On April 3, 2023, the Consumer Financial Protection Bureau (CFPB) issued a policy statement summarizing over a decade of precedent and explaining the legal prohibition on abusive conduct in consumer financial markets. The CFPB is responsible for enforcing the prohibition, along with federal banking regulators and states. The policy statement will purportedly provide an analytical framework to help consumer financial protection enforcers identify abusive acts or practices and help firms avoid committing them.
By way of background, the prohibition on abusive conduct was created by Congress in 2010 in response to the financial crisis and tasks the CFPB with administering it. Since then, the CFPB has brought 43 cases and issued numerous citations for abusive conduct ranging from predatory student lending practices to surprise overdraft fees. The policy statement summarizes these actions and sets forth how abusive conduct generally includes obscuring important features of a product or service or leveraging certain circumstances to take unreasonable advantage of a consumer. The CFPB’s policy statement does not impose new legal requirements, but rather summarizes precedent and establishes a framework to help federal and state enforcers identify when companies engage in abusive conduct. The statement also describes how the use of dark patterns, set-up-to-fail business models, profiteering off captive customers, and kickbacks and self-dealing can be abusive. The following is a brief summary of the policy statement.
In terms of obscuring important features of a product or service, the CFPB identifies several forms of material interference that can be shown, such as buried disclosures, physical or digital interference, and other means of controlling consumers’ understanding. The CFPB clarifies that intent is not required to establish material interference. Rather, evidence that the natural consequence would be to impede a consumer’s ability to understand, or evidence that the act or omission did impede a consumer’s actual understanding, is sufficient.
Regarding taking advantage of a consumer, entities may not take advantage of an apparent gap in understanding regarding the material risks, costs, or conditions of the entity’s product or service. This includes risks related to default and loss of future benefits, costs such as monetary charges and non-monetary costs like lost time, and conditions such as circumstances, context, or attributes of the product or service. Even when there is no contractual relationship between the person and the entity, the lack of understanding can still be caused by third parties. The CFPB policy does not require that the consumer’s lack of understanding was reasonable to demonstrate abusive conduct. In fact, lack of understanding can be evidenced by direct evidence of the lack of understanding, or evidence that a reasonable consumer would not be likely to understand.
In terms of consumer reliance, the CFPB clarifies that where a person reasonably expects that an entity will make decisions or provide advice in that person’s interest, there is a potential for abuse or exploitation of that person’s trust. The CFPB policy states that consumer interests may include monetary and non-monetary interests such as property or privacy interests. It may also include a consumer’s interest in limiting the amount of time or effort necessary to obtain consumer financial products or services. For example, according to the policy statement, an entity that assumes the role of helping consumers select providers in the market could be found to have taken advantage of the consumer’s reliance. The CFPB emphasizes that these relationships and circumstances are not per se abusive, but entities may not take unreasonable advantage of the absence of choice in these types of relationships.