[Federal Register Volume 85, Number 25 (Thursday, February 6, 2020)]
[Rules and Regulations]
[Pages 6733-6738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01661]



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 Rules and Regulations
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  Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 / 
Rules and Regulations  

[[Page 6733]]



BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Chapter X


Statement of Policy Regarding Prohibition on Abusive Acts or 
Practices

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Policy statement.

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SUMMARY: Section 1031(a) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) provides that the Bureau of 
Consumer Financial Protection (Bureau) may use its supervisory and 
enforcement authority, among other things, to prevent a covered person 
or service provider from committing or engaging in an unfair, 
deceptive, or abusive act or practice under Federal law in connection 
with any transaction with a consumer for a consumer financial product 
or service, or the offering of a consumer financial product or service. 
Section 1031(d) of the Dodd-Frank Act sets forth general standards for 
when the Bureau may declare that an act or practice is abusive for 
purposes of the Dodd-Frank Act. Uncertainty remains as to the scope and 
meaning of abusiveness. This uncertainty creates challenges for covered 
persons in complying with the law. The Bureau wants to make sure that 
such uncertainty does not impede or deter the provision of otherwise 
lawful financial products or services that could be beneficial to 
consumers. To convey and foster greater certainty about the meaning of 
abusiveness, this general statement of policy (Policy Statement) 
provides a framework for the Bureau's exercise of its supervisory and 
enforcement authority to address abusive acts or practices.

DATES: This Policy Statement is applicable on January 24, 2020.

FOR FURTHER INFORMATION CONTACT: Colin Reardon, Division of 
Supervision, Enforcement, and Fair Lending, at (202) 435-9668. If you 
require this document in an alternative electronic format, please 
contact [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1031(a) of the Dodd-Frank Act provides that the Bureau may 
use its supervisory and enforcement authority, among other things, to 
prevent a covered person or service provider from committing or 
engaging in an unfair, deceptive, or abusive act or practice under 
Federal law in connection with any transaction with a consumer for a 
consumer financial product or service, or the offering of a consumer 
financial product or service.\1\ Since its inception, the Bureau has 
used its supervisory and enforcement authority to identify and seek 
relief where covered persons \2\ engage in unfair, deceptive, or 
abusive acts or practices (UDAAPs).
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    \1\ Public Law 111-203, Tit. X, sec. 1031(a), 124 Stat. 1376, 
2005 (2010) (codified at 12 U.S.C. 5531(a)).
    \2\ The Bureau intends this Policy Statement to apply with 
respect to any person against whom the Bureau cites conduct as 
abusive in supervision or challenges conduct as abusive in 
enforcement, including, where applicable, covered persons, service 
providers, and persons that provide substantial assistance to 
abusive conduct by a covered person or service provider. See 12 
U.S.C. 5514 through 5516, 5531, 5536. For brevity, this Policy 
Statement refers simply to ``covered persons'' throughout.
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    The statutory standard for what the Bureau has authority to declare 
an ``abusive act or practice'' is set forth in section 1031(d) of the 
Dodd-Frank Act. Specifically, section 1031(d) states that the Bureau 
shall have no authority under this section to declare an act or 
practice abusive in connection with the provision of a consumer 
financial product or service, unless the act or practice--(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--(A) a lack of understanding on the 
part of the consumer of the material risks, costs, or conditions of the 
product or service; (B) the inability of the consumer to protect the 
interests of the consumer in selecting or using a consumer financial 
product or service; or (C) the reasonable reliance by the consumer on a 
covered person to act in the interests of the consumer.\3\
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    \3\ 12 U.S.C. 5531(d).
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    Through the language in section 1031(d), Congress defined the 
abusiveness standard in general terms and did not attempt to include a 
complete list of abusive practices. To demonstrate a violation of 
section 1031(d), the Bureau therefore must satisfy the specific 
elements of sections 1031(d)(1), 1031(d)(2)(A), 1031(d)(2)(B), or 
1031(d)(2)(C). This Policy Statement refers to these provisions 
collectively as the ``abusiveness standard.''
    The Dodd-Frank Act is the first Federal law to prohibit abusive 
acts or practices with respect to consumer financial products and 
services generally.\4\ Although Congress, through the language in 
section 1031(d), provided some indication of the abusiveness standard, 
the Dodd-Frank Act does not further elaborate on the meaning of the 
terms used in section 1031(d), and there is relatively limited 
legislative history discussing the meaning of the language in section 
1031(d) (including in distinguishing the abusiveness standard from the

