Banks Slam Consumer Watchdog’s Efforts to Define ‘Abusive’ Acts

Banks, debt collectors, and consumer lenders are calling on the Consumer Financial Protection Bureau to scrap or rework a new policy defining “abusive” practices.

Obscuring potentially harmful product features and using so-called dark patterns in digital interfaces to take “unreasonable advantage” of consumers would be considered abusive under an April policy statement from the agency.

But the policy doesn’t provide enough clarity for businesses under the CFPB’s jurisdiction, and in some instances may conflict with existing agency rules allowing for the use of form contracts in mortgages and other products, several industry trade groups said in comment letters to the bureau ahead of a July 3 deadline. The letters were posted on July 5.

“As a result, the Policy Statement is of little value to industry—or the Bureau—because there is no specificity that market participants can use to comply or that the Bureau can easily enforce,” the Consumer Bankers Association (CBA) said in a letter.

The CFPB’s authority to determine that a financial company’s conduct is abusive—part of its power to enforce prohibitions on unfair, deceptive, or abusive acts or practices (UDAAPs)—is unique among US financial regulators. By contrast, unfair or deceptive acts or practices (UDAPs) are well-defined in statute, regulation, and through decades of court decisions, industry groups say.

Among other concerns, industry groups cited the CFPB’s statement that form contracts with non-negotiable terms can be abusive because consumers don’t have the “ability to protect their interests.”

Form contracts have become a key part of the financial services ecosystem because they allow companies to issue products, such as credit cards and payday loans, to consumers around the country, the American Financial Services Association (AFSA), a consumer lending industry group, said in its letter.

“One might say that the policy statement is setting industry participants up to fail as some of these named ‘abusive’ acts or practices are part of regular order in other markets,” the AFSA said.

In addition, CFPB mortgage rules and other regulations call for the use of form contracts and even provide models for companies to use, the CBA said in its letter.

Industry groups also raised concerns about the thresholds for assessing when a financial product or practice is abusive.

A small number of people, or even one customer, not understanding the terms of a product or service could trigger an enforcement action, according to a joint letter from the Bank Policy Institute, the Credit Union National Association, the Mortgage Bankers Association, the US Chamber of Commerce, the AFSA, and the CBA.

Some commenters also raised concerns about the CFPB’s focus on abusive practices by companies that consumers can’t choose, such as debt collectors and mortgage and student loan servicers.

“Targeting the ARM industry through a ‘higher standard’ and framing the relationship with consumers in the collections process as an immediate negative overlooks the economic reality that this is a needed part of a functioning economy,” ACA International, a debt collection industry group, said in reference to the “accounts receivable management” industry.

Consumer advocates largely supported the CFPB’s framing of abusive practices.

They called for tightening up some areas of the policy, including how the CFPB views a company’s intent when determining whether it’s taking “unreasonable advantage” of a consumer.

“The policy statement recognizes that ‘intent is not a required element to show material interference’ but the Statement is not explicit on this point when it addresses acts or practices that take ‘unreasonable advantage’ of consumer vulnerabilities,” the Center for Responsible Lending said in a comment letter.

It’s unclear what the CFPB intends to do with the comments it received on the policy statement. Several groups raised concerns that the agency released the policy before seeking any comments, and called on the CFPB to either withdraw the statement or redo it through the formal notice-and-comment rulemaking process.