The Consumer Financial Protection Bureau has signaled that it will be more aggressive in policing abusive acts or practices as part of a broader shift in priorities under the direction of the Biden administration.
Under the leadership of acting director Dave Uejio, who assumed the position after Biden took office in January, the CFPB recently rescinded a year-old policy that it had implemented during the Trump administration. In rescinding the policy, in which the CFPB had focused on achieving compliance with regulations prohibiting abusive acts or practices through supervisory measures rather than enforcement actions, the CFPB aligned itself with Biden’s intention of strengthening consumer protections during his presidency.
“The CFPB has made these changes to better protect consumers and the marketplace from abusive acts or practices, and to enforce the law as Congress wrote it,” the CFPB stated in a press release announcing the rescission of the 2020 Statement of Policy Regarding Prohibition on Abusive Acts or Practices on March 11. “The 2020 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 will likely shine a brighter spotlight on bank sales practice as it seeks to protect consumers. “Regulators want to ensure that marketing and advertising complies with the Dodd-Frank Act,” said Margie Webber, director of regulatory compliance for RegEd.
Section 1031(a) of the Dodd-Frank Act authorizes the CFPB to identify unfair, deceptive, or abusive acts or practices (UDAAPs) by banks with more than $10 billion in assets and to pursue relief for affected consumers through enforcement. Given that marketing and advertising are among the primary places that the CFPB looks for UDAAPs, the bureau’s recently stated preference for enforcement could lead to more actions against banks and larger penalties.
Congress both created the CFPB and banned UDAAPs through the Dodd-Frank Act in 2010, in which it sought to protect consumers from problems like those they endured during the Great Recession, which was caused in part by easy credit that led to borrowers accumulating more debt than they could afford.
The Dodd-Frank Act prohibits financial services providers like banks from coercing, deceiving, or misleading consumers into purchasing products, including through specific statements or lack of clear and full disclosure. Legislators charged the CFPB with creating the rules around UDAAPs.
In releasing its since-rescinded 2020 Policy Statement, the CFPB noted that uncertainty remained as to the scope and meaning of abusiveness a decade after the Dodd-Frank Act’s passage. “This uncertainty creates challenges for covered persons in complying with the law. The Bureau wants to make sure that such uncertainty does not impede or deter the provision of otherwise lawful financial products or services that could be beneficial to consumers,” the CFPB stated in releasing its then policy last January.
Stating that it intended “to convey and foster greater certainty about the meaning of abusiveness” through the policy, the CFPB noted that it would approach the abusiveness standard as follows.
- Focusing on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the harms to consumers outweighed the benefits
- Avoiding challenging conduct as abusive as well as unfair or deceptive.
- Refraining from seeking monetary relief for violations if the financial services provider had made a good-faith effort to comply with the abusiveness standard
“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,” Seyfarth Shaw attorneys wrote in noting that the CFPB wasted no time shifting focus to consumer protection by rescinding the Trump-era policy statement on abusive acts and practices.
Refocusing on enforcement
However, in rescinding the policy statement last month, the CFPB noted that its three principles “do not actually deliver clarity to regulated entities” and in fact “add uncertainty to market participants,” Alston & Bird attorneys wrote in parsing the CFPB’s recent rescission of its abusiveness policy statement.
Furthermore, no additional explanation of the abusiveness standard is needed because the Dodd-Frank Act gives the CFPB sufficient authority to declare an “abusive act or practice,” the CFPB wrote. “Had Congress intended to limit the Bureau’s authority to apply the full scope of the abusiveness standard, it could have prescribed a narrower abusiveness prohibition, but it did not,” the CFPB wrote in its rescission statement. “Thus, rescinding the Policy Statement is consistent with the Bureau’s statutory authority.”
The CFPB also asserted that stricter enforcement of the provisions of the Dodd-Frank Act would be more effective in deterring abusive acts than supervisory oversight. “Declining to apply the full scope of the statutory standard pursuant to the policy has a negative effect on the Bureau’s ability to achieve its statutory objective of protecting consumers from abusive practices.
“In particular, the policy of declining to seek certain types of monetary relief for abusive acts or practices—specifically civil money penalties and disgorgement—is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies and of compensating victims for harm caused by violations of the Federal consumer financial laws through the Bureau’s Civil Penalty Fund,” the CFPB wrote in its rescission statement.
Maintaining advertising compliance
Avoiding UDAAPs in marketing and advertising will be key for banks and other financial services providers that do not wish to be subject to enforcement actions or penalties from the CFPB, particularly for abusive acts or practices. Ensuring that their marketing and advertising are free from misleading statements or omissions is vital.
“When banks offer investments or other products through their marketing and advertising, they must confirm that all of the proper statements and disclosures are in place so that they comply with all applicable regulations,” RegEd’s Webber said.
RegEd’s market-leading Advertising Review enterprise software solution makes it easier for banks to comply with federal and state consumer protection laws like those that the CFPB intends to enforce more vigorously.
Advertising Review helps banks overcome regulatory scrutiny by enabling them to have consistent and methodical processes for complying with regulations like those for UDAAPs. The solution streamlines the end-to-end processes for advertising and customer communication submission, review, collaboration, and approval, thereby speeding time to market for review items so that sales campaigns are launched as scheduled, with the highest level of quality, and in compliance with state and federal regulations.
Schedule a consultation to learn more about how RegEd’s fit-for-purpose solutions like Advertising Review enable banks to gain the effective oversight that they need to ensure that compliance obligations are fulfilled, compliance gaps are readily identified and remediated, and strong audit trails that demonstrate compliance are captured and memorialized.
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