CFPB Issues Policy Statement On Abusive Acts Or Practices - Dodd-Frank, Consumer Protection Act - United States

[Gunnar Larson]

United States: CFPB Issues Policy Statement On Abusive Acts Or Practices
18 April 2023
by Jeffrey A Greenbaum (Frankfurt Kurnit Klein Selz)
Global Advertising Lawyers Alliance (GALA)
Your LinkedIn Connections
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.

https://www.mondaq.com/unitedstates/dodd-frank-consumer-protection-act/1305254/cfpb-issues-policy-statement-on-abusive-acts-or-practices?email_access=on
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