[[Page 6734]]

deception and unfairness standards).\5\ Moreover, the abusiveness 
standard does not have the long and rich history of the deception and 
unfairness standards. The FTC has used its authority under the FTC Act 
to address unfair and deceptive acts or practices (UDAPs) for more than 
80 years, over which time policy statements, administrative and 
judicial precedent, and statutory amendments have provided important 
clarifications about the meaning of unfairness and deception.\6\ 
Federal prudential regulators have also enforced the UDAP prohibitions 
in the FTC Act since before the Bureau's existence.
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    \4\ Certain other Federal consumer financial laws, including the 
Fair Debt Collection Practices Act (FDCPA) and the Home Ownership 
and Equity Protection Act (HOEPA), reference either the term 
``abusive'' or ``abuse.'' See 15 U.S.C. 1692d (FDCPA), 12 U.S.C. 
1639(p)(2)(B) (HOEPA). The Telemarketing and Consumer Fraud and 
Abuse Prevention Act also directed the Federal Trade Commission 
(FTC) to ``prescribe rules prohibiting deceptive telemarketing acts 
or practices and other abusive telemarketing acts or practices.'' 
See 15 U.S.C. 6102(a)(1).
    \5\ See, e.g., S. Rep. No. 111-176, at 172 (Apr. 30, 2010) 
(``Current law prohibits unfair or deceptive acts or practices. The 
addition of `abusive' will ensure that the Bureau is empowered to 
cover practices where providers unreasonably take advantage of 
consumers.''); Public Law 111-203, pmbl. (listing, in the preamble 
to the Dodd-Frank Act, one of the purposes of the Act as 
``protect[ing] consumers from abusive financial services 
practices''); see also S. Rep. No. 111-176, at 9 n.19 (``Today's 
consumer protection regime . . . could not stem a plague of abusive 
and unaffordable mortgages.''); id. at 11 (``This financial crisis 
was precipitated by the proliferation of poorly underwritten 
mortgages with abusive terms.''); H.R. Rep. No. 111-376, at 91 (Dec. 
9, 2009) (``Th[e] disparate regulatory system has been blamed in 
part for the lack of aggressive enforcement against abusive and 
predatory loan products that contributed to the financial crisis, 
such as subprime and nontraditional mortgages.''); H.R. Rep. No. 
111-517, at 876-77 (June 29, 2010) (Conf. Rep.) (``The Act also 
prohibits financial incentives . . . that may encourage mortgage 
originators . . . to steer consumers to higher-cost and more abusive 
mortgages.'').
    \6\ See, e.g., Letter from the FTC to Hon. Wendell Ford and Hon. 
John Danforth, Comm. on Commerce, Science and Transportation, U.S. 
Senate, Commission Statement of Policy on the Scope of Consumer 
Unfairness Jurisdiction (Dec. 17, 1980), reprinted in In re Int'l 
Harvester Co., 104 F.T.C. 949, 1070, 1073 (1984); Letter from the 
FTC to Hon. John D. Dingell, Chairman, Comm. on Energy and Commerce, 
U.S. House of Representatives (Oct. 14, 1983) (FTC policy statement 
on deception), reprinted in In re Cliffdale Assocs., Inc., 103 
F.T.C. 110, 174 (1984); Int'l Harvester Co., 104 F.T.C. at 949; Am. 
Fin. Servs. Ass'n v. FTC, 767 F.2d 957 (D.C. Cir. 1985); section 
5(n) of the FTC Act, 15 U.S.C. 45(n), as enacted by Congress in the 
Federal Trade Commission Act Amendments of 1994, Public Law 103-312, 
sec. 9, 108 Stat. 1691, 1695.
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    The Bureau has applied the abusiveness standard since it commenced 
operation in 2011. The Bureau has brought 32 enforcement actions that 
included an abusiveness claim, including as recently as fall 2019. But 
30 of those 32 enforcement actions had both an abusiveness and an 
unfairness or deception claim (i.e., only two enforcement actions 
contained just an abusiveness claim). And in many of those 30 actions, 
the abusiveness claim arose from the same course of conduct as the 
unfairness or deception claim. It is difficult to discern from those 
actions unique fact patterns to which only the abusiveness standard 
would apply. Given the prevalence of dual-pleading, along with the 
relatively nascent nature of this legal authority (and of the Bureau 
itself) and the number of matters the Bureau has resolved via 
settlement agreement, this enforcement activity has resulted in few 
reported judicial or Bureau administrative decisions that address the 
contours of the abusiveness standard.\7\ Regarding supervision, the 
Bureau's UDAAP examination procedures largely restate the language of 
the Dodd-Frank Act. And although the Bureau has issued 18 editions of 
Supervisory Highlights since 2012, these documents only rarely have 
described citations of abusive acts or practices in a manner that would 
provide guidance as to how the Bureau concluded the statutory language 
used in section 1031(d) applied to the conduct at issue. Additionally, 
the Bureau has mentioned the risk of abusive acts or practices in non-
binding guidance documents but has not set forth a detailed explication 
of the abusiveness standard in such documents.\8\
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    \7\ These few reported decisions are all from Federal district 
courts. See, e.g., CFPB v. ITT Educ. Servs., Inc., 219 F. Supp. 3d 
878 (S.D. Ind. 2015).
    \8\ See, e.g., CFPB Bulletin 2014-02, Marketing of Credit Card 
Promotional APR Offers (Sept. 3, 2014), https://files.consumerfinance.gov/f/201409_cfpb_bulletin_marketing-credit-card-promotional-apr-offers.pdf (describing ``risk of engaging in an 
abusive practice'').
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    The Bureau's 2017 Final Rule on Payday, Vehicle Title, and Certain 
High-Cost Installment Loans (2017 Final Rule) included identification 
of two abusive practices: The first with respect to making a covered 
loan without determining a consumer's ability to repay (remedied by 
stringent underwriting requirements prescribed by the Bureau), and the 
second with respect to making repeated failed attempts to debit a 
consumer's account to collect payment on a covered loan.\9\ In the 2017 
Final Rule, the Bureau identified the same two practices as unfair 
practices. The Bureau has proposed to rescind the ability-to-repay 
provisions of the 2017 Final Rule and the identification of the abusive 
and unfair practice on which those provisions are based (2019 
Rescission Proposal).\10\ One of the Bureau's rationales for the 2019 
Rescission Proposal was its preliminary conclusion that legal grounds 
do not sustain the 2017 Final Rule's identification as an abusive 
practice the making of a covered loan without determining the 
consumer's ability to repay (remedied by stringent underwriting 
requirements prescribed by the Bureau).
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    \9\ Payday, Vehicle Title, and Certain High-Cost Installment 
Loans, 82 FR 54472 (Nov. 17, 2017).
    \10\ Payday, Vehicle Title, and Certain High-Cost Installment 
Loans, 84 FR 4252, 4276 (Feb. 14, 2019).
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    Substantial concerns have been raised about the uncertain meaning 
of the abusiveness standard. For example, in response to the Bureau's 
Spring 2018 Call for Evidence, the Bureau received comments from 
stakeholders about these concerns.\11\

