On April 3, the CFPB issued a policy statement intended to provide “a framework to help federal and state enforcers identify when companies engage in abusive conduct.” Conduct violates the abusiveness standard when it either: (1) materially interferes with a consumer’s ability to understand a term or condition of a financial product or service; or (2) takes unreasonable advantage of a consumer’s lack of understanding of material risks, costs or conditions of the product or service, the consumer’s inability to protect his own interests, or the consumer’s reasonable reliance on the covered person to act in his best interests. 
 

Unlike the traditional Federal Trade Commission (FTC) standards for unfair and deceptive conduct under Section 5 of the FTC Act and similar state unfair trade practices statutes (UDAP statutes), which benefit from decades of regulatory and judicial interpretation and enforcement, the abusiveness standard was created along with the CFPB in 2011 (adding the additional “A” to the Dodd-Frank UDAAP standard). Perhaps in part because of its novelty, the CFPB has usually used abusiveness as an add-on to claims of unfairness or deception rather than using it as a stand-alone basis for enforcement. 

The CFPB’s position on “UDAAP” has changed as the CFPB’s leadership has changed. Under Director Cordray’s leadership, one set of facts that could be viewed as both “abusive” and “deceptive” was characterized as two separate UDAAP claims. Director Kraninger’s CFPB, on the other hand, combined one set of facts with “abusive” and “deceptive” issues into a single UDAAP. Shortly after assuming his role as Director of the CFPB, Director Chopra reversed Director Kraninger's position. A year ago, Director Chopra’s CFPB updated the UDAAP examination handbook to add alleged “discriminatory conduct” as a basis for UDAAP enforcement, drawing concern from the financial services industry and resulting in federal litigation challenging this expansive view.¹ As a result of changes in UDAAP philosophy at the CFPB over time, industry has had fewer bright lines to follow and less clarity on the scope of the abusiveness standard than it has the unfairness or deceptiveness standards. The policy statement separately addresses the two prongs of the abusiveness standard, applying each to new sets of circumstances.

 

 

The CFPB’s new policy statement takes the CFPB’s recent commitment to align with the FTC in efforts to combat digital dark patterns one step further.² The CFPB’s statement is notable for its discussion of what the CFPB calls “interface and user experience manipulations” in digital interactions, including use of pop-up or drop-down boxes, multiple required click-throughs, and dark patterns. In the policy statement, the CFPB notes that a product “materially interfere[s]” with consumers’ understanding if it is too complicated to be explained clearly or the entity’s business model operates inconsistently with the “apparent terms” of the product or service. The CFPB may be signaling its expectation that financial products will be explainable and operate in ways any consumer would expect. If an entity fails to meet this expectation, even robust disclosures the entity may offer won’t serve to shield it from an abusiveness claim.

 

In its policy statement, the CFPB emphasizes that the abusiveness standard may be violated even if the CFPB makes no showing that an entity's conduct actually harmed consumers.³ If an entity materially interferes with consumers’ understanding of key risks and terms (or the entity is deemed to have intended that result), consumer harm, in the form of market distortion, can be presumed. The potential subjectivity in this expression of policy could muddy the waters for covered businesses working in good faith to comply.

 

 

On the second prong of the abusiveness standard, the CFPB clarifies circumstances that constitute “unreasonable” advantage-taking with respect to a consumer’s lack of understanding, inability to protect her/his/their interests, or reasonable reliance on the entity. 

 

a) Lack of Understanding: The policy statement clarifies that the CFPB need not show that all, or even most, consumers lacked understanding or that the lack of understanding was reasonable under the circumstances in order to bring an abusiveness claim. Consumer complaints or testimony or “evidence or analysis” showing that a reasonable consumer is not likely to understand may be sufficient evidence of a gap in understanding. Interestingly, the policy statement also provides that lack of understanding can be inferred with respect to any consumer who enters into a transaction that entails material costs and is likely to confer “minimal or no benefit” to the consumer. The example given is GAP insurance sold to consumers with low loan-to-value ratios on their vehicles. Following this analysis, industry may want to consider whether the CFPB would extend the same reasoning to any product that is allegedly not suitable for a given consumer. Finally, the policy statement echoes the CFPB’s enforcement position that an entity may be liable for abusive conduct even if it did not cause the consumer’s lack of understanding or have a contractual relationship with the consumer.

 

b) Inability of Consumer to Protect Interests: The policy statement identifies unequal bargaining power, inability to choose the entity (as is the case with debt collectors, for example), and high transaction costs to exit the relationship as circumstances in which consumers may not be able to adequately protect their own interests. These correlate with current CFPB initiatives around data portability, market dominance of large technology firms, and debt collection and credit reporting. 

 

c) Reasonable Reliance: Whether a consumer’s reliance on an entity's statements or disclosures is reasonable reliance depends largely on the entity’s public descriptions of its services. The policy statement highlights circumstances in which an entity holds itself out as acting on behalf of the consumer or assisting the consumer in selecting covered persons in the market (for example, in the role of a broker, debt counselor, or other trusted intermediary) as encouraging reasonable reliance. 

 

 

Entities regulated directly or indirectly by the CFPB should take note of the expansive nature of the “abusive” discussion as it relates to technology that may be harnessed to offer consumers a frictionless digital experience. Practical options industry may wish to consider are clear and conspicuous website banners with opt-in consent and symmetry of choice (e.g. Accept All, Reject All, Manage my Preferences), and other explanations and disclosures of what the implications of various consumer choices – including, potentially, comparison examples. Other practical options worth considering are consumer focus groups and other methods of collecting information from consumers about their online experiences and how they actually perceive particular digital choices.

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1 See, https://www.consumerbankers.com/cba-media-center/media-releases/cba-leading-financial-groups-pursue-legal-action-against-cfpb

2 See, CFPB Circular 2023-01, https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2023-01-unlawful-negative-option-marketing-practices/

3 This explicit presumption of generalized consumer harm is in interesting contrast to the Supreme Court’s 2021 decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021), in which the Court held that plaintiffs lacked standing to pursue credit bureaus for inaccurate information in their credit files that was not disseminated to third parties because they had not suffered concrete, individualized harm.