Continued from page 1 standard from the deception and unfairness standards.
The Policy Statement reiterates Section 1031(d) of the
Dodd-Frank Act and precludes the CFPB from declaring
an act or practice in connection with a consumer financial
product or service as abusive unless the act or practice
falls into one of these categories: Since 2011, the CFPB has brought 32 enforcement
actions, including abusiveness claims, but only two of
which were for abusive alone. The other 30 involved an
unfairness or deception claim in addition to an abusive
claim (i.e., “dual pleadings”). No unique fact pattern could
be discerned from these sparse enforcement actions.
• Materially interferes with a consumer’s ability to
understand a term or condition of a financial product/
service.
• Takes unreasonable advantage of any of the following:
• A lack of consumer understanding of the material
risks, costs or conditions of the product/service. The CFPB even admits its UDAAP examination
procedures primarily restated the language of the
Dodd-Frank Act, and its various non-binding guidance
documents referencing the risk of abusive acts or
practices did not set forth any detailed explication of the
abusiveness standard.
• The inability of a consumer to protect their
interest in selecting or using a financial product/
service. To provide clarity, effective immediately the CFPB
intends to apply the following three principles under its
supervisory and enforcement authority:
• The reasonable reliance by the consumer on a
covered person to act in their best interest. 1. Prevention of Consumer Harm from Abusive Acts
or Practices
Because Congress had only defined the abusiveness
standard in general terms and did not include a
comprehensive list of abusive practices, the CFPB had
to rely on relatively limited legislative and supervisory
history involving the distinction between the abusiveness
2
The CFPB intends to focus on citing conduct
as abusive if the CFPB concludes the harms to
consumers from the conduct outweigh its benefits.