[[Page 6735]]

Many commentators and other stakeholders have raised similar concerns 
dating back to the early years of the Bureau,\12\ although the 
viewpoints have not been uniform.\13\
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    \11\ In response to the Bureau's Requests for Information on the 
Bureau's Adopted Regulations and New Rulemaking Authorities and the 
Bureau's Inherited Regulations and Inherited Rulemaking Authorities, 
the Bureau received approximately 15 comments that addressed the 
Bureau's UDAAP authorities (nearly all from trade associations or 
other industry stakeholders). See generally Request for Information 
Regarding the Bureau's Adopted Regulations and New Rulemaking 
Authorities, Mar. 21, 2018, Docket CFPB-2018-0011, https://www.regulations.gov/?D=CFPB-2018-0011, and Request for Information 
Regarding the Bureau's Inherited Regulations and Inherited 
Rulemaking Authorities, Mar. 26, 2018, Docket CFPB-2018-0012, 
https://www.regulations.gov/?D=CFPB-2018-0012. The most common 
UDAAP-related issue identified by these commenters was the lack of 
clarity presented by the abusiveness standard. For example, a credit 
card issuer commented that the unclear statutory definition of 
``abusive'' practices combined with a lack of Bureau guidance on the 
standard ``creates uncertainty, chills beneficial innovation, and 
leads to unnecessary compliance burdens for institutions trying in 
good faith to comply with the law.'' A trade association 
representing credit unions wrote that ``[c]onsumers and industry 
need more certainty about exactly what the rules and requirements 
are and how the Bureau plans to engage in enforcement actions 
surrounding them.'' A policy and research organization commented 
that the abusiveness standard leaves financial institutions ``mired 
in confusion'' and that ``[a]n ambiguous abusive standard is not 
conducive to a well-functioning financial market or regulatory 
system.'' Note that some stakeholders raised these concerns in 
response to other Spring 2018 Call for Evidence dockets. For 
example, a trade association commented in response to the Request 
for Information Regarding Bureau Enforcement Processes that the 
Bureau should address the ``great deal of uncertainty'' around the 
abusiveness standard ``by describing in rulemaking or public 
guidance the circumstances under which the Bureau will bring 
`abusive' cases under its UDAAP authority.'' See generally Request 
for Information Regarding Bureau Enforcement Processes, Feb. 12, 
2018, CFPB-2018-0003, https://www.regulations.gov/docket?D=CFPB-2018-0003.
    \12\ See, e.g., Joshua L. Roquemore, The CFPB's Ambiguous 
``Abusive'' Standard, 22 N.C. Banking Inst. 191, 196 (2018) (``While 
there may be benefits to greater regulatory oversight, there are 
also risks associated with vague and arbitrary legal standards, and 
this is even more pronounced in the highly regulated consumer 
finance industry. One factor that has fueled uncertainty surrounding 
the new standard is the CFPB's tendency to allege two or more 
standards for the same act or practice, thus blurring any lines of 
distinction between the terms.''); Patrick M. Corrigan, ``Abusive'' 
Acts and Practices: Dodd-Frank's Behaviorally Informed Authority 
Over Consumer Credit Markets and its Application to Teaser Rates, 18 
N.Y.U. J. Legis. & Pub. Policy 125, 151 (2015) (noting that ``the 
CFPB has yet to demonstrate a coherent and consistent understanding 
of its own abuse authority'' which has led to ``conceptual 
confusion'' and resulted in ``an articulation of the abuse standard 
that blurs into the deception and unfairness standards''); Rob 
Blackwell, U.S. Chamber Pressures CFPB to Define ``Abusive,'' Am. 
Banker (July 3, 2012), https://www.americanbanker.com/news/us-chamber-pressures-cfpb-to-define-quot-abusive-quot (describing a 
letter from the president and chief executive of the U.S. Chamber of 
Commerce's Center for Capital Markets Competitiveness to former 
Bureau Director Richard Cordray asserting that a ``policy statement 
defining the term . . . will help prevent divergent interpretations 
of the `abusive' standard); Joshua Wright, Dodd-Frank's Abusive 
Standard: A Call for Certainty, 8 Berkeley Bus. L.J. 164, 169 (2011) 
(asserting that unless the Bureau clarifies its enforcement 
intentions and creates regulatory safe harbors regarding the 
abusiveness standard, ``[b]anks may begin to limit themselves to 
`plain vanilla' products and services to avoid scrutiny by the 
Bureau and the risk that explanations of more complex products will 
not be adequate under the new standards of the Act'').
    \13\ See, e.g., Stephen J. Canzona, I'll Know It When I See It: 
Defending the Consumer Financial Protection Bureau's Approach of 
Interpreting the Scope of Unfair, Deceptive, or Abusive Acts or 
Practices (``UDAAP'') through Enforcement Actions, 45 J. Legis. 60, 
61, 79 (2018) (arguing that ``the CFPB's practice of interpreting 
UDAAP standards through enforcement actions strikes the proper 
balance between safeguarding the interests of consumers and 
responsible providers of financial services'' and that to date the 
Bureau has applied its UDAAP enforcement authority to a ``narrow 
range of conduct that . . . is clearly proscribed by the plain 
meaning of the terms `unfair,' `deceptive,' and `abusive' . . . 
[and] does not present meaningful due process concerns to 
responsible financial services providers''); Christopher L. 
Peterson, Consumer Financial Protection Bureau Law Enforcement: An 
Empirical Review, 90 Tul. L. Rev. 1057, 1100-01 (2016) 
(characterizing the Bureau's approach toward the abusiveness 
standard as ``cautiously incremental, focused on peripheral 
companies with highly offensive practices, oriented toward 
protecting vulnerable consumers, largely concomitant with 
traditional deception or unfairness claims, and entirely advanced 
through either negotiated settlements or under the adjudication of 
federal judges'').
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    To obtain further information about these concerns, in June 2019 
