[Federal Register Volume 86, Number 52 (Friday, March 19, 2021)]
[Rules and Regulations]
[Pages 14808-14810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05437]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Chapter X


Statement of Policy Regarding Prohibition on Abusive Acts or 
Practices; Rescission

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Rescission of statement of policy.

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SUMMARY: The Bureau of Consumer Financial Protection is rescinding the 
Statement of Policy Regarding Prohibition on Abusive Acts or Practices.

DATES: This rescission of the policy statement published at 85 FR 6733 
on February 6, 2020, is applicable on March 19, 2021.

FOR FURTHER INFORMATION CONTACT: Mehul Madia, Division of Supervision, 
Enforcement, and Fair Lending, at (202) 435-7104. If you require this 
document in an alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION: 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 
authorities, 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\ 
Section 1031(d) of the Dodd-Frank Act sets forth standards for when the 
Bureau may declare that an act or practice is abusive for purposes of 
the Dodd-Frank Act.
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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)); see also 12 U.S.C. 
5536(a)(1)(B) (making it unlawful for any covered person or service 
provider to engage in any abusive act or practice).
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    On January 24, 2020, the Bureau announced a policy statement 
entitled ``Statement of Policy Regarding Prohibition on Abusive Acts or 
Practices'' (Policy Statement), which provided a framework for the 
Bureau's exercise of its supervisory and enforcement authority to 
address abusive acts or practices.\2\ Specifically, the Policy 
Statement provided that the Bureau intended to apply the following 
three principles during its supervision and enforcement work. First, 
the Bureau stated that it intended to focus on citing conduct as 
abusive in supervision or challenging conduct as abusive in enforcement 
if the Bureau concluded that the harms to consumers from the conduct 
outweighed its benefits to consumers.\3\ Second, the Bureau stated that 
it would generally avoid challenging conduct as abusive that relied on 
all or nearly all of the same facts that the Bureau alleged are unfair 
or deceptive.\4\ The Bureau stated that where it nevertheless decided 
to include an alleged abusiveness violation, the Bureau intended 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. 
The Bureau stated that, in its supervision activity, the Bureau 
similarly intended to provide more clarity as to the specific factual 
basis for determining that a covered person had violated the 
abusiveness standard.\5\ Third, the Bureau stated that it generally did 
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.\6\
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    \2\ 85 FR 6733 (Feb. 6, 2020).
    \3\ Id. at 6736.
    \4\ Id.
    \5\ Id.
    \6\ Id.
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    The Bureau asserted that the Policy Statement was necessary to 
address the uncertainty of the abusiveness standard based on the 
Bureau's conclusions that such uncertainty was ``not beneficial,'' 
presented ``significant challenges'' to businesses, imposed 
``substantial costs, including impeding innovation,'' and may cause 
consumers to ``lose the benefits of improved products or services and 
lower prices.'' \7\ As the Policy Statement referenced, some panelists 
at the Bureau's June 2019 Symposium on Abusive Acts or Practices urged 
the Bureau to resolve the abusiveness standard's uncertainty for these 
and other reasons,\8\ while others expressed the view that the 
statutory definition of abusiveness is sufficiently clear and that no 
evidence supported the claims that the uncertainty had affected 
business practices, including chilling innovation.\9\
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    \7\ Id. at 6735-36.
    \8\ Id. at 6735 n.16 (citing panelists from the Bureau's June 
2019 Symposium on Abusive Acts or Practices).
    \9\ 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://files.consumerfinance.gov/f/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 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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    Based on its review of, and experience in applying, the Policy 
Statement, however, the Bureau has concluded that the principles set 
forth in the Policy Statement do not actually deliver clarity to 
regulated entities. In fact, the Policy Statement's intended 
principles, including ``making a good-faith effort to comply with the 
abusiveness standard,'' themselves afford the Bureau considerable 
discretion in its application and add uncertainty to market 
participants. Additionally, the Bureau's further consideration of and 
experience under the Policy Statement have led it to conclude that the 
intended principles have the effect of hampering certainty over time. 
Not asserting abusiveness claims solely because of their overlap with 
unfair or deceptive conduct or based on the other intended principles 
articulated in the Policy Statement has the effect of slowing the 
Bureau's ability to clarify the statutory abusiveness standard by 
articulating abusiveness claims as well as through the ensuing issuance 
of judicial and administrative decisions. It is thus counterproductive 
to the purpose of the original Policy Statement.

