The Consumer Financial Protection Bureau (CFPB) has announced the issuance of a policy statement that explains the legal prohibition on abusive conduct in consumer financial markets, and summarizes more than a decade of precedent. The CFPB leads enforcement and supervision efforts to identify and end abusive conduct against consumers.
In 2010, in response to the financial crisis, Congress passed the Consumer Financial Protection Act, and created the prohibition on abusive conduct. The Act tasks the CFPB, federal banking regulators, and states with the responsibility to enforce the prohibition, and puts the CFPB in charge of administering it. The CFPB’s new policy statement will assist consumer financial protection enforcers in identifying wrongdoing, and will help firms avoid committing abusive acts or practices.
“In response to the predatory mortgage lending practices that drove the financial crisis, Congress banned abusive conduct in consumer financial markets,” said CFPB Director Rohit Chopra. “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.”
Since the passage of the Consumer Financial Protection Act, the CFPB has brought 43 cases, and examiners have issued numerous citations, alleging abusive conduct. The claims have ranged from predatory student lending practices to charging consumers costly surprise overdraft fees. The CFPB’s latest action summarizes for the market, in clear and simple terms, the meaning of the statutory prohibition on abusive conduct.
“I hope that this policy statement will not only serve as a practical educational tool by summarizing the existing case law, but also more importantly, will provide a straight-forward and analytical framework that helps promote a visceral understanding of the prohibition,” explained Chopra while addressing the University of California Irvine Law School.
In 1980 and 1983, respectively, the Federal Trade Commission (FTC) issued policy statements on both the unfair and deceptive practices prohibitions. Similarly, today’s guidance summarizes precedent and establishes a framework to help federal and state enforcers identify when companies engage in abusive conduct.
In the CFPB’s policy statement, the Bureau sets forth how abusive conduct generally includes (1) obscuring important features of a product or service; or (2) leveraging certain circumstances—including gaps in understanding, unequal bargaining power, or consumer reliance—to take unreasonable advantage. In particular, the statement describes how the use of dark patterns, set-up-to-fail business models like those observed before the mortgage crisis, profiteering off captive customers, and kickbacks and self-dealing can be abusive.
“There’s been a great deal of ink spilled about the failure of federal financial regulators and enforcers to halt the widespread abuses that contributed to a devastating financial crisis nearly 15 years ago,” added Chopra. “Not only did these regulatory failures harm individuals, families, and neighborhoods, it also hurt every business that engaged in fair and transparent dealing with prospective customers. Congress made an important judgment about the types of conduct that should not be allowed to fester, and it is incumbent upon the CFPB, federal agencies, and the states to ensure that our markets reward fair dealing, rather than abuse.”
The policy statement will be published in the Federal Register, and the public will have until July 3, 2023 to submit their comments.