the Bureau held a Symposium on Abusive Acts or Practices 
(Symposium).\14\ At the Symposium, eight academics and practitioners 
with expertise in UDAAP issues engaged in dialogue on a number of 
topics, including the necessity of clarifying the abusiveness standard 
(and if so, whether rulemaking or another tool should be used), the 
degree of uncertainty posed by the statutory language, the particular 
aspects of the standard most in need of clarification, the practical 
consequences of this uncertainty on consumer financial markets, and how 
the Bureau should enforce the abusiveness standard. These experts also 
submitted written statements as part of their participation in the 
Symposium.\15\
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    \14\ https://www.consumerfinance.gov/about-us/events/archive-past-events/cfpb-symposium-abusive-acts-or-practices/(last visited 
Jan. 16, 2020). The Symposium included two panels, each featuring 
four outside experts and a Bureau moderator. The first panel 
included academics specializing in consumer protection issues. The 
second panel featured practitioners with significant experience 
applying UDAP laws at the Federal and State levels. Among the 
panelists were several former Bureau and FTC officials. The Bureau 
selected the panelists to represent diverse viewpoints on the topics 
under discussion.
    \15\ See id.
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    The Symposium participants provided a variety of perspectives. Most 
urged the Bureau to take action to clarify the abusiveness standard to 
help entities comply with the law.\16\ Others expressed the alternative 
view that the statutory definition of abusiveness is sufficiently clear 
and that, to the extent further clarification may be warranted, the 
Bureau should wait until a more extensive body of precedent 
interpreting the standard has developed.\17\ In short, although not 
unanimous, most of the experts agreed that there is uncertainty as to 
the scope and meaning of abusiveness that the Bureau should seek to 
resolve.
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    \16\ See, e.g., William MacLeod, Interpreting Abusive Practices 
at 8, submission for CFPB Symposium, https://files.consumerfinance.gov/f/documents/cfpb_macleod-written-statement_symposium-abusive.pdf (``[C]lients continue to tell us 
that the ambiguity surrounding the authority contributes to 
regulatory uncertainty that results in certain products and services 
being curtailed or not offered to certain populations altogether. 
Simply adding some certainty and predictability to the abusiveness 
standard could yield significant benefits. There should be no need 
to cite authority for the proposition that uncertainty is an 
impediment to investment and innovation. When uncertainty applies to 
the legality of a business practice, the reaction in markets is 
predictable. Legitimate businesses shy away.''); Letter from Lucy 
Morris to Bureau Director Kathleen Kraninger Regarding Abusive Acts 
or Practices Symposium, at 3 (June 17, 2019), https://files.consumerfinance.gov/f/documents/cfpb_morris-written-statement_symposium-abusive.pdf (noting that ``[t]here are different 
ways that the Bureau could provide guidance, without limiting its 
broad legal authority to protect consumers,'' that ``[a]t a minimum, 
the Bureau should use its abusiveness authority carefully and 
sparingly, to show through cases (and its other tools) how 
abusiveness is unique and different from unfairness and deception'' 
and to avoid ```overlapping UDAAP claims,''' and suggesting 
alternatively that the Bureau issue a policy statement or other 
guidance on the abusiveness standard).
    \17\ See, e.g., Adam J. Levitin, ``Abusive'' Acts and Practices: 
Towards a Definition?, Written Submission Prepared for CFPB 
Symposium on ``Abusive'' at 6-7, 9, https://.consumerfinance.gov//
documents/cfpb_levitin-written-statement_symposium-abusive.pdf 
(arguing that the ``statutory language of the [Dodd-Frank Act] and 
the Bureau's enforcement actions to date provide a sense of the 
scope of `abusive,' '' that ``[t]he Bureau would do better to allow 
the term to be better defined through the common law process,'' and 
that ``there is no evidence that uncertainty on the issue is 
affecting business practices at all; the claims of certain trade 
associations on the matter are completely unsubstantiated''); 
Nicholas F.B. Smyth, presenting on behalf of Pennsylvania Attorney 
General Josh Shapiro, Statement submitted to the Bureau for the 
symposium on Abusive Acts or Practices at 1, 5 (June 25, 2019), 
https://files.consumerfinance.gov/f/documents/cfpb_smyth-written-statement_symposium-abusive.pdf (asserting that ``the purported 
cloud of uncertainty created by the [abusiveness standard] has been 
exaggerated,'' that the abusiveness standard ``does not stifle 
innovation any more than the prohibitions on unfairness or deception 
do,'' and that ``[e]very time Congress creates a new standard, there 
is a period of time when some uncertainty may exist as to what 
conduct violates that standard and what does not. This is perfectly 
normal, and the Courts are well equipped to interpret new 
standards.'').
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    The Symposium participants' feedback has been an important part of 
the process of determining whether the Bureau should use its rulemaking 
or other tools to provide clarity about the general meaning of the 
abusiveness standard--and, if so, which principles should be applied to 
determine the scope of the standard. The Bureau appreciates the 
differing perspectives shared by these experts--and by the many other 
stakeholders who have expressed views on this issue.
    The Bureau has concluded that there is uncertainty as to the scope 
and meaning of the abusiveness standard.\18\ The current uncertainty is 
not beneficial. Businesses that want to comply with the law face 
significant challenges in doing so, and these

