CFPB Acting Director David Uejio wasted no time in signifying the changes to come under the Biden administration. Last week, the CFPB rescinded its January 2020 “Statement of Policy Regarding Prohibition on Abusive Acts or Practices” (2020 Policy), which provided the financial services industry a much-welcomed reprieve from enforcement actions for unfair, deceptive, or abusive acts and practices (“UDAAP”). In a thinly veiled rebuke of his predecessor’s policies, Uejio indicated that the 2020 Policy was “inconsistent” with the purpose of the CFPB and advised that, moving forward, the CFPB will exercise the “full scope” of its supervisory and enforcement authority.
UDAAP was created by the Dodd-Frank Act, which prohibits a covered person from engaging in unfair, deceptive, or abusive acts and practices. Thanks to a long history of legal interpretation, the industry is relatively clear on what constitutes an unfair or deceptive act. The same is not true, however, for “abusive” acts or practices. The vague and all-encompassing nature of “abusive acts and practices” left the financial services industry flying blind, facing potential enforcement actions for engaging in acts and practices companies had not been instructed to avoid.
Former CFPB Director Kathy Kraninger acknowledged the absence of clear guidelines regarding abusive acts or practices with the release of the 2020 Policy. In summary, the 2020 Policy announced that the CFPB (1) would not challenge allegedly abusive conduct unless the harm the conduct caused the consumer outweighed any benefit to the consumer; (2) would end “dual pleading” (charging a regulated entity with engaging in abusive practices while also charging it with deception and unfairness based on the same underlying factual predicate) and instead pursue abusiveness claims on a standalone basis; and (3) would not seek punitive monetary relief where the covered person made a “good faith” effort to avoid abusive conduct.
In a move reminiscent of the Cordray-era, the CFPB reversed course and rescinded the 2020 Policy on March 11, 2021. The CFPB reasoned in part that declining to seek monetary relief for abusive practices directly contradicted the CFPB’s goal of using monetary penalties to deter certain behavior and compensate victims. The CFPB also stated that there was no basis for the “harm to the consumer versus benefit to the consumer” standard the 2020 Policy adopted and that the absence of dual pleading was actually preventing the industry from obtaining clarity on the abusiveness standard.
The CFPB did not provide any additional clarification or guidance for those looking to avoid UDAAP enforcement actions based on abusive acts and practices. Instead, it offered vague assurances that it will consider “good faith, company size, and all other factors it typically considers as it exercises its prosecutorial discretion.” With this increased scrutiny, companies should begin preemptively reviewing policies and procedures to determine whether measures should be implemented now to demonstrate good-faith compliance attempts in the event a UDAAP enforcement action comes knocking.