that, to the extent further clarification may be warranted, the
Bureau should wait until a more extensive body of precedent
interpreting the standard has developed.\17\ In short, although not
unanimous, most of the experts agreed that there is uncertainty as to
the scope and meaning of abusiveness that the Bureau should seek to
resolve.
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\16\ See, e.g., William MacLeod, Interpreting Abusive Practices
at 8, submission for CFPB Symposium, https://files.consumerfinance.gov/f/documents/cfpb_macleod-written-statement_symposium-abusive.pdf (``[C]lients continue to tell us
that the ambiguity surrounding the authority contributes to
regulatory uncertainty that results in certain products and services
being curtailed or not offered to certain populations altogether.
Simply adding some certainty and predictability to the abusiveness
standard could yield significant benefits. There should be no need
to cite authority for the proposition that uncertainty is an
impediment to investment and innovation. When uncertainty applies to
the legality of a business practice, the reaction in markets is
predictable. Legitimate businesses shy away.''); Letter from Lucy
Morris to Bureau Director Kathleen Kraninger Regarding Abusive Acts
or Practices Symposium, at 3 (June 17, 2019), https://files.consumerfinance.gov/f/documents/cfpb_morris-written-statement_symposium-abusive.pdf (noting that ``[t]here are different
ways that the Bureau could provide guidance, without limiting its
broad legal authority to protect consumers,'' that ``[a]t a minimum,
the Bureau should use its abusiveness authority carefully and
sparingly, to show through cases (and its other tools) how
abusiveness is unique and different from unfairness and deception''
and to avoid ```overlapping UDAAP claims,''' and suggesting
alternatively that the Bureau issue a policy statement or other
guidance on the abusiveness standard).
\17\ See, e.g., Adam J. Levitin, ``Abusive'' Acts and Practices:
Towards a Definition?, Written Submission Prepared for CFPB
Symposium on ``Abusive'' at 6-7, 9, https://.consumerfinance.gov//
documents/cfpb_levitin-written-statement_symposium-abusive.pdf
(arguing that the ``statutory language of the [Dodd-Frank Act] and
the Bureau's enforcement actions to date provide a sense of the
scope of `abusive,' '' that ``[t]he Bureau would do better to allow
the term to be better defined through the common law process,'' and
that ``there is no evidence that uncertainty on the issue is
affecting business practices at all; the claims of certain trade
associations on the matter are completely unsubstantiated'');
Nicholas F.B. Smyth, presenting on behalf of Pennsylvania Attorney
General Josh Shapiro, Statement submitted to the Bureau for the
symposium on Abusive Acts or Practices at 1, 5 (June 25, 2019),
https://files.consumerfinance.gov/f/documents/cfpb_smyth-written-statement_symposium-abusive.pdf (asserting that ``the purported
cloud of uncertainty created by the [abusiveness standard] has been
exaggerated,'' that the abusiveness standard ``does not stifle
innovation any more than the prohibitions on unfairness or deception
do,'' and that ``[e]very time Congress creates a new standard, there
is a period of time when some uncertainty may exist as to what
conduct violates that standard and what does not. This is perfectly
normal, and the Courts are well equipped to interpret new
standards.'').
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The Symposium participants' feedback has been an important part of
the process of determining whether the Bureau should use its rulemaking
or other tools to provide clarity about the general meaning of the
abusiveness standard--and, if so, which principles should be applied to
determine the scope of the standard. The Bureau appreciates the
differing perspectives shared by these experts--and by the many other
stakeholders who have expressed views on this issue.
The Bureau has concluded that there is uncertainty as to the scope
and meaning of the abusiveness standard.\18\ The current uncertainty is
not beneficial. Businesses that want to comply with the law face
significant challenges in doing so, and these
[[Page 6736]]
challenges can impose substantial costs, including impeding innovation.