[[Page 6736]]

challenges can impose substantial costs, including impeding innovation. 
As a result of those costs, consumers may lose the benefits of improved 
products or services and lower prices. In light of this uncertainty, 
the Bureau has decided to provide greater clarity on how the Bureau 
plans to implement and apply the abusiveness standard in its 
supervisory and enforcement work. In issuing this Policy Statement, the 
Bureau does not foreclose the possibility of engaging in a future 
rulemaking to further define the abusiveness standard.
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    \18\ Although the Bureau seeks to foster greater certainty 
regarding the abusiveness standard through this Policy Statement, it 
should be noted that courts have consistently found that the 
statutory language in section 1031(d) provides sufficient notice for 
due process purposes. See, e.g., Consumer Fin. Prot. Bureau v. All 
Am. Check Cashing, Inc., No. 16-cv-356, 2018 WL 9812125, at *3 (S.D. 
Miss. Mar. 21, 2018) (rejecting vagueness challenge to the 
abusiveness prohibition); ITT Educ. Servs., 219 F. Supp. 3d at 906 
(``Because the CFPA itself elaborates the conditions under which a 
business's conduct may be found abusive--and because agencies and 
courts have successfully applied the term as used in closely related 
consumer protection statutes and regulations--we conclude that the 
language in question provides at least the minimal level of clarity 
that the due process clause demands of non-criminal economic 
regulation.''); Illinois v. Alta Colleges, Inc., No. 14-cv-3786, 
2014 WL 4377579, at *4 (N.D. Ill. Sept. 4, 2014) (rejecting 
vagueness challenge to abusiveness prohibition). Nothing in this 
Policy Statement should be interpreted to suggest that the assertion 
of abusiveness claims in the Bureau's prior or future enforcement 
actions was or will be contrary to due process.
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II. Policy Statement

