July 26, 2021

CFPB shifts gears on ‘abusive’ enforcement direction

After less than a year in effect, the Consumer Financial Protection Bureau last week reversed its Trump-era policy on abusive practices. The decision to redefine its approach to “abusiveness” in supervision and enforcement provided much-needed clarity on how the bureau intended to leverage its power, finance experts said.

The bureau said it revoked the rule “to better protect consumers and the marketplace from abusive acts or practices, and to enforce the law as Congress wrote it.”

The CFPB has had broad jurisdiction since its inception to pursue and penalize businesses in the consumer financial product industry for practices it considered abusive, unfair or deceptive under the Dodd-Frank Act. But what constitutes an “abusive” business practice has been debated in industry circles for years.

Former bureau director Kathleen Kraninger said it would label business practices as abusive “only when the harm to consumers outweighs the benefit,” and will avoid doubling up on abusiveness violations if an activity has already been cited as unfair or deceptive. Another stipulation of Kraninger’s Jan. 24, 2020 guidance was the bureau would seek monetary relief using its abusiveness powers only when there has been a “lack of good-faith effort to comply with the law.”

The bureau said it now plans to employ the full range of its powers to seek civil money penalties and disgorgement for certain abusive acts or practices.

The definition Congress intended includes materially interfering with someone’s ability to understand a product or service, or taking unreasonable advantage of someone’s lack of understanding or inability to protect themselves. Abusiveness also includes businesses that unreasonably taking advantage of someone who relies on a company to act in their interest, the CFPB said.

Additionally, the bureau said Kraninger’s January 2020 statement “was inconsistent with the Bureau’s duty to enforce Congress’s standard” as the ability to punish companies after acts of wrongdoing “deters abusive practices and compensates certain harmed consumers.”

It remains to be seen how quickly this change will result in action from the federal watchdog, but dealerships should be wary. A good-faith effort to follow the rules may not be enough to avoid penalties.