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CFPB Lifts Limits on Penalizing Banks for Abusive Conduct

March 11, 2021, 8:15 PM

The Consumer Financial Protection Bureau lifted Trump-era restrictions on the agency’s ability to collect civil penalties and disgorgement from banks and financial companies for abusive acts and practices.

The agency on Thursday rescinded a January 2020 policy statement from former CFPB Director Kathy Kraninger that established a tough, two-part test for enforcement staff to bring abusiveness claims under the Dodd-Frank Act.

The policy statement “was inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices,” the CFPB said in a statement.

The 2010 Dodd-Frank Act, which created the CFPB, gave the bureau unique powers to bring claims against abusive acts and practices. Other federal financial regulators can only bring more traditional claims that companies engaged in unfair or deceptive acts or practices.

The CFPB will now give its enforcement attorneys greater leeway to determine if a company has engaged in abusive practices, and to levy heavier penalties for such conduct.

“Realistically the organization and its staff wield a lot of power, and this suggests once more they will be using it,” said Jonathan Pompan, the co-chair of Venable LLP’s consumer financial services practice group.

Limiting Powers

Kraninger’s policy statement said that the CFPB would no longer bring abusiveness claims in tandem with claims that companies engaged in unfair or deceptive actions, potentially limiting the money the CFPB could recover for unlawful conduct.

Dodd-Frank’s definition of abusiveness included whether a company’s policy materially interfered with a consumer’s ability to understand terms and conditions, and whether a company took advantage of that misunderstanding.

The 2020 policy statement set up a two-pronged test to determine whether conduct was abusive, saying the bureau would only bring abusiveness if it determined that the costs to consumers of a company’s conduct outweighed the benefits to consumers. The second prong required the agency to consider whether companies showed a “good-faith effort” at complying with the abusiveness standard.

Kraninger’s policy was intended to provide more clarity to the financial services industry. But the CFPB said Thursday that the policy didn’t bring the promised clarity.

The move to rescind the policy comes as President Biden’s choice to lead the bureau, Rohit Chopra, moves closer to Senate confirmation. Chopra’s nomination moved out of the Senate Banking Committee on a party-line vote Wednesday.

At his March 2 confirmation hearing, Chopra said that he doesn’t intend to put forth a formal abusiveness policy as CFPB director, and would instead move to establish a standard through judicial precedent.

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editors responsible for this story: Michael Ferullo at; Roger Yu at