On April 3, 2023, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a policy statement explaining the prohibition against abusive conduct in consumer financial markets, attempting to bring clarity to over a decade of statutory, judicial, and administrative ambiguity around correctly identifying such conduct.

Background

The Federal Trade Commission (FTC) traditionally had the authority to punish unfair or deceptive acts or practices (collectively UDAP). However, in response to the 2008 financial crisis, Congress passed the Consumer Financial Protection Act of 2010 (CFPA) to ensure fair dealing and protect consumers and market participants in the United States. Additionally, the CFPA added the prohibition against abusive conduct to the UDAP framework (collectively UDAAP) and set forth the general standard for determining whether an act or practice is abusive. Congress also granted authority to enforce the prohibition against UDAAPs to the states, the federal banking regulators, and the CFPB. In the decade-plus since its creation, despite issuing guidance during the Trump administration, the CFPB had relied largely on a facts-intensive approach rather than a clear framework of abusive conduct. The Bureau intends for this policy statement to provide more clarity to industry as to what constitutes abusive conduct.

Key Aspects

In the policy statement, the CFPB sets forth how abusive conduct seeks to exploit gaps in understanding and unequal bargaining power to take unreasonable advantage of consumers, restating the statutory definition that an abusive act or practice is one that:

Material Interference: The policy statement explains that material interference can be shown when an act or omission impedes consumers’ ability to understand terms or conditions. CFPB Director Rohit Chopra called out digital dark patterns, described as “design tricks and other psychological tactics to confuse and manipulate people into making choices they otherwise would not have made,” as a new type of interference which leverages contemporary technology to confuse people. Other examples of interference include buried disclosures that omit material terms or conditions or use fine print, complex language, and jargon, and physical or other interference that impedes a person’s ability to see, hear, or understand the terms and conditions presented to them.

Taking Unreasonable Advantage: Under the CFPA, it is illegal for an entity to take unreasonable advantage of one of the above-listed three circumstances, even if the entity did not create the condition. The policy statement describes the concerns governing these circumstances. Lack of understanding concerns gaps in understanding affecting consumer decision-making, such as ignorance of the material risks, costs, or conditions of the firms’ product or service. The inability of the consumer to protect their interests concerns situations where consumers are unable to protect their interests in selecting or using a consumer financial product or service because they lack autonomy or have unequal bargaining power due to a lack of meaningful choice in the selection or use of any particular entity as a provider. Reasonable reliance prohibits entities from taking “unreasonable advantage” of consumers where an entity engages in self-dealing or holds itself out as operating in the consumer’s best interest.

Takeaways

The policy statement does not create any new legal requirements for firms. Still, it presents an analytical framework that federal and state regulators will use to assess whether firms have violated the law by committing an abusive practice (as distinct from an unfair and/or deceptive one) and bring enforcement actions. It can also be read as a marker to industry that the Bureau may pursue more claims under the abusiveness prong of UDAAP. Businesses should be aware of this framework to ensure it is incorporated into their compliance management frameworks. In particular, businesses may wish to ensure all disclosures and consumer-facing documents use plain language, are conspicuous and easy to read, and are presented timely to consumers. Additionally, companies may wish to confirm that consumers are sufficiently knowledgeable about their rights and any risks associated with the financial products and services that the business offers.

The CFPB is taking public comments on the guidance until July 3, 2023.