By: Edward R. Milhorn, Compliance Consulting Director
In what has become a trend since the beginning of 2021, on March 11, the Consumer Financial Protection Bureau (“CFPB”) rescinded yet another Trump-era policy statement, the January 24, 2020 “Statement of Policy Regarding Prohibition on Abusive Acts or Practices.” When this policy statement was issued last year, the intention was to clarify the CFPB’s approach to citing and challenging “abusive” conduct in supervision or enforcement actions. Specifically, the statement issued by then-CFPB Director, Kathy Kraninger, more narrowly defined an “abusive” act or practice using a two-pronged test. If the harm to consumers outweighed the benefits and if the institution failed to show a “good-faith effort” to comply with the abusiveness standard, then the CFPB would deem an institution’s conduct abusive.
The CFPB, which is now led by acting Director Dave Uejio, said Thursday that Kraninger’s January 2020 policy statement was “inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices. In explaining the policy reversal, the CFPB pointed to Dodd-Frank’s definition of abusive conduct, which prohibits companies from materially interfering with someone’s ability to understand a product or service. The law also prohibits companies from taking unreasonable advantage of someone’s lack of understanding, inability to protect themselves and reliance on a company to act in the consumer’s interests. Per the CFPB,
Going forward, the CFPB indicated that it “intends to exercise its supervisory and enforcement authority consistent with the full scope of its statutory authority under the Dodd-Frank Act as established by Congress.” Additionally, the CFPB’s corresponding press release issued on Thursday, March 11, indicated that “the CFPB intends to consider good faith, company size, and all other factors it typically considers as it uses its prosecutorial discretion. But a policy of declining to enforce the full scope of Congress’s definition of an abusive practice harms both the consumers who were taken advantage of and the honest companies that have to compete against those that violate the law.” These changes give regulators an opening to demand stiffer penalties through reclaiming a policy that enforces abusiveness in addition to unfairness or deception when an institution’s conduct falls short of both standards. Based on this, and other recent issuances and rescissions by the CFPB under acting Director Dave Uejio, financial institutions should prepare for increased regulatory scrutiny going forward. As always, if you need assistance in preparing for upcoming regulatory examinations, please do not hesitate to reach out to us for assistance.