On April 3rd the Consumer Financial Protection Bureau (“CFPB”) issued a policy statement addressing abusive acts or practices in consumer markets. The policy statement is intended to summarize past enforcement actions the Bureau has taken as well as to provide clarity on how the agency analyzes specific elements of abusiveness the market. The goal of the policy statement is to provide a framework that allows other governmental enforcement agencies charged with monitoring markets to identify abusive acts or practices in those markets.

The framework is centered around the definition of an abusive act or practice (as defined in 12 U.S.C.A. § 5531). The definition includes an act or practice that (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 lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
  • The inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
  • The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

Material Interference:

Material interference can be shown when an act or omission obscures, withholds, de-emphasizes, renders confusing, or hides information that the consumer would need to understand the terms and conditions of a transaction. For example, the Bureau cites buried or withheld disclosures, digital interference with user experience, and user interfaces that make the terms and conditions of a transaction less accessible as potentially material interferences. Notably, the entities intent to interfere is not a required element to finding an act or practice abusive as material interference, so an entity’s act or practice could be found to be abusive even if it was never intended to be.

Lack Of Understanding:

This part focuses on consumer’s “gaps in understanding” regarding material risks, costs, or conditions of the product or service. The Bureau points out that it is not required to find that the entity actually caused the consumers lack of understanding to find the entity was acting abusively in taking unreasonable advantage of such a lack of understanding.

Inability of Consumer to Protect Interests:

This section focuses on entities take advantage of consumers’ unequal bargaining power and inability to protect their interests. This includes both monetary and non-monetary interests such as time or effort necessary to obtain consumer financial products, or time required to remedy problems arising with those products. Additionally, relationships where consumers have little to no choice in providers (for example third party loan servicers) while not per se abusive, are subject to closer scrutiny for potentially taking unfair advantage of consumers inability to protect their own interests.

 

Reasonable Reliance:

Lastly, this section addresses entities taking unreasonable advantage of reasonable consumer reliance on the entities communications or expected role in a transaction. This can arise in two forms. The first form is consumer reliance based on the communication of the entity that it will act in the consumers best interest through advertising or any other means. The second form of reasonable reliance exists where an entity assumes a role of acting on behalf of consumers or helping them select providers in the market.  In both situations consumers should be able to expect that such relationships are free of manipulation, steering, or self-dealing.

The above is a brief summary of the policy statement, for further information and to view the policy statement in its entirety please visit this link.