How the federal consumer financial protection agency approaches the 2010 Consumer Financial Protection Act’s (CFPA) prohibition against abusive acts or practices by consumer service providers is discussed in a policy statement slated for publication in the Federal Register and set to become applicable on Wednesday.
The Consumer Financial Protection Bureau (CFPB) said it will accept public comments until July 3 and may make revisions based on the input received.
The policy statement, it said, summarizes the “dozens” of enforcement actions taken by it and others since the CFPA was enacted and explains how the consumer bureau analyzes the elements of abusiveness – through relevant examples – with a goal of providing an analytical framework to government enforcers and supervisory agencies, and to the market, for how to identify “violative acts or practices.”
The CFPA, it noted, prohibits any “covered person” or “service provider” from engaging in “any unfair, deceptive, or abusive act or practice” and defines abusive conduct. The bureau said an abusive act or practice:
- materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or
- takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service, the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service, or the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
In a small bit of the analysis provided in the statement, the CFPB noted that the statutory text of these two prohibitions can be summarized at a high level as: (1) obscuring important features of a product or service, or (2) leveraging certain circumstances to take an unreasonable advantage. “The circumstances that Congress set forth, stated generally, concern gaps in understanding, unequal bargaining power, and consumer reliance,” it said.
“Unlike with unfairness but similar to deception, abusiveness requires no showing of substantial injury to establish liability, but is rather focused on conduct that Congress presumed to be harmful or distortionary to the proper functioning of the market,” it stated. “An act or practice need fall into only one of the categories above in order to be abusive, but an act or practice could fall into more than one category.”