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Legal, Regulatory, and Privacy Issues

Consumer groups say CFPB rules for abusive practices will limit enforcement

CFPB will not pursue monetary compensation for abusive practices unless a business didn’t act in good faith

Summary

The CFPB has set up a framework for how it will enforce abusive practices, and is asking for public input to a task force that is studying gaps in consumer protection laws and regulations.

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Two recent moves by the Consumer Financial Protection Bureau that the agency is touting as furthering the cause of consumer protection have drawn the ire of consumer advocacy groups.

For one, the CFPB has set up a task force to look into existing consumer protection laws and regulations, and how to improve them. The consumer protection agency that was set up under the Dodd-Frank regulation following the financial crisis has also come up with a new framework for how it will apply the standard for “abusiveness” by industry players in its supervisory and enforcement duties.

About its new standard for abusive practices, CFPB Director Kathleen Kraninger noted, in a media release, “We’ve developed a policy that provides a solid framework to prevent consumer harm while promoting the clarity needed to foster consumer beneficial products as well as compliance in the marketplace, now and in the future.”

See related: Federal government, lawmakers aim to tackle robocall nuisance

How CFPB will enforce abusive practices standard

Although the Dodd-Frank Act prohibited abusive practices by companies that provide financial products or services to consumers, it does not clearly define what an abusive practice might be. According to the CFPB, this lack of definition could actually impede firms from providing certain services or products that could benefit the public.

The CFPB has therefore come up with the below framework for how it will enforce the abusiveness standard:

  • The agency will only pursue cases for supervision and enforcement in which the harm from the abusive conduct is greater than the benefit to consumers.
  • It will avoid “dual pleading” of cases as being both abusive and unfair or deceptive when the same facts, or most of the facts, support both the allegations. Instead, the CFPB will focus its attention on “stand-alone” abusiveness violations with a clear connection between the facts cited and the CFPB’s legal analysis.
  • CFPB will not pursue monetary compensation for abusiveness cases, except when “there has been a lack of good-faith effort to comply with the law.” However, the agency will continue to seek “restitution” for injured consumers whether or not a business acted in good faith.

Consumer groups don’t see eye to eye with CFPB

Responding to this announcement, consumer groups were not on the same page as the CFPB.

Christopher Peterson, director of financial services at the Consumer Federation of America, said in a media release, “The new policy statement fabricates a ‘good faith’ exception that lets businesses engaging in abusive practices off the hook for financial penalties when they claim violations of the law were unintentional.”

And Lauren Saunders, associate director at the National Consumer Law Center (NCLC), noted in a release, “A good litigator always includes alternative, overlapping legal violations when pursuing lawbreakers. The CFPB is taking an arrow out of its quiver.”

She added, “Companies that abuse consumers do not limit the predatory tactics they use and the CFPB should not adopt self-imposed restraints on the authority Congress gave it to protect consumers.”

However, at least one financial industry trade association supports the CFPB move.

Richard Hunt, president and CEO of the Consumer Bankers Association, said in a release, “Defining the CFPB’s interpretation of its UDAAP authority will assist consumers as well as financial institutions working to meet their customers’ needs by offering safe and sound banking products within a well-regulated industry. We applaud the bureau for issuing this statement that provides regulatory clarity.”

The term “UDAAP” refers to unfair, deceptive or abusive acts and practices, which the Dodd-Frank Act has outlawed. The legislation also gives the CFPB regulatory and supervisory authority to prevent such violations by the entities it oversees.

Task force to study consumer protection laws

In another action that it says will further its mission of consumer protection, the CFPB has set up a “Taskforce on Federal Consumer Financial Law” that will look into the current financial protection laws and the regulations that implement them, with an aim to modernize and harmonize them and address any gaps in consumer protection the task force identifies. The agency is also asking for comments from the public, with a June 1 2020 deadline, to provide input to this taskforce as it develops its recommendations.

The members of this task force include:

  • Howard Beales III, a former professor at George Washington University, and former director of the Federal Trade Commission’s Bureau of Consumer Protection.
  • Thomas Durkin, a retired economist who was with the Federal Reserve.
  • Jean Noonan, an attorney with both private and public sector experience, including with the FTC Bureau of Consumer Protection.
  • Todd J. Zywicki, a law professor at George Mason University and senior fellow of the Cato Institute, a self-described think tank that favors limited government, among other principles.
  • William MacLeod, a lawyer and former bureau director at the FTC.

Zywicki is the chair of this task force.

See related: Supreme Court to hear case that threatens CFPB independence

Task force members seen as more industry-friendly

This CFPB move, too, has not garnered the applause of consumer advocates.

“Certainly there are consumer laws that need to be improved, but this is a group of lawyers and professors who have primarily and most recently worked for debt collectors, credit bureaus, payday lenders and other financial firms,” Ed Mierzwinski, senior director of federal consumer programs at U.S. PIRG, said in an email. “They do not necessarily have consumer interests in mind. We’re disappointed that Director Kraninger did not appoint a balanced group of experts. Many other experts with consumer-side DNA were rejected. I’ve never seen such a one-sided set of appointments.”

Will Corbett, litigation director at the Center for Responsible Lending, pointed out that while an earlier commission that the CFPB looked to in setting up this task force was established by Congress, the current task force does not have congressional support.

“Much of what the task force is purported to be working on are functions that CFPB career staff can and have been handling for years,” Corbett said. “So, this begs the question of why a task force of temporary employees and detailed employees from other parts of the Trump Administration are necessary.”

He agrees that the task force could serve a purpose, considering that there are gaps such as a lack of a national rate cap for lending, which currently protects service members. While CRL sees room for improvement and to put in smart regulation, it “does not support handing the discussion of how to do so to a task force that is heavily biased against strong consumer protections.”

The National Association of Consumer Advocates and the NCLC have voiced similar concerns about the lack of consumer-friendliness of the task force.

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