CFPB Issues Guidance on CFPA Abusive Conduct Prohibitions
Commentary by Steven Lofchie
The CFPB issued guidance on the abusive conduct prohibitions under the Consumer Financial Protection Act of 2010 ("CFPA"). The CFPB summarized how it analyzes the elements of the "abusiveness prohibitions" in order to provide a "framework to fellow government enforcers and to the market for how to identify violative acts or practices."
In a policy statement, the CFPB provided examples of the two elements:
Material Interference
The first element consists of "materially interfer[ing] with the ability of a consumer to understand a term or condition of a consumer financial product or service." The CFPB said that this could include acts or omissions by an entity that obscure or withhold information that is needed by a consumer to understand the terms and conditions of a product through physical or digital interference or overshadowing (i.e., prominently placing content that interferes with a consumer’s understanding of other content). The CFPB stated that "dark patterns," are a digital interference type that involves the use of "pop-up or drop-down boxes [or] multiple click throughs" to make terms and conditions of a product or service less accessible to the consumer.
The CFPB said that material interference can also occur if an entity’s provision of a product either (i) is so complicated that it cannot be properly explained or (ii) has a business model that functions in a way other than what was stated in the product or service’s terms.
Taking Unreasonable Advantage
The second element concerns prohibitions from taking reasonable advantage of a consumer where there is:
- a "gap in understanding" which affects the consumer’s decision making with regard to the material risks, costs, or conditions of a product or service;
- "unequal bargaining power" if the consumer is unable to protect his or her own interests as a result of being unable to switch providers or seek more favorable terms in selecting a financial product or service; and
- consumer reliance on the entity.
Statement
CFPB Director Rohit Chopra said that the purpose of issuing the policy statement was to "summarize the existing precedent" and to provide a "practical analytical framework" for identifying abusive acts or practices that creates a "visceral understanding" of prohibited abusiveness. Mr. Chopra said that the policy statement makes clear that the CFPA prohibits companies from (i) engaging in business conduct that "essentially tricks people" and (ii) setting up people to fail by leveraging a consumer's lack of understanding or inability to protect themselves. Mr. Chopra highlighted pre-financial crisis mortgage lenders who encouraged loans they knew consumers would be unable to repay.
Commentary
The CFPB's policy statement seems mostly reasonable and straightforward. There are, however, embedded assumptions that should be examined. First, the CFPB describes "unequal bargaining power" as potentially an indication of abuse. As a practical matter, given the legal nature of financial institution loans to consumers, the CFPB analysis appears to create a presumption (rebuttable) that all loans are abusive. Second, the CFPB appears to assert that a loan that goes into default may itself be indicative of violative conduct by the lender. If the CFPB is going to assert that making a loan to someone with, for example, compromised credit may be "abusive," then the CFPB should publish more specific guidance so that lenders can know that the refusal to make such loans is not itself violative.