    Clarifying the abusiveness standard is in the public interest and 
the issuance of a supervision and enforcement policy statement 
regarding the abusiveness standard is beneficial to all stakeholders. 
Among other things, greater certainty as to how the Bureau intends to 
use the abusiveness standard in supervision and enforcement furthers 
the Bureau's purpose in implementing and enforcing the prohibition on 
abusiveness in the Dodd-Frank Act.\19\ In addition, an approach to the 
abusiveness standard that provides greater certainty and fosters the 
development of a clearer standard will promote compliance with that 
standard. This compliance, in turn, assists the Bureau in achieving its 
objective under the Dodd-Frank Act of protecting consumers from abusive 
acts or practices.\20\ The Bureau therefore issues this Policy 
Statement to describe certain aspects of how it intends to approach its 
use of the abusiveness standard in its supervision and enforcement 
matters going forward.\21\
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    \19\ 12 U.S.C. 5511(a).
    \20\ 12 U.S.C. 5511(b)(2).
    \21\ The Bureau intends to apply this Policy Statement going 
forward in its enforcement and supervisory activities. Where the 
Bureau has previously asserted an abusiveness claim in an 
enforcement action that remains pending in court, the Bureau in its 
discretion will determine how to proceed in light of this Policy 
Statement based on the facts and circumstances of the particular 
case. In general, the Bureau intends to take this Policy Statement 
into account when seeking monetary relief in pending cases asserting 
abusiveness claims.
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    First, consistent with the priority it accords to the prevention of 
harm, the Bureau intends to focus on citing conduct as abusive in 
supervision or challenging conduct as abusive in enforcement if the 
Bureau concludes that the harms\22\ to consumers from the conduct 
outweigh its benefits to consumers.\23\ Second, the Bureau will 
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. Where the Bureau nevertheless decides to include an alleged 
abusiveness violation, the Bureau intends to plead such claims in a 
manner designed to clearly demonstrate the nexus between the cited 
facts and the Bureau's legal analysis of the claim. In its supervision 
activity, the Bureau similarly intends to provide more clarity as to 
the specific factual basis for determining that a covered person has 
violated the abusiveness standard. Third, the Bureau 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.
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    \22\ The Bureau's consideration of the harms and benefits of the 
conduct (i.e., its effects) on consumers can be qualitative as well 
as quantitative. That is, a quantitative analysis is not necessary 
for every citation or challenge to conduct as being a violation of 
the abusiveness standard.
    \23\ Competition among firms can lead to lower prices for and 
innovation in consumer financial products and services. 
Consequently, conduct that fosters competition can benefit 
consumers, while conduct that impedes competition can harm 
consumers.
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A. Prevention of Consumer Harm From Abusive Acts or Practices

    The Dodd-Frank Act authorizes the Bureau to exercise its 
authorities under Federal consumer financial law, including the 
authority to issue supervision and enforcement policy statements, for 
the purpose of ensuring that ``consumers are protected from unfair, 
deceptive, and abusive acts and practices,'' \24\ thereby preventing 
the harm to consumers from the conduct. The Dodd-Frank Act also states 
that the Bureau shall seek to implement and, where applicable, enforce 
Federal consumer financial law consistently for the purpose of ensuring 
that ``all consumers have access to markets for consumer financial 
products and services'' and that such markets are ``fair, transparent, 
and competitive.'' \25\ To fulfill these statutory mandates, the Bureau 
has made it a priority to direct its supervisory, enforcement, and 
other tools to the prevention of harm to consumers from unlawful acts 
and practices.\26\
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    \24\ 12 U.S.C. 5511(b)(2).
    \25\ 12 U.S.C. 5511(a).
    \26\ See, e.g., Kathleen L. Kraninger's Speech at the Exchequer 
Club (July 18, 2019), https://www.consumerfinance.gov/about-us/newsroom/kathleen-l-kraningers-speech-exchequer-club/.
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    Consistent with the priority it accords to the prevention of harm, 
the Bureau intends to focus on citing conduct as abusive in supervision 
and challenging conduct as abusive in enforcement if the Bureau 
concludes that the harms to consumers from the conduct outweigh its 
benefits to consumers (including its effects on access to credit).\27\ 
Explicitly incorporating this focus into the Bureau's supervision and 
enforcement decisions concerning abusiveness not only ensures that the 
Bureau is committed to using its scarce resources to address conduct 
that harms consumers, but also ensures that the Bureau's supervisory 
and enforcement decisions are consistent across matters.
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    \27\ The Bureau's focus on the effects of conduct on consumers 
is consistent with the FTC's approach to unfairness and deception. 
Section 5(n) of the FTC Act expressly codifies, in its unfairness 
standard, a weighing of the costs and benefits of the conduct at 
issue. 15 U.S.C. 45(n). Section 5 of the FTC Act does not expressly 
direct the FTC to consider costs and benefits as part of its 
deception standard. 15 U.S.C. 45(a)(1). As a leading commentator has 
explained, however, ``the primary difference between full-blown 
unfairness analysis and deception analysis is that deception does 
not ask about offsetting benefits. Instead, it presumes that false 
or misleading statements either have no benefits, or that the injury 
they cause to consumers can be avoided by the company at very low 
cost. In other words, deception analysis essentially creates a 
shortcut, assuming that when a material falsehood exists, the 
practice would not pass the full benefit/cost analysis of 
unfairness, because there are rarely, if ever, countervailing 
benefits to deception.'' J. Howard Beales, The FTC's Use of 
Unfairness Authority: Its Rise, Fall, and Resurrection (May 30, 
2005), https://www.ftc.gov/public-statements/2003/05/ftcs-use-unfairness-authority-its-rise-fall-and-resurrection.
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B. Articulating Acts or Practices That Violate the Abusiveness Standard

