The Consumer Financial Protection Bureau (CFPB) on Thursday rescinded a Trump-era policy statement limiting the agency's ability to collect civil penalties and disgorgement over a financial institution's abusive acts or practices.
Thursday's move realigns bureau policy with the Dodd-Frank Act, which set the CFPB apart from other financial regulators because it allowed the agency to enforce against abusive conduct in addition to unfair or deceptive acts or practices.
A January 2020 policy statement, issued by former CFPB Director Kathy Kraninger, established the bureau would generally avoid "dual pleading" — that is, if the agency penalizes a company under unfairness or deception standards, it won't use the same set of facts to also find the company abusive unless it can provide a legal rationale for bringing a separate abusiveness claim.
Detractors of Kraninger's stance on dual pleading said the 2020 policy statement betrayed the CFPB's enforcement history. In its first nine years, the CFPB brought 32 enforcement actions using "abusiveness" as the reasoning. Thirty of those also included a claim of unfair or deceptive acts or practices.
"A policy of declining to enforce the full scope of Congress's definition of an abusive practice harms both the consumers who were taken advantage of and the honest companies that have to compete against those that violate the law," the CFPB said Thursday in a statement.
To be abusive, according to Dodd-Frank, conduct must "materially interfere" with a customer's ability to understand a term or condition attached to a financial product, or it must take "unreasonable advantage" of a customer's inability to understand any risks or costs of a product or a consumer's inability to make a choice in their service provider.
The CFPB's 2020 policy statement established a two-pronged test for abusiveness. The CFPB would deem a company's conduct abusive if the cost to consumers outweighed the benefits, and if the company failed to show a "good-faith effort" to comply with the abusiveness standard.
The bureau on Thursday said the Kraninger-era policy statement "undermined deterrence and was contrary to the CFPB's mission of protecting consumers." It "was inconsistent with the Bureau's duty to enforce Congress's standard and rescinding it will better serve the CFPB's objective," the agency said.
Thursday's change gives regulators the bandwidth to demand stiffer penalties through reclaiming a policy that enforces abusiveness in addition to unfairness or deception when companies' conduct falls short of both standards.
"Realistically the organization and its staff wield a lot of power, and this suggests once more they will be using it," Jonathan Pompan, co-chair of the law firm Venable's consumer financial services practice group, told Bloomberg Law.