As a result of those costs, consumers may lose the benefits of improved
products or services and lower prices. In light of this uncertainty,
the Bureau has decided to provide greater clarity on how the Bureau
plans to implement and apply the abusiveness standard in its
supervisory and enforcement work. In issuing this Policy Statement, the
Bureau does not foreclose the possibility of engaging in a future
rulemaking to further define the abusiveness standard.
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\18\ Although the Bureau seeks to foster greater certainty
regarding the abusiveness standard through this Policy Statement, it
should be noted that courts have consistently found that the
statutory language in section 1031(d) provides sufficient notice for
due process purposes. See, e.g., Consumer Fin. Prot. Bureau v. All
Am. Check Cashing, Inc., No. 16-cv-356, 2018 WL 9812125, at *3 (S.D.
Miss. Mar. 21, 2018) (rejecting vagueness challenge to the
abusiveness prohibition); ITT Educ. Servs., 219 F. Supp. 3d at 906
(``Because the CFPA itself elaborates the conditions under which a
business's conduct may be found abusive--and because agencies and
courts have successfully applied the term as used in closely related
consumer protection statutes and regulations--we conclude that the
language in question provides at least the minimal level of clarity
that the due process clause demands of non-criminal economic
regulation.''); Illinois v. Alta Colleges, Inc., No. 14-cv-3786,
2014 WL 4377579, at *4 (N.D. Ill. Sept. 4, 2014) (rejecting
vagueness challenge to abusiveness prohibition). Nothing in this
Policy Statement should be interpreted to suggest that the assertion
of abusiveness claims in the Bureau's prior or future enforcement
actions was or will be contrary to due process.
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II. Policy Statement
Clarifying the abusiveness standard is in the public interest and
the issuance of a supervision and enforcement policy statement
regarding the abusiveness standard is beneficial to all stakeholders.
Among other things, greater certainty as to how the Bureau intends to
use the abusiveness standard in supervision and enforcement furthers
the Bureau's purpose in implementing and enforcing the prohibition on
abusiveness in the Dodd-Frank Act.\19\ In addition, an approach to the
abusiveness standard that provides greater certainty and fosters the
development of a clearer standard will promote compliance with that
standard. This compliance, in turn, assists the Bureau in achieving its
objective under the Dodd-Frank Act of protecting consumers from abusive
acts or practices.\20\ The Bureau therefore issues this Policy
Statement to describe certain aspects of how it intends to approach its
use of the abusiveness standard in its supervision and enforcement
matters going forward.\21\
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\19\ 12 U.S.C. 5511(a).
\20\ 12 U.S.C. 5511(b)(2).
\21\ The Bureau intends to apply this Policy Statement going
forward in its enforcement and supervisory activities. Where the
Bureau has previously asserted an abusiveness claim in an
enforcement action that remains pending in court, the Bureau in its
discretion will determine how to proceed in light of this Policy
Statement based on the facts and circumstances of the particular
case. In general, the Bureau intends to take this Policy Statement
into account when seeking monetary relief in pending cases asserting
abusiveness claims.
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First, consistent with the priority it accords to the prevention of
harm, the Bureau intends to focus on citing conduct as abusive in
supervision or challenging conduct as abusive in enforcement if the
Bureau concludes that the harms\22\ to consumers from the conduct
outweigh its benefits to consumers.\23\ Second, the Bureau will
generally avoid challenging conduct as abusive that relies on all or
nearly all of the same facts that the Bureau alleges are unfair or
deceptive. Where the Bureau nevertheless decides to include an alleged
abusiveness violation, the Bureau intends to plead such claims in a
manner designed to clearly demonstrate the nexus between the cited
facts and the Bureau's legal analysis of the claim. In its supervision
activity, the Bureau similarly intends to provide more clarity as to
the specific factual basis for determining that a covered person has
violated the abusiveness standard. Third, the Bureau generally does not
intend to seek certain types of monetary relief for abusiveness
violations where the covered person was making a good-faith effort to
comply with the abusiveness standard.
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\22\ The Bureau's consideration of the harms and benefits of the
conduct (i.e., its effects) on consumers can be qualitative as well
as quantitative. That is, a quantitative analysis is not necessary
for every citation or challenge to conduct as being a violation of
the abusiveness standard.
