CFPB Wastes No Time Shifting Focus to Consumer Protection by Rescinding Trump-Era Policy Statement on Abusive Acts and Practices

The Consumer Financial Protection Bureau (CFPB or Bureau) announced on March 11, 2021 that it is rescinding its January 24, 2020 policy statement, “Statement of Policy Regarding Prohibition on Abusive Acts or Practices” (2020 Policy Statement).[1]  This announcement comes as no surprise given the Biden Administration’s expressed desire to shift priorities to consumer protection issues, and will refocus the CFPB on “exercis[ing] its supervisory and enforcement authority,” with regard to allegedly abusive acts and practices in offering financial products and services, “consistent with the full scope of its statutory authority under the Dodd-Frank Act as established by Congress.”[2]  The CFPB’s Rescission of the 2020 Policy Statement was published in the Federal Register on March 19, 2021, and became effective on that date.[3]  This update provides a background discussion with context for the Rescission Statement, and an overview of its implications.

Background:  How the CFPB Got Here.

When launched nearly a decade ago under the Democratic Obama Administration, the CFPB under its first Director Richard Cordray engaged in a great deal of regulating by enforcement activity, rather than by notice and comment rulemaking.[4]  That came to a swift end under the Trump Administration.  Following Cordray’s resignation, President Trump appointed his Office of Management and Budget Director Mick Mulvaney to head the CFPB as its Acting Director.  Mulvaney promptly sent a memo to all Bureau staff that it would immediately stop doing that, stating in part:

On regulation, it seems that the people we regulate should have the right to know what the rules are before being charged with breaking them.  This means more formal rulemaking on which financial institutions can rely, and less regulation by enforcement.[5]

Under Trump’s permanent CFPB Director, Kathy Kraninger, that effectively become the Bureau’s stated policy.[6]

When Kraninger resigned at President Biden’s request on his January 2021 inauguration day, veteran staffer Dave Uejio was announced as the CFPB’s Acting Director pending confirmation of a permanent director.[7]  The March 11, 2021 Rescission Statement makes clear that Uejio is committed to forging ahead with an immediate return to pre-Trump era policies on regulation by enforcement and decree, rather than rulemaking, before President Biden’s nominated director, FTC Commissioner Rohit Chopra, gets voted up or down by the Senate.

Overview of the Trump-Era Policy Statement.

In January 2020, former Director Kraninger announced the three-part 2020 Policy Statement providing a new Trump-era framework for exercise of the CFPB’s supervisory and enforcement authority concerning abusive acts and practices in consumer financial products and services.  As a first step, the Bureau stated that it would conduct a balancing analysis and intended to challenge conduct as abusive in exercising its enforcement powers only if it concluded that the harms to consumers from the conduct outweighed its benefits.[8]  Second, the CFPB stated that it would not challenge conduct as abusive that relied on the same, or nearly the same, facts that it was challenging as unfair or deceptive.[9]  And third, it announced that in pursing remedies for abusive conduct violations, it would not seek certain types of monetary relief (civil penalties and disgorgement) against regulated entities that had been making a good-faith effort to comply with the abusive practice standard.[10]

The Bureau substantiated the 2020 Policy Statement as being necessary in order to provide certainty to market participants, and to advance the goal of promoting innovation in financial products and services that would benefit consumers.[11]  In repealing the 2020 Policy Statement, the CFPB stated that it intended to supervise and enforce market participants’ abusive acts and practices “consistent with the full scope of its statutory authority under the Dodd-Frank Act as established by Congress”—namely, Section 1031(d) of Dodd-Frank.[12]

Abusive Acts and Practices under Section 1031(d) of Dodd-Frank.

The Bureau noted that the 2020 Policy Statement was not required for its enforcement of the abusiveness standard adopted by Congress in the Dodd-Frank Act.  As set forth in Section 1031(d) of Dodd-Frank, the CFPB has no authority to declare an act or practice abusive in connection with financial products and services, unless it:

(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of—(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.[13]

Under the newly-announced Rescission Statement, when the Bureau pursues an allegedly abusive act or practice through an enforcement action, it intends to satisfy these specific elements of Section 1031(d) of Dodd-Frank.[14]  It further declared that as a statement of general policy, the Rescission Statement is exempt from the notice and comment rulemaking requirements of the Administrative Procedures Act,[15] and therefore went into effect when published in the Federal Register on March 19, 2021.

