The CFPB has released a policy statement that clarifies the legal ban on abusive behavior in the consumer financial markets, and outlines over ten years of prior rulings. The agency is responsible for enforcing and overseeing efforts to halt abusive practices that harm consumers.
The Consumer Financial Protection Act was enacted by Congress in 2010 as a response to the financial crisis, which included a ban on abusive conduct. The Act assigns responsibility for enforcing the ban to the CFPB, federal banking regulators, and states, with the CFPB serving as the primary administrator. The CFPB’s latest policy statement will aid in identifying misconduct for those charged with safeguarding consumer financial interests, as well as assist companies in avoiding any abusive actions or practices.
The CFPB has lodged 43 lawsuits, and examiners have issued several citations accusing misconduct, following the passage of the Consumer Financial Protection Act. The cases include a variety of claims such as predatory lending practices in the student loan industry and imposing expensive and unexpected overdraft fees on consumers. The CFPB’s most recent move is aimed at explaining the legal ban on abusive behavior in a straightforward and easy-to-understand manner for the benefit of the market.
The FTC released policy statements on unfair practices and deceptive practices in 1980 and 1983, respectively. The present-day guidance follows a similar approach, outlining prior decisions and setting up a structure to aid federal and state regulators in pinpointing abusive actions taken by businesses.
The CFPB’s policy statement outlines that abusive conduct typically involves (1) concealing crucial aspects of a product or service, or (2) exploiting specific situations, such as information asymmetry, power imbalances, or customer dependence, to gain an unjustified advantage. The statement specifically cites examples of abusive behavior, including the use of dark patterns, the utilization of set-up-to-fail business models akin to those observed prior to the mortgage crisis, taking advantage of customers who have no alternative options, and engaging in kickbacks and self-serving practices.
The policy statement is slated for publication in the Federal Register, with the public being given until July 3, 2023, to provide their feedback.