[[Page 14809]]

    The Policy Statement also provided that the Bureau intended to 
focus on citing conduct as abusive in supervision and challenging 
conduct as abusive in enforcement if the Bureau concluded that the 
harms to consumers from the conduct outweighed its benefits to 
consumers. This principle was intended to ``ensure[ ] that the Bureau 
is committed to using its scarce resources to address conduct that 
harms consumers'' and to ensure consistency across supervisory and 
enforcement matters.\10\ The Bureau has concluded, however, that there 
is no basis to treat application of the abusiveness standard 
differently from the normal considerations that guide the Bureau's 
general use of its enforcement and supervisory discretion. The Bureau 
also did not find this principle helpful in practice.
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    \10\ 85 FR at 6735-36.
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    Moreover, based on its review of, and experience in applying, the 
Policy Statement, the Bureau has concluded that the principles set 
forth in the Policy Statement have the opposite effect on preventing 
harm. One of the Bureau's statutory objectives is ``ensuring that, with 
respect to consumer financial products and services . . . consumers are 
protected from unfair, deceptive, or abusive acts and practices and 
from discrimination.'' \11\ Declining to apply the full scope of the 
statutory standard pursuant to the policy has a negative effect on the 
Bureau's ability to achieve its statutory objective of protecting 
consumers from abusive practices. In particular, the policy of 
declining to seek certain types of monetary relief for abusive acts or 
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 the Bureau's current priority of maximizing the Bureau's 
ability to successfully resolve its contested litigation, as it does 
not allow the Bureau to assert alternative legal causes of action in a 
judicial action or administrative proceeding. The Bureau's statutory 
purpose includes ``ensuring . . . that markets for consumer financial 
products and services are fair, transparent, and competitive.'' \12\ 
Declining to cite or penalize conduct as abusive based on the 
articulated principles in the Policy Statement may also skew the 
consumer financial marketplace, to the detriment of market participants 
who do not act abusively. The Bureau will, of course, continue to 
engage in typical prosecutorial discretion as appropriate and can use 
that discretion to marshal its resources effectively.
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    \11\ 12 U.S.C. 5511(b)(2).
    \12\ 12 U.S.C. 5511(a).
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    The Policy Statement was not required under the abusiveness 
standard set forth in the Dodd-Frank Act. 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. The Policy 
Statement stated an intent to refrain from applying the abusiveness 
standard even when permitted by law. Had Congress intended to limit the 
Bureau's authority to apply the full scope of the abusiveness standard, 
it could have prescribed a narrower abusiveness prohibition, but it did 
not. As the Policy Statement itself acknowledged, courts have 
consistently found that section 1031(d) provides sufficient notice for 
due process purposes.\13\ Moreover, because the Policy Statement did 
not create binding legal obligations on the Bureau or create or confer 
any substantive rights on external parties, it did not create any 
reasonable reliance interests for industry participants. Thus, 
rescinding the Policy Statement is consistent with the Bureau's 
statutory authority.
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    \13\ See, e.g., CFPB 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); CFPB v. ITT 
Educ. Servs., Inc., 219 F. Supp. 3d 878, 906 (S.D. Ind. 2015) 
(``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).
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    The Bureau has determined that it should exercise the full scope of 
its supervisory and enforcement authority to identify and remediate 
abusive acts or practices. On reconsideration, the Bureau has concluded 
the Policy Statement's effectiveness in accomplishing its stated 
purposes does not justify its potential to harm consumers and the 
marketplace. For these reasons, the Bureau is rescinding the Policy 
Statement and instead, in its discretion, intends to exercise its 
supervisory and enforcement authority consistent with the Dodd-Frank 
Act and with the full authority afforded by Congress consistent with 
the statutory purpose and objectives of the Bureau.
    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.\14\ 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). When the Bureau alleges an abusiveness 
violation, the Bureau intends to satisfy these elements.
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    \14\ 12 U.S.C. 5531(d).
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    Regulatory Requirements: The Policy Statement constituted a general 
statement of policy exempt from the notice and comment rulemaking 
requirements of the Administrative Procedure Act (APA).\15\ It was 
intended to provide information regarding the Bureau's general plans to 
exercise its supervisory and enforcement discretion and did not impose 
any legal requirements on external parties, nor did it create or confer 
any substantive rights on external parties that could be enforceable in 
any administrative or civil proceeding. The rescission of this policy 
statement likewise is a general statement of policy exempt from the 
notice and comment rulemaking requirements of the APA. It is intended 
to provide information regarding the Bureau's general plans to exercise 
its supervision and enforcement discretion and does not impose any 
legal requirements on external parties or create or confer any 
substantive rights on external parties that could be enforceable in any 
administrative or civil proceedings. Because no notice of proposed 
rulemaking was originally required in issuing the Policy Statement, and 
is not required in issuing

[[Page 14810]]

this rescission, the Regulatory Flexibility Act also does not require 
an initial or final regulatory flexibility analysis for this 
rescission. The Bureau has also determined that the rescission of the 
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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    \15\ 5 U.S.C. 553(b).
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    Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., the 
Bureau will submit a report containing the rescission of the 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 the rescission of the 
Policy Statement as not a ``major rule'' as defined by 5 U.S.C. 804(2).

    Dated: March 8, 2021.
David Uejio,
Acting Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-05437 Filed 3-18-21; 8:45 am]
BILLING CODE 4810-AM-P