    Whether conduct constitutes an unfair, deceptive, or abusive act or 
practice often is dependent upon the facts and circumstances of a 
particular matter. In enforcement, the Bureau's experience indicates 
that a single course of conduct may provide the factual basis for 
allegations of unfair, deceptive, or abusive acts or practices. Where 
such circumstances arise, the Bureau intends generally to avoid 
alleging an abusiveness violation that relies on all or nearly all the 
same facts as an unfairness or deception violation.\28\ The Bureau 
nevertheless intends to allege ``stand-alone'' abusiveness violations 
(i.e., violations that are not accompanied by related unfairness or 
deception violations) where doing so would be consistent with the 
abusiveness standard and this Policy Statement. Where the Bureau 
alleges ``stand-alone'' abusiveness violations, it intends to plead 
such claims in a manner designed to demonstrate clearly the nexus 
between the cited facts and

[[Page 6737]]

the Bureau's legal analysis of the claims.\29\
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    \28\ In limited circumstances, the Bureau intends to allege both 
an abusiveness violation and a related unfairness or deception 
violation where it would help clarify the scope of the abusiveness 
standard. Where the Bureau alleges both an abusiveness violation and 
a related unfairness or deception violation, the Bureau intends to 
allege the abusiveness violation with sufficient detail to 
distinguish it from the related unfairness or deception violation.
    \29\ Because the Bureau will be guided by the facts in 
determining which claims to bring, examinations and investigations 
may seek information that could relate to unfair, deceptive, or 
abusive acts or practices without distinguishing among the potential 
claims. The Bureau may also use its supervisory and enforcement 
processes to seek an institution's written response where the facts 
indicate that the institution's conduct may qualify as abusive or 
unfair or deceptive.
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    The Bureau believes that this approach to pleading will provide 
more certainty to covered persons as to the metes and bounds of conduct 
the Bureau determines is abusive. It also will facilitate the 
development of a body of jurisprudence as to the conduct courts 
conclude is abusive.\30\
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    \30\ To the extent practicable, the Bureau in the future intends 
to develop model pleadings and updates to its UDAAP examination 
procedures in order to provide greater specificity and clarity as to 
the abusiveness standard.
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    In its supervision activity, the Bureau similarly intends to 
provide more clarity as to the factual basis for determining that a 
covered person has violated the abusiveness standard. In citing covered 
persons during examinations for having engaged in abusive acts or 
practices, the Bureau intends to apply the same approach as set forth 
above with regard to pleading abusiveness in enforcement actions. In 
addition, in future editions of Supervisory Highlights, the Bureau 
intends to describe the basis for abusiveness citations with greater 
clarity (consistent with the need to keep the identity of the 
supervised entities confidential). Additional clarity in supervisory 
materials about how the Bureau views particular facts and how those 
facts support an abusiveness violation will result in more transparency 
as to the conduct the Bureau determined violates the abusiveness 
standard, thereby providing more certainty, especially as to covered 
persons who are subject to Bureau supervisory authority.

