Many thought that with former Director Richard Cordray’s resignation, the Consumer Financial Protection Bureau (CFPB) would stop using its abusiveness authority in enforcement actions. After all, claims of abusiveness were the epitome of what critics derided as “regulation by enforcement,” as abusiveness was a new concept whose contours were not well defined. While that has largely proven true, there have been some exceptions. Last October, under then-Acting Director Mick Mulvaney, the CFPB issued a Consent Order against a payday lender that also offered check cashing services, which contained a single claim of abusiveness. That claim was based on the entity’s practice, when providing check-cashing services, of using check proceeds to pay off outstanding payday loan debts and providing only the remaining funds to the consumer. That, however, was the only abusiveness claim among the ten enforcement actions of the Mulvaney era (although the Mulvaney-led CFPB did continue to litigate abusiveness claims filed under Cordray).
For a while, it appeared that current CFPB Director Kathy Kraninger would avoid abusiveness. No abusiveness claims appeared in the first 16 enforcement actions the Bureau initiated under her leadership. Moreover, in a June settlement with a credit union service organization (CUSO), the CFPB seemed to go out of its way to avoid asserting an abusiveness-related claim. That matter involved claims against the CUSO, which funded and then purchased private student loans made to students of ITT Technical Institute (ITT). The CFPB had previously filed suit alleging that ITT engaged in both unfair and abusive practices in coercing students to take out these loans, which the CFPB alleged most students could not afford. The CFPB settled its claims that the CUSO “substantially assisted” ITT’s illegal conduct. Notably, however, the CFPB’s consent order with the CUSO only referenced the CUSO providing substantial assistance to ITT’s unfair conduct, ignoring the abusiveness claims that the CFPB had previously brought against ITT.
Now, however, it appears that the abusiveness arrow is back in the agency’s quiver. This past Friday, the CFPB filed a complaint against a mortgage relief assistance provider alleging that the company misled consumers into believing that its services would help them avoid foreclosure. In addition to asserting claims for deception and violation of Regulation O for this conduct, the CFPB also asserted that the conduct is abusive. Specifically, the CFPB asserted that the defendants’ misrepresentations “took unreasonable advantage of consumers’ lack of understanding of the material risks, costs and conditions” of the goods and services sold by defendants, in violation of 12 U.S.C. § 5531(d)(2)(A). In this respect, the abusiveness allegation is reminiscent of the Cordray era, in that the CFPB is alleging that the same conduct that it believes to be deceptive also violates this prong of the abusiveness standard. As we’ve previously discussed, the CFPB appears to use subsection 5331(d)(2)(A) as a proxy for deception; this aspect of abusiveness focuses on a “lack of understanding” by the consumer, which is often caused by the same conduct that the CFPB alleges is deceptive.
The CFPB does make some effort to explain why it believes the conduct at issue meets the abusiveness standard, but fails to dissociate it from the underlying deception. In this most recent case, the Complaint includes 10 paragraphs of allegations that consumers do not understand the complexities of the residential-mortgage industry and foreclosure-defense law, lack the expertise to determine the effectiveness of the defendants’ products, and are not in a position to evaluate the accuracy of the marketing representations. These allegations are helpful to flesh out why the CFPB believes that the allegedly deceptive marketing constituted “taking unreasonable advantage” of consumers’ lack of understanding. But at the end of the day, the abusiveness claim is still inextricably tied to the defendants’ alleged misrepresentations, as it hinges on the fact that, in the CFPB’s words, “[defendants] promised consumers … a solution to their mortgage problems” and sold them products and services “that were not effective and did not contain the information described.”
The CFPB recently held a symposium regarding what abusiveness means, how it should be used and whether it covers conduct not already proscribed by the prohibitions on unfair and deceptive acts and practices. This most recent case suggests that the CFPB has not yet answered this last question, and plans on continuing to use abusiveness allegations to buttress claims of unfairness or deception for the same underlying conduct.