The Consumer Financial Protection Bureau hasn’t used its Dodd-Frank Act authority to target companies engaging in abusive conduct since President Donald Trump’s team took over the agency last year.
But acting Director Mick Mulvaney hasn’t stopped litigation launched by his predecessor that targeted payday lenders’ abusive acts and practices.
As a result, consumer finance lawyers are left guessing whether the Republican-controlled CFPB intends to abandon enforcement actions against abusive conduct or if such actions might make a return at some point.
“It’s maybe not as much of a sword as it was in the past, but it’s still a weapon in the arsenal,” Allison Schoenthal, the head of Hogan Lovells LLP’s consumer finance litigation practice, told Bloomberg Law.
All federal and most state banking regulators can bring claims alleging that companies engaged in unfair and deceptive acts and practices. The 2010 Dodd-Frank Act, which created the CFPB, gave the bureau an extra “A” in its UDAAP powers, allowing it to pursue not just unfair and deceptive practices but abusive ones, as well.
Dodd-Frank’s standard on what is considered abusive has been a point of contention since the legislation was written. The financial services industry and the lawyers they represent have complained that the statute does not provide the sort of definition of abusive conduct as does other legislation, such as the Fair Debt Collection Practices Act. That is despite a 2013 bulletin the CFPB released outlining its thinking on abusive practices.
“The fact that it’s not clearly defined or bounded in any way is a real issue,” Brian Knight, the director of the program of financial regulation at the Mercatus Center, told Bloomberg Law in a July 26 phone interview.
Dodd-Frank in Title 12 instructed the CFPB to go after a company that, among other things, “materially interferes” with a consumer’s ability to understand a financial product and “takes material advantage” of consumers’ lack of understanding.
That is in contrast with the FDCPA’s definition of abusive practices, which specifically bans abusive language and threats in debt collection.
The CFPB under former Director Richard Cordray brought dozens of enforcement actions that included claims of abusive conduct, with those claims coming in both contested litigation and negotiated consent orders. The bureau also brought claims of abusive behavior under the FDCPA and the Telemarketing Sales Rule under Cordray, who resigned in November to run for governor of Ohio.
Cordray’s replacement Mulvaney has yet to use the abusiveness claim despite instances where it may have been warranted.
A July 13 settlement with debt collection firm National Credit Adjusters LLC alleged that the company and its affiliates improperly threatened consumers with potential arrest and other nasty outcomes if they did not pay.
The CFPB’s reluctance to use the abusive standard in that settlement “sends a signal about the new leadership’s hostility to using that important standard in federal law,” Christopher Peterson, the director of financial services at the Consumer Federation of America and a former enforcement counsel to Cordray, told Bloomberg Law on July 25.
At the same time, the CFPB has continued to pursue claims of abusive behavior in litigation launched under Cordray against payday lending firms Think Finance Inc. and CashCall Inc., making the picture slightly less clear.
Knight and others asked the CFPB to formulate a rule that would clarify its definition of abusive practices in response to a bureau request for information about its enforcement practices Mulvaney released this year.
Consumer advocates fear there’s another reason for pursuing more clarity in the definition of what is abusive.
“The reason they want clarity is they want to find a roadmap for what they can get away with,” Peterson said in a phone interview.
The CFPB hasn’t indicated whether it will move forward with a rulemaking on abusive practices. The bureau declined to comment for this story.
Mulvaney has stated his desire to stop “pushing the envelope” in CFPB enforcement actions.
Consumer advocates fear that Kathy Kraninger, the Office of Management and Budget official nominated to succeed Mulvaney, will continue his lighter touch on enforcement and further curb actions against abusive behavior.
“The CFPB should deploy all weapons to confront misconduct. Abusive acts are practices that exploit a victim’s lack of understanding,” Bart Naylor, the financial policy advocate at Public Citizen’s Congress Watch, told Bloomberg Law in a July 25 email.
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