United States: CFPB And The Use Of Abusiveness – Ten Years In

A little over 10 years ago, the US Consumer Financial Protection Bureau ("CFPB" or "Bureau") gained authority to enforce a prohibition against abusive acts and practices in connection with the provision of consumer financial products or services. This new authority raised a host of questions about what conduct was abusive and how the CFPB would use this new tool. Five years ago, we reviewed the CFPB's use of abusiveness in its first four-plus years of existence. This Legal Update summarizes our prior findings and examines the CFPB's use of abusiveness in the exercise of its enforcement, supervisory and rulemaking authorities over the subsequent five-plus years.

Some patterns from the early years still hold true—abusiveness is more likely to be alleged in contested litigation than in settled enforcement matters; most abusiveness claims are either paired with, or could be paired with, unfairness or deception claims; and the agency relies on certain kinds of abusiveness claims more than others. Yet other patterns changed over the past five years—the CFPB substantially increased its reliance on claims that companies "materially interfered" with consumers' understanding, and the CFPB relied on abusiveness in a rulemaking for the first time.

The big question from 10 years ago—what conduct is abusive that was not already proscribed by the prohibitions on unfair or deceptive conduct?—remains largely unanswered. As noted, most CFPB abusiveness claims are paired with claims of unfairness or deception. And those that are not—the seven "stand-alone" abusiveness claims we discuss below—appear susceptible to such unfairness or deception claims and do not reveal a clear pattern of conduct that the agency appears to believe is abusive.

From a compliance standpoint, the takeaway is that robust compliance systems to prevent and detect potentially unfair and deceptive acts and practices should be well positioned to prevent allegations of abusiveness as well. That said, understanding how the CFPB thinks about the various elements of abusiveness claims—such as the prohibitions on "materially interfering" with consumer understanding and "taking unreasonable advantage" of certain circumstances—can help companies avoid not just abusiveness claims but also claims of unfair or deceptive conduct.

New leadership has recently come to the CFPB with the confirmation of Director Rohit Chopra, and with it a potential new approach to thinking about abusiveness.¹ Companies subject to CFPB jurisdiction should carefully follow developments in this space to help ensure they understand the agency's current thinking about this unique tool.

I. Background on Abusiveness

The Dodd-Frank Act defines an act or practice as abusive if it meets any one of four separate Prongs of the statutory definition. Those Prongs define abusive conduct as an act or practice 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:
   1. a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
   2. the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
   3. the reasonable reliance by the consumer on a covered person to act in the interests of the consumer."²

For ease of reference, we refer to these different definitions as Prongs 1, 2(A), 2(B) and 2(C), respectively, reflecting the statutory subsections of the abusiveness definition.

II. Prior Findings

In 2016, we reviewed the CFPB's use of abusiveness in its first four-plus years of existence.³ At that time, we noted that the majority of the CFPB's abusiveness claims were brought under Prongs 2(A) or 2(B)—the provisions that prohibit covered persons from taking "unreasonable advantage" of either a consumer's lack of understanding of the material risks, costs or conditions of a product or service (Prong 2(A)) or the consumer's inability to protect her interests in selecting or using a consumer financial product or service (Prong 2(B)).

We saw that the Prong 2(A) claims often were based on deceptive conduct, which caused the requisite "lack of understanding" by the consumer. That is, a misrepresentation or omission by the covered person caused the consumer to lack an understanding of the materials risks, costs or conditions of a product or service. We surmised that the CFPB believed that consummating the transaction under those circumstances constituted taking "unreasonable advantage" of the lack of understanding caused by defendants' misrepresentations or omissions. At the time, it appeared that Prong 2(A) was a "deception plus" sort of claim; and indeed in most cases where the CFPB alleged a Prong 2(A) claim, it also alleged a deception claim.

The CFPB's Prong 2(B) cases at that time fell into two categories. In some of the cases, the consumer's alleged inability to protect her interest was based on a deceptive statement by the covered person. In most of these cases, the CFPB alleged that the conduct at issue violated both Prongs 2(A) and 2(B). Although not expressly stated in the cases themselves, the CFPB's theory seemed to be that a consumer that lacks an understanding of the material risks, costs or conditions of a product or service as a result of a covered person's deception (the predicate for a Prong 2(A) claim) by definition cannot protect her interests in selecting or using the product or service (the predicate for a Prong 2(B) claim). In this rubric, any Prong 2(A) claim could be recast as a Prong 2(B) claim.⁴ The remaining Prong 2(B) claims at that time did not involve allegedly deceptive statements but rather focused on the underlying conduct to conclude that the consumers could not protect their interest. In two cases, the CFPB focused on forum selection clauses in contracts of adhesion that consumers could not negotiate; in two other cases, the underlying conduct involved aggressively pushing consumers into loans that they could not afford; and in one case the conduct involved payment allocation across multiple loan products. In all these cases, the CFPB alleged that in light of the nature of the conduct, the consumer could not protect her interests. These cases sound in unfairness, where a required element of the legal standard is that the harm to consumers is not reasonably avoidable by the consumer. Although the CFPB pled that the conduct was unfair in only some of these cases, it could reasonably have alleged unfairness in all of them. As a result, we concluded that Prong 2(B) appeared be akin to "unfairness plus."

Footnotes

1 Indeed, the first enforcement action under Mr. Chopra included an allegation of abusiveness based on a company's alleged misuse of market dominance, suggesting an antitrust-informed approach to abusiveness. That action, which was filed after July 21, 2021, is outside the scope of this Legal Update, but our analysis can be found at https://www.cfsreview.com/2021/10/chopra-makes-astatement-about-markets-both-literally-and-figuratively/.

2 12 U.S.C. § 5531(d) (emphasis added).

3 See Ori Lev and Chris Shelton, An Analysis of the CFPB's Abusiveness Claims: Parts 1 and 2 (March 2016) (available at https://www.mayerbrown.com/-/media/files/news/2016/03/an-analysis-of-the-cfpbs-abusiveness-claims-part1/files/ananalysisofthecfpbsabusivenessclaimspart1/fileattachment/ananalysisofthecfpbsabusivenessclaimspart1.pdf and https://www.mayerbrown.com/-/media/files/news/2016/03/an-analysis-of-the-cfpbs-abusiveness-claims-part2/files/ananalysisofthecfpbsabusivenessclaimspart2/fileattachment/ananalysisofthecfpbsabusivenessclaimspart2.pdf).

4 The CFPB subsequently made this point more clearly in promulgating the since-repealed provisions of its 2017 payday rule: "Consumers who lack an understanding of the material risks and costs of a consumer financial product or service often will lack the ability to protect their interests in selecting or using that product." Payday, Vehicle Title, and Certain High-Cost Installment Loans, 82 Fed. Reg. 54472, 54618 (Nov. 17, 2017).

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