18 April 2023

by Jeffrey A Greenbaum (Frankfurt Kurnit Klein Selz)

Global Advertising Lawyers Alliance (GALA)

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with the authors

The Consumer Financial Protection Bureau just issued a Policy Statement on Abusive Acts or Practices, which sets forth the CFPB's views about what types of practices violate the Consumer Financial Protection Act of 2010's prohibition of "abusive" conduct.

As part of the release of the Policy Statement, CFPB Director Rohit Chopra said, "The CFPB issued today's guidance to provide an analytical framework to help federal and state agencies hold companies accountable when they violate the law and take advantage of families."

Similar to the FTC's policy statements from decades ago on unfair and deceptive practices, the CFPB's new Policy Statement provides important, detailed (and what will surely be influential) guidance from the agency about abusive practices, and is really a must-read for anyone working on marketing for banks, lenders, and others that are subject to the CFPB's authority. (The guidance doesn't cover CFPB's views on its own authority related to unfair or deceptive practices.)

Under the CFPA, an abusive act or practice is one 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 lack of a consumer's lack of understanding, the inability of a consumer to protect the consumer's own interest, or the consumer's reasonable reliance on a covered entity to act in the consumer's interest.

Material Interference

The Policy Statement explains that the first abusiveness prohibition concerns situations where a covered entity "materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service."

This can occur when a marketer intends to impede consumers' ability to understand terms and conditions -- such as by using "buried disclosures, physical or digital interference, overshadowing, and various other means of manipulating consumers' understanding." (The Policy Statement goes into detail about how it evaluates each of these types of behavior.)

The CFPB highlighted the fact that, "Certain terms of a transaction are so consequential that when they are not conveyed to people prominently or clearly, it may be reasonable to presume that the entity engaged in acts or omissions that materially interfere with consumers' ability to understand." This includes, for example, consumer costs, limitations on the consumer's ability to use or benefit from the product or service, and the consequences of default.

Interestingly, the CFPB also said that, even if the terms of a product or service are complicated or function in unexpected ways, the marketer is still responsible for ensuring that the consumer actually understands the terms -- and that if a marketer creates a product or service that consumers just don't understand, that may be an abusive practice itself. The CFPB explained, "an entity's provision of a product or service may interfere with consumers' ability to understand if the product or service is so complicated that material information about it cannot be sufficiently explained or if the entity's business model functions in a manner that is inconsistent with its product's or service's apparent terms."

Taking Unreasonable Advantage

The Policy Statement explains that the second abusiveness prohibition prohibits covered entities from taking unreasonable advantage of a consumer's lack of understanding, the inability of a consumer to protect the consumer's interests, or the consumer's reasonable reliance.

Marketers, then, should not take unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of a product or service. Importantly, the Policy Statement explains that -- in what is a departure from how federal consumer protection laws are typically enforced -- the CFPB does not believe that it needs to show that "the consumer's lack of understanding was reasonable to demonstrate abusive conduct."

Marketers should also not take unreasonable advantage of an inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. This is really about where unequal bargaining power prevents consumers from seeking more favorable terms, switching providers, or making other decisions to protect themselves. The Policy Statement explains that this protects not only financial interests, but privacy, reputational, and other non-monetary interests, such as "limiting the amount of time or effort necessary to obtain consumer financial products or services or remedy problems related to those products or services" (including the time spent trying to obtain customer support). In addition, the Policy Statement highlights the fact that consumers may be unable to protect their interests if they face high transaction costs in order to exit a relationship.

And, marketers should not take unreasonable advantage of the reasonable reliance by the consumer on the marketer to act in the interests of the consumer. The reasonable reliance prong comes up when consumers rely on an entity to provide them with advice (such as when an entity helps a consumer select providers) or to make decisions for them (such as when an entity communicates that it will act in the consumer's best interest).

Request for Public Comment

Although the Policy Statement isn't being presented as draft or proposed guidance, the CFPB said that it is accepting public comments on the guidance until July 3, 2023.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.