By Jeff Sovern, St. John’s University School of Law
On Friday, the CFPB issued a Policy Statement on Abusive Acts or Practices. The Policy Statement is disappointing in several respects. First, it is intended to address a problem that has never been shown to exist. The Bureau explained that the Policy Statement is designed to ensure that “uncertainty does not impede or deter the provision of otherwise lawful financial products or services that could be beneficial to consumers.” Industry representatives had long expressed concern that companies might forego offering new products for fear that the Bureau would find the products abusive. But as far as I know, no one has ever identified a product that a company has declined to offer because of such a fear. See Jeff Sovern, Take the Abusiveness Challenge: Identify a Valuable Consumer Financial Product Not Offered Because of Uncertainty About Whether It Is Abusive, Consumer Law & Policy Blog (Sept. 7, 2019). If the industry and the Bureau’s anxiety is justified, we should see the industry supplying many new products which might otherwise have been considered abusive now that the Bureau has issued its Policy Statement. It will interesting to see if the industry does so.
The Policy Statement described several limits to how the Bureau plans to use its abusiveness power. The Bureau explained that it would challenge “conduct as abusive [only] if the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” In this respect, the Bureau’s interpretation of abusiveness implies the use of cost-benefit analysis. If I recall correctly, during the Bureau’s symposium on abusiveness, Pat McCoy pointed out that Congress did not include such a cost-benefit test when it enacted the abusiveness power. Chris Peterson made the same point Friday in a tweet. Congress plainly had cost-benefit analysis on its mind when it gave the Bureau the power to pursue abusive acts, because it included a cost-benefit test in the very section, § 5531, conferring upon the Bureau the ability to address abusive practices. That appears in the provisions giving the Bureau the power to act against unfair practices. § 5531(c)(1). Elsewhere in the statute, Congress directed the Bureau to consider costs and benefits when issuing rules. § 5512(b)(2). It thus seems fairly clear that Congress knew about cost benefit analysis and chose not to have it be a factor in enforcement and supervisory actions based on abusiveness. Accordingly, the Bureau’s statement seems unjustifiable as a matter of statutory interpretation of the text and seems more rooted in its own policy views than what Congress wrote or intended.
The Bureau also reported that it would “generally avoid challenging conduct as abusive that relies on all or nearly all of the same facts that the Bureau alleges are unfair or deceptive.” The Policy Statement notes that the Bureau had brought 32 actions using the abusive standard. In all but two of these, the Bureau also rested its case on either its power to prohibit deceptive practices or unfair practices, or both. In other words, the Policy Statement represents a departure from the Bureau’s use of the abusive standard. One risk in refraining from using its abusiveness power in tandem with other powers is that if courts reject the claim that particular conduct is unfair or deceptive, and the Bureau has eschewed use of its abusiveness power, the Bureau might be powerless to stop behavior that it finds objectionable. Both the FTC and the CFPB have charged that conduct is both unfair and deceptive in the past, thus demonstrating their view that invoking two powers at the same time is not objectionable.
In addition, the CFPB stated that it “generally does not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.” This seems designed to avoid deterring companies from offering new products in good faith that might violate the abusive standard. Again, whether any such products exist remains unclear.
I want to suggest another reason the industry pressed the Bureau to limit the use of its abusiveness power: the more the Bureau foregoes use of its abusiveness power, the more the industry can engage in abusive conduct to generate revenue. It is not a coincidence that Congress gave the Bureau the power to block abusive behavior in the wake of the subprime lending that led to the Great Recession.
The Bureau would have done better to wait until it had accumulated far more experience with its abusiveness power, exactly as the FTC did before issuing its Policy Statements on deception and unfairness.