C. Limits on Monetary Relief in Abusiveness Enforcement Actions

    The Bureau recognizes that covered persons must make decisions 
about whether to engage in conduct notwithstanding uncertainty as to 
whether the Bureau will allege that conduct violates the abusiveness 
standard and will seek substantial amounts in monetary relief based on 
the alleged violation. This uncertainty and its consequences may chill 
or overly deter covered persons from engaging in conduct that may be 
beneficial to consumers.
    Accordingly, to ensure that uncertainty regarding the abusiveness 
standard does not impede beneficial conduct, the Bureau generally does 
not intend to seek certain monetary remedies for abusive acts or 
practices if the covered person made a good-faith effort to comply with 
the law based on a reasonable--albeit mistaken--interpretation of the 
abusiveness standard.\31\ Similarly, in supervisory actions, the Bureau 
will apply the same standard when requesting action as a result of 
violations in Matters Requiring Attention or other supervisory 
requests. However, if a covered person makes a good-faith but 
unsuccessful effort to comply with the abusiveness standard, the Bureau 
still intends to seek legal or equitable remedies, such as damages and 
restitution, to redress identifiable consumer injury caused by the 
abusive acts or practices that would not otherwise be redressed. Absent 
unusual circumstances, the Bureau does not intend to seek civil 
penalties or disgorgement if a covered person made good-faith efforts 
to comply with the abusiveness standard.
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    \31\ Although the covered person's good-faith efforts to comply 
would be relevant to whether the Bureau seeks monetary remedies, it 
would not be an affirmative defense to an alleged violation.
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    Further, the Bureau emphasizes that it is committed to aggressively 
pursuing the full range of monetary remedies against bad actors who 
were not acting in good faith in violating the abusiveness standard, 
such as those who engage in fraudulent practices or consumer scams. The 
Bureau's seeking such relief will prevent and deter the continuation or 
recurrence of such abusive acts or practices.
    In determining whether a covered person made a good-faith effort to 
comply with the abusiveness standard, the Bureau intends to consider 
all relevant factors, including but not limited to the considerations 
outlined in CFPB Bulletin 2013-06 regarding Responsible Business 
Conduct.\32\ A ``reasonable'' interpretation for purposes of this 
Policy Statement is one based on the text of the abusiveness standard 
set forth in the Dodd-Frank Act, as well as prior precedent and 
guidance, including judicial precedent, the Bureau's administrative 
decisions, rulemakings, supervisory guidance, and past allegations of 
abusive acts or practices in public enforcement actions.
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    \32\ See https://files.consumerfinance.gov/f/201306_cfpb_bulletin_responsible-conduct.pdf. See also 12 U.S.C. 
5565(c)(3)(A).
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    Covered persons that believe that regulatory uncertainty is 
hindering the development of new products or services are also reminded 
that the Bureau has created the Office of Innovation to focus on 
encouraging consumer-beneficial innovation. The Bureau, primarily 
through the Office of Innovation, has issued policies to reduce 
regulatory uncertainty and processes applications from entities under 
those policies.\33\
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    \33\ See CFPB Issues Policies to Facilitate Compliance and 
Promote Innovation (Sept. 10, 2019), https://www.consumerfinance.gov/about-us/newsroom/bureau-issues-policies-facilitate-compliance-promote-innovation/.
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D. Conclusion

    For the reasons set forth above, in alleging an act or practice as 
abusive in violation of the Dodd-Frank Act, the Bureau intends to apply 
the following principles: (1) Consistent with the priority it accords 
to the prevention of harm, the Bureau intends to focus on citing 
conduct as abusive in supervision or challenging conduct as abusive in 
enforcement if the Bureau concludes that the harms to consumers from 
the conduct outweigh its benefits to consumers; (2) the Bureau will 
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. Where the Bureau nevertheless decides to include an alleged 
abusiveness violation, the Bureau intends to plead such claims in a 
manner designed to clearly demonstrate the nexus between the cited 
facts and the Bureau's legal analysis of the claim. In its supervision 
activity, the Bureau similarly intends to provide more clarity as to 
the specific factual basis for determining that a covered person has 
violated the abusiveness standard; and (3) the Bureau 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. Nothing in these principles 
affect whether and how the Bureau will proceed in taking supervisory or 
enforcement action to address violations of any other provision of the 
Dodd-Frank Act (including its prohibition of unfair or deceptive acts 
or practices), or any of the other statutes, rules, or orders that the 
Bureau enforces.

III. Regulatory Requirements

    This Policy Statement constitutes a general statement of policy 
that is exempt from the notice and comment rulemaking requirements of 
the Administrative Procedure Act.\34\ It is intended to provide 
information regarding the Bureau's general plans to exercise its 
discretion and does not impose any legal requirements on

[[Page 6738]]

external parties, nor does it create or confer any substantive rights 
on external parties that could be enforceable in any administrative or 
civil proceeding. Because no notice of proposed rulemaking is required, 
the Regulatory Flexibility Act does not require an initial or final 
regulatory flexibility analysis. The Bureau has also determined that 
this Policy Statement does not impose any new or revise any existing 
recordkeeping, reporting, or disclosure requirements on covered 
entities or members of the public that would be collections of 
information requiring approval by the Office of Management and Budget 
under the Paperwork Reduction Act.
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    \34\ 5 U.S.C. 553(b). However, this is not a ``statement of 
policy'' as that term is specifically used in Regulation X, 12 CFR 
1024.4(a)(1)(ii).
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    Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., the 
Bureau will submit a report containing this Policy Statement and other 
required information to the United States Senate, the United States 
House of Representatives, and the Comptroller General of the United 
States prior to its applicability date. The Office of Information and 
Regulatory Affairs has designated this Policy Statement as not a 
``major rule'' as defined by 5 U.S.C. 804(2).

    Dated: January 21, 2020.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2020-01661 Filed 2-5-20; 8:45 am]
BILLING CODE 4810-AM-P