\23\ Competition among firms can lead to lower prices for and
innovation in consumer financial products and services.
Consequently, conduct that fosters competition can benefit
consumers, while conduct that impedes competition can harm
consumers.
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A. Prevention of Consumer Harm From Abusive Acts or Practices
The Dodd-Frank Act authorizes the Bureau to exercise its
authorities under Federal consumer financial law, including the
authority to issue supervision and enforcement policy statements, for
the purpose of ensuring that ``consumers are protected from unfair,
deceptive, and abusive acts and practices,'' \24\ thereby preventing
the harm to consumers from the conduct. The Dodd-Frank Act also states
that the Bureau shall seek to implement and, where applicable, enforce
Federal consumer financial law consistently for the purpose of ensuring
that ``all consumers have access to markets for consumer financial
products and services'' and that such markets are ``fair, transparent,
and competitive.'' \25\ To fulfill these statutory mandates, the Bureau
has made it a priority to direct its supervisory, enforcement, and
other tools to the prevention of harm to consumers from unlawful acts
and practices.\26\
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\24\ 12 U.S.C. 5511(b)(2).
\25\ 12 U.S.C. 5511(a).
\26\ See, e.g., Kathleen L. Kraninger's Speech at the Exchequer
Club (July 18, 2019), https://www.consumerfinance.gov/about-us/newsroom/kathleen-l-kraningers-speech-exchequer-club/.
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Consistent with the priority it accords to the prevention of harm,
the Bureau intends to focus on citing conduct as abusive in supervision
and challenging conduct as abusive in enforcement if the Bureau
concludes that the harms to consumers from the conduct outweigh its
benefits to consumers (including its effects on access to credit).\27\
Explicitly incorporating this focus into the Bureau's supervision and
enforcement decisions concerning abusiveness not only ensures that the
Bureau is committed to using its scarce resources to address conduct
that harms consumers, but also ensures that the Bureau's supervisory
and enforcement decisions are consistent across matters.
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\27\ The Bureau's focus on the effects of conduct on consumers
is consistent with the FTC's approach to unfairness and deception.
Section 5(n) of the FTC Act expressly codifies, in its unfairness
standard, a weighing of the costs and benefits of the conduct at
issue. 15 U.S.C. 45(n). Section 5 of the FTC Act does not expressly
direct the FTC to consider costs and benefits as part of its
deception standard. 15 U.S.C. 45(a)(1). As a leading commentator has
explained, however, ``the primary difference between full-blown
unfairness analysis and deception analysis is that deception does
not ask about offsetting benefits. Instead, it presumes that false
or misleading statements either have no benefits, or that the injury
they cause to consumers can be avoided by the company at very low
cost. In other words, deception analysis essentially creates a
shortcut, assuming that when a material falsehood exists, the
practice would not pass the full benefit/cost analysis of
unfairness, because there are rarely, if ever, countervailing
benefits to deception.'' J. Howard Beales, The FTC's Use of
Unfairness Authority: Its Rise, Fall, and Resurrection (May 30,
2005), https://www.ftc.gov/public-statements/2003/05/ftcs-use-unfairness-authority-its-rise-fall-and-resurrection.
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B. Articulating Acts or Practices That Violate the Abusiveness Standard
Whether conduct constitutes an unfair, deceptive, or abusive act or
practice often is dependent upon the facts and circumstances of a
particular matter. In enforcement, the Bureau's experience indicates
that a single course of conduct may provide the factual basis for
allegations of unfair, deceptive, or abusive acts or practices. Where
such circumstances arise, the Bureau intends generally to avoid
alleging an abusiveness violation that relies on all or nearly all the
same facts as an unfairness or deception violation.\28\ The Bureau
nevertheless intends to allege ``stand-alone'' abusiveness violations
(i.e., violations that are not accompanied by related unfairness or
deception violations) where doing so would be consistent with the
abusiveness standard and this Policy Statement. Where the Bureau
alleges ``stand-alone'' abusiveness violations, it intends to plead
such claims in a manner designed to demonstrate clearly the nexus
between the cited facts and
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the Bureau's legal analysis of the claims.\29\
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\28\ In limited circumstances, the Bureau intends to allege both
an abusiveness violation and a related unfairness or deception
violation where it would help clarify the scope of the abusiveness
standard. Where the Bureau alleges both an abusiveness violation and
a related unfairness or deception violation, the Bureau intends to
allege the abusiveness violation with sufficient detail to
distinguish it from the related unfairness or deception violation.
