There’s a New Old Sheriff in Town

March 17, 2021 at 10:29 am Leave a comment

In its latest step to underscore just how aggressively it intends to regulate consumer banking and products, the CFPB issued a statement rescinding an order issued by the CFPB in the waning days of the Trump administration which critics argued limited its ability to sue companies for abusive practices.  Normally, there is nothing noteworthy about an agency’s new leadership rescinding regulations put in place by an agency led by a different party, but the CFPB’s action impacts how it is going to use one of its biggest weapons in its regulatory arsenal. 

12 USCA § 5536 gives the CFPB its key civil enforcement powers.  Under the Dodd-Frank Act, it is unlawful for entities subject to CFPB’s jurisdiction

  • to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law; or
  • to engage in any unfair, deceptive, or abusive act or practice;

State laws had long given attorneys generals, and in states like New York, private parties the right to sue financial service providers for engaging in Unfair and Deceptive Acts and Practices (UDAP).  In addition, the Federal Trade Commission has had the right to exercise similar powers for decades.  This traditional language wasn’t enough for Congress.  So when it drafted subdivision B, it added abusive to the list of potential wrongs. 

As readers of this blog know, every word matters and in extending the traditional UDAP powers to include abusive conduct, many a lawyer, and the occasional law professor were perplexed.  In fact, several lawsuits challenge the new standard as so vague that it did not give people adequate notice of what constituted illegal conduct.  The Bureau has beaten back these challenges [CFPB v. All Am. Check Cashing, Inc., No. 16-cv-356, 2018 WL 9812125, at *3 (S.D. Miss. Mar. 21, 2018)].  Since 2011 it has brought 32 enforcement actions that have had an abusiveness and unfairness claim but only two of those were predicated solely on abusiveness.

With these statistics in mind, reasonable people asked if an abusiveness standard could really be distinguished from an act which is deceptive and unfair? After all, in testimony before Congress Director Richard Cordray explained “[W]e have determined that [the definition of ‘abusive’] is going to have to be a fact and circumstances issue; it is not something we are likely to be able to define in the abstract. Probably not useful to try to define a term like that in the abstract.”  While I admire the director’s honesty, this is hardly the type of statement that companies investing millions of dollars in complying with a new set of highly nuanced regulations wants to hear. 

Which brings us to the reason for today’s blog.  As one of her last acts, Director Kathy Kraninger issued a policy statement explaining that the bureau had to do a better job of explaining when conduct was abusive.  The statement explained that it would also not penalize good faith attempts to comply with the standard and most importantly would not use abusiveness as the sole criteria for a civil action. 

In repealing this statement, the bureau announced yet again that like Reggie Hammond in the classic movie 48 Hours, there’s a new sheriff in town.  He’s not going to unilaterally take any of his enforcement powers off the table. 

“In particular, the policy of declining to seek certain types of monetary relief for abusive acts or 10 85 FR at 6735-36. 11 12 U.S.C. 5511(b)(2). 5 practices—specifically civil money penalties and disgorgement—is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies and of compensating victims for harm caused by violations of the Federal consumer financial laws through the Bureau’s Civil Penalty Fund. Likewise, adhering to a policy that disfavors citing or alleging conduct as abusive when that conduct is also unfair or deceptive is contrary” to Congressional intent. 

Suffice it to say, regulation by enforcement is back with a vengeance.  Make sure you pay attention to the Bureau’s enforcement actions and the legal rationale underpinning their decisions. 

Entry filed under: Compliance, Federal Legislation, Legal Watch, Regulatory. Tags: , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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