Incoming CFPB Director Chopra’s Likely Priorities, if Confirmed.

As noted, the CFPB’s Rescission of the 2020 Policy Statement with regard to the abusiveness standard for unlawful acts and practices was enacted by Acting Director Uejio.[16]  President Biden’s permanent choice to lead the CFPB, Rohit Chopra, was recently voted out of the Senate Banking Committee following his confirmation hearing by a split 12 to 12 vote along party lines, but it is currently unclear when the full Senate will schedule a vote on Chopra’s nomination.  If Chopra is confirmed, and he likely will be given the 50/50 Senate split and the Democrats’ opportunity to break a possible tie vote by Vice President Harris, then he will undoubtedly support the Rescission Statement as a win for consumers, and it will be the first of expected rollbacks of Trump-era Bureau guidance statements and rulemakings.

As CFPB Director, Chopra will also likely continue the Bureau’s focus on maximizing its enforcement and supervisory role over financial products and services that arguably have any tendency to confuse or take advantage of consumers.  Conducting a cost-benefit analysis as a pre-condition to bringing regulatory enforcement action will play no role in a Chopra-led CFPB.

Take-Away for Lenders, Mortgage Servicers and Financial Service Companies.

This is likely the first of many-to-come revisions to CFPB policies and guidance statements that will, over time, have important impacts on regulated entities in the consumer financial space.  Prudent practices for regulated entities will include a thorough review and revision of any compliance actions that relied upon the 2020 Policy Statement.

Seyfarth will be monitoring and writing about any significant enforcement activity in this space.  We encourage you sign up for our client alerts and to also join our monthly Consumer Financial Services webinars which will cover CFPB developments, post-CARES Act litigation, FinTech, and other timely topics.

[1] The CFPB’s 2020 Policy Statement is available at 85 FR 6733 (Feb. 6, 2020).

[2] “Consumer Financial Protection Bureau Rescinds Abusiveness Policy Statement to Better Protect Consumers,” CFPB (March 11, 2021), copy available at: https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-rescinds-abusiveness-policy-statement-to-better-protect-consumers/ (last viewed March 26, 2021).

[3] “Statement of Policy Regarding Prohibition on Abusive Acts or Practices; Rescission,” CFPB, 12 C.F.R. Chapter X (effective March 19, 2021) (the “Rescission Statement”), copy available at 86 FR 14808-10.

[4] See, e.g., “Prepared Remarks of CFPB Director Richard Cordray on the Ocwen Enforcement Action Press Call,” CFPB (Apr. 20, 2017), copy available at: https://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-cfpb-director-richard-cordray-ocwen-enforcement-action-press-call/ (last viewed March 26, 2021).

[5] See Caroline Basile, “Leaked Mulvaney memo: CFPB must end regulation by enforcement; Bureau must protect ‘those who take loans, and those who make them’,” HousingWire (Jan. 23, 2018) (italics in original), copy available at: https://www.housingwire.com/articles/42357-mulvaney-memo-cfpb-to-end-regulation-by-enforcement/ (last viewed March 26, 2021).

[6] See CFPB, “Kraninger Marks Second Year as Director of the Consumer Financial Protection Bureau” (Dec. 11, 2020) (highlighting, among other Bureau achievements during 2020, that it was “[f]acilitating compliance by providing clear rules of the road through rulemaking”), copy available at: https://www.consumerfinance.gov/about-us/newsroom/kraninger-marks-second-year-director-consumer-financial-protection-bureau/ (last viewed March 26, 2021).

[7] See CFPB, “Dave Uejio, Acting Director”, copy available at: https://www.consumerfinance.gov/about-us/the-bureau/acting-director/#:~:text=Dave%20Uejio%20was%20announced%20as,%2C%20on%20January%2020%2C%202021 (last viewed March 26, 2021).

[8] 85 FR at 6736.

[9] Id.

[10] Id.

[11] Id. at 6735-36.

[12] See note 2, supra.

[13] Rescission Statement, 86 FR at 14809 (citing 12 U.S.C. § 5531(d)).

[14] Id.

[15] Id.

[16] Id. at 14810.