The CFPB recently announced a new policy regarding the prohibition on abusive acts or practices which outlines a common-sense framework on how the Bureau intends to apply the “abusiveness” standard in supervision and enforcement matters. As part of the Dodd-Frank Act, its purpose is to further clarify the scope and meaning of “abusiveness” in UDAAP. This new policy is important for organizations to be aware of as it sheds insight on how to best comply in order to avoid enforcement actions and costly penalties.
Previous Definitions of "Abusive" Under UDAAP
Up until recently, acts and practices deemed “abusive” were ones that don’t fall into unfair or deceptive, but still disliked by regulators. The definition "abusive" was lengthier than the others because it was created to be a catch-all of what would otherwise slip through the cracks. Since it did not have a solid definition, there have been inconsistent applications of it. Previous guidelines for determining if an act or practice is abusive were:
Interferes with the consumer’s ability to understand the terms or conditions of a product or service
Takes advantage of a consumer’s lack of understanding of risks, costs or conditions
There is an inability to protect their own interests when selecting and/or using a product or service
If there is a reliance on a covered person to act in their interests
Summary of New Policy Regarding Prohibition on Abusive Acts or Practices
The CFPB's new policy consists of three main aspects of how the Bureau intends to approach its use of the abusiveness standard in its supervision and enforcement matters going forward.
Prevention of Consumer Harm from Abusive Acts or Practices
It is the Bureau’s mandate to protect consumers from harm in the financial services marketplace. Therefore, under this new policy, the Bureau will focus on citing or challenging conduct as abusive in supervision and enforcement matters only when the harm to consumers outweighs the benefit (including its effects on access to credit).
By focusing their efforts on acts or practices that significantly harm the consumer, the Bureau will ensure that it is using resources only when necessary while creating consistency for their supervisory and enforcement going forward.
Articulating Acts or Practices that Violate the Abusiveness Standard
In order to further clarify what conduct is considered “abusive,” the Bureau will generally avoid "dual pleading" of abusiveness and unfairness or deception violations arising from all or nearly all the same facts. Meaning, the Bureau will not allege abusiveness on a violation that relies on all or almost all of the same facts as unfairness or deception. The Bureau will focus on "stand-alone" abusiveness violations (i.e., violations that are not accompanied by related unfairness or deception violations) that demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis.
This practice will provide more clarity around what types of acts or practices are considered “abusive” and will create case law for determining if a company has violated the abusiveness standard. Additionally, the Bureau will include these use cases and further clarity in future editions of their Supervisory Highlights.
Limits on Monetary Relief in Abusiveness Enforcement Actions
The last piece of this new policy states that the Bureau will only seek monetary relief for abusiveness when there has been a lack of good-faith effort to comply with the law. Meaning, if a company had good-faith intentions but mistakenly misinterpreted the law (within reasonable measures), that company will not receive a monetary fine from the Bureau. However, the Bureau will continue to seek restitution for injured consumers regardless of whether a company acted in good faith or bad faith.
The Bureau will continue to aggressively pursue the full-range of monetary remedies against those who are not acting in good faith, such as those who engage in fraudulent practices or consumer scams.
How To Make A Good-Faith Effort to Avoid Enforcement Actions
The Bureau will consider all relevant factors when determining if a company made a good-faith effort to comply with the new policy, including the considerations outlines in its Responsible Business Conduct bulletin. If you are found to be noncompliant, the CFPB might not take enforcement actions if they see that a good-faith effort to comply was made.
According to the CFPB's guidelines on Responsible Business Conduct, there are four activities that businesses should conduct in order to make a reasonable effort to comply with UDAAP:
Self-monitoring refers to a business’s proactive commitment to early detection and prevention of violations. As part of self-monitoring efforts, businesses should keep detailed records that clearly show their efforts in adhering to the latest CFPB rules and regulations.
Should a violation or potential violation occur, businesses should immediately report it to the CFPB. Through self-reporting, businesses can provide concrete evidence of their commitment to compliance with consumer financial laws. Self-reporting also shows a willingness to "do right" for the consumer.
If a business does violate a regulation, the business is expected to resolve the issue in a timely and effective manner. This response should include holding accountable the individuals who are responsible for the misconduct. Additional remediation actions include providing redress to harmed consumers and preventing the violation from reoccurring.
In the event that a violation or multiple violations occur, businesses need to demonstrate cooperation with the CFPB. They must review the violations and provide the CFPB with the results in a timely fashion. A willingness to cooperate shows that the business is committed to remediating the situation for the betterment of consumers now and in the future.
Download the 4 Must-Do’s To Meet the CFPB Code of Conduct Checklist to evaluate if your organization is acting in good faith according to guidelines.
PerformLine Can Help
The PerformLine platform, an automated marketing compliance monitoring platform, can be used to help your business mitigate risk. PerformLine makes it easy for any business to:
Self-monitor: PerformLine monitors for and detects potential marketing compliance violations on the web, in calls from your contact center, in messaging, emails and social media.
Self-report: PerformLine provides reports on all potential marketing compliance violations
Remediate: PerformLine centralizes tracking and documentation of all compliance and remediation activity
Cooperate: PerformLine provides a complete history of discovery through remediation for Proof You Can Use™ in any audit situation
If you want to learn more about how PerformLine can help you ensure your organization is making a good-faith effort to comply with the law, our experts are ready to help.