\29\ Because the Bureau will be guided by the facts in
determining which claims to bring, examinations and investigations
may seek information that could relate to unfair, deceptive, or
abusive acts or practices without distinguishing among the potential
claims. The Bureau may also use its supervisory and enforcement
processes to seek an institution's written response where the facts
indicate that the institution's conduct may qualify as abusive or
unfair or deceptive.
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The Bureau believes that this approach to pleading will provide
more certainty to covered persons as to the metes and bounds of conduct
the Bureau determines is abusive. It also will facilitate the
development of a body of jurisprudence as to the conduct courts
conclude is abusive.\30\
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\30\ To the extent practicable, the Bureau in the future intends
to develop model pleadings and updates to its UDAAP examination
procedures in order to provide greater specificity and clarity as to
the abusiveness standard.
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In its supervision activity, the Bureau similarly intends to
provide more clarity as to the factual basis for determining that a
covered person has violated the abusiveness standard. In citing covered
persons during examinations for having engaged in abusive acts or
practices, the Bureau intends to apply the same approach as set forth
above with regard to pleading abusiveness in enforcement actions. In
addition, in future editions of Supervisory Highlights, the Bureau
intends to describe the basis for abusiveness citations with greater
clarity (consistent with the need to keep the identity of the
supervised entities confidential). Additional clarity in supervisory
materials about how the Bureau views particular facts and how those
facts support an abusiveness violation will result in more transparency
as to the conduct the Bureau determined violates the abusiveness
standard, thereby providing more certainty, especially as to covered
persons who are subject to Bureau supervisory authority.
C. Limits on Monetary Relief in Abusiveness Enforcement Actions
The Bureau recognizes that covered persons must make decisions
about whether to engage in conduct notwithstanding uncertainty as to
whether the Bureau will allege that conduct violates the abusiveness
standard and will seek substantial amounts in monetary relief based on
the alleged violation. This uncertainty and its consequences may chill
or overly deter covered persons from engaging in conduct that may be
beneficial to consumers.
Accordingly, to ensure that uncertainty regarding the abusiveness
standard does not impede beneficial conduct, the Bureau generally does
not intend to seek certain monetary remedies for abusive acts or
practices if the covered person made a good-faith effort to comply with
the law based on a reasonable--albeit mistaken--interpretation of the
abusiveness standard.\31\ Similarly, in supervisory actions, the Bureau
will apply the same standard when requesting action as a result of
violations in Matters Requiring Attention or other supervisory
requests. However, if a covered person makes a good-faith but
unsuccessful effort to comply with the abusiveness standard, the Bureau
still intends to seek legal or equitable remedies, such as damages and
restitution, to redress identifiable consumer injury caused by the
abusive acts or practices that would not otherwise be redressed. 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.
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\31\ Although the covered person's good-faith efforts to comply
would be relevant to whether the Bureau seeks monetary remedies, it
would not be an affirmative defense to an alleged violation.
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Further, the Bureau emphasizes that it is committed to aggressively
pursuing the full range of monetary remedies against bad actors who
were not acting in good faith in violating the abusiveness standard,
such as those who engage in fraudulent practices or consumer scams. The
Bureau's seeking such relief will prevent and deter the continuation or
recurrence of such abusive acts or practices.
In determining whether a covered person made a good-faith effort to
comply with the abusiveness standard, the Bureau intends to consider
all relevant factors, including but not limited to the considerations
outlined in CFPB Bulletin 2013-06 regarding Responsible Business
Conduct.\32\ A ``reasonable'' interpretation for purposes of this
Policy Statement is one based on the text of the abusiveness standard
set forth in the Dodd-Frank Act, as well as prior precedent and
guidance, including judicial precedent, the Bureau's administrative
decisions, rulemakings, supervisory guidance, and past allegations of
abusive acts or practices in public enforcement actions.
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\32\ See https://files.consumerfinance.gov/f/201306_cfpb_bulletin_responsible-conduct.pdf. See also 12 U.S.C.
5565(c)(3)(A).
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Covered persons that believe that regulatory uncertainty is
hindering the development of new products or services are also reminded
that the Bureau has created the Office of Innovation to focus on
encouraging consumer-beneficial innovation. The Bureau, primarily
through the Office of Innovation, has issued policies to reduce
regulatory uncertainty and processes applications from entities under
those policies.\33\
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\33\ See CFPB Issues Policies to Facilitate Compliance and
Promote Innovation (Sept. 10, 2019), https://www.consumerfinance.gov/about-us/newsroom/bureau-issues-policies-facilitate-compliance-promote-innovation/.
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D. Conclusion
For the reasons set forth above, in alleging an act or practice as
abusive in violation of the Dodd-Frank Act, the Bureau intends to apply
the following principles: (1) Consistent with the priority it accords
to the prevention of harm, the Bureau intends to focus on citing
conduct as abusive in supervision or challenging conduct as abusive in
enforcement if the Bureau concludes that the harms to consumers from
the conduct outweigh its benefits to consumers; (2) the Bureau will
generally avoid challenging conduct as abusive that relies on all or
nearly all of the same facts that the Bureau alleges are unfair or
deceptive. Where the Bureau nevertheless decides to include an alleged
abusiveness violation, the Bureau intends to plead such claims in a
manner designed to clearly demonstrate the nexus between the cited
facts and the Bureau's legal analysis of the claim. In its supervision
activity, the Bureau similarly intends to provide more clarity as to
the specific factual basis for determining that a covered person has
violated the abusiveness standard; and (3) the Bureau generally does
not intend to seek certain types of monetary relief for abusiveness
violations where the covered person was making a good-faith effort to
comply with the abusiveness standard. Nothing in these principles
affect whether and how the Bureau will proceed in taking supervisory or
enforcement action to address violations of any other provision of the
Dodd-Frank Act (including its prohibition of unfair or deceptive acts
or practices), or any of the other statutes, rules, or orders that the
Bureau enforces.
III. Regulatory Requirements
This Policy Statement constitutes a general statement of policy
that is exempt from the notice and comment rulemaking requirements of
the Administrative Procedure Act.\34\ It is intended to provide
information regarding the Bureau's general plans to exercise its
discretion and does not impose any legal requirements on
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external parties, nor does it create or confer any substantive rights
on external parties that could be enforceable in any administrative or
civil proceeding. Because no notice of proposed rulemaking is required,
the Regulatory Flexibility Act does not require an initial or final
regulatory flexibility analysis. The Bureau has also determined that
this Policy Statement does not impose any new or revise any existing
recordkeeping, reporting, or disclosure requirements on covered
entities or members of the public that would be collections of
information requiring approval by the Office of Management and Budget
under the Paperwork Reduction Act.
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\34\ 5 U.S.C. 553(b). However, this is not a ``statement of
policy'' as that term is specifically used in Regulation X, 12 CFR
1024.4(a)(1)(ii).
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Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., the
Bureau will submit a report containing this Policy Statement and other
required information to the United States Senate, the United States
House of Representatives, and the Comptroller General of the United
States prior to its applicability date. The Office of Information and
Regulatory Affairs has designated this Policy Statement as not a
``major rule'' as defined by 5 U.S.C. 804(2).
Dated: January 21, 2020.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2020-01661 Filed 2-5-20; 8:45 am]
BILLING CODE 4810-AM-P