Today, the Consumer Financial Protection Bureau (CFPB or Bureau) hosted the first symposium of its previously-announced series. The topic of today’s conversation was the term abusive in unfair, deceptive, and abusive acts and practices (UDAAP). The symposium consisted of two separate panel discussions: one focused on policy and the other on practical application.
Policy Considerations Panel
The first panel discussed the policy background and considerations of the term “abusive” as it relates to UDAAP. Tom Pahl, CFPB’s Policy Associate Director, moderated and panelists included:
- Patricia McCoy, Professor of Law, Boston College Law School
- Todd Zywicki, Professor of Law, George Mason University, Antonin Scalia Law School
- Howard Beales, George Washington University; former Director of the Federal Trade Commission (FTC) Bureau of Consumer Protection
- Adam Levitin, Professor of Law, Georgetown Law School
One of the substantial disagreements among panelists was whether consumer harm is required for a practice to be abusive. The panel was split on this issue. McCoy and Levitin indicated that while unfair and deceptive are terms focused on their impact on the consumer; abusive focuses on the actions of a company. McCoy clarified that consumer harm is not a prerequisite if the statutory language does not specify it in the abusive section. Zywicki indicated that it is odd to focus on company conduct where there is no consumer harm.
There was also a disagreement about whether abusive requires knowledge on behalf of the company. Levitin stated that the statute contains no scienter (or knowledge) requirement. Zywicki, however, provided a two-pronged test to determine whether a practice is abusive: whether the product is unreasonable for that specific consumer and whether the provider knew the particular consumer’s situation. Examples of this include products that might be reasonable for the majority of consumers, but maybe unreasonable for a specific consumer due to their circumstances (e.g., an 80-year-old refinancing a mortgage that was almost paid off).
Levitin suggested that the CFPB follow three main principles as it proceeds with its work on this issue: stay true to the statutory language, protect the autonomy of consumers in their decision-making process, and don’t tie the Bureau's hands based on information collected today, since it’s not possible to completely anticipate every market development.
Abusive Standard in Practice Panel
The second panel focused on the abusive standard in practice. This panel was moderated by David Bleicken, CFPB Deputy Associate Director, Supervision, Enforcement, and Fair Lending. The panelists included:
- William MacLeod, Partner at Kelley Drye; former Director of the FTC Bureau of Consumer Protection and Bureau of Competition
- Eric Mogilnicki, Partner at Covington & Burling; former Chief of Staff, Senator Ted Kennedy
- Lucy Morris, Partner Hudson Cook; former CFPB Deputy Enforcement Director
- Nicholas Smyth, Assistant Director of the Pennsylvania Office of Attorney General’s Bureau of Consumer Protection, Senior Deputy Attorney General
This panel’s primary discussion was about whether there is a need to clarify “abusive” considering what is available right now. Smyth unequivocally stated that there is no need for clarity. Between the statutory language and secondary sources, there is enough to know what does and does not qualify. Smyth cites that courts have never had to look beyond the statutory language when evaluating this issue.
The other panelists disagreed. Morris described that the majority of court decisions on this issue were decided on a motion to dismiss, which is not a definitive decision on the merits that provides clarity on the term's definition. There are also very few cases that allege abusive acts and practices but don't allege deceptive and misleading acts and practices, making it difficult to differentiate the terms through court decisions. MacLeod mentioned that the most clarity comes from court decisions where the agency loses, but regulatory prosecutors are unlikely to bring cases where they will lose for the sake of providing clarity.
Morris illustrated UDAAP as a bullseye. The center is “deceptive," which is the most clearly-defined and easy-to-identify term. The second layer is “unfair,” which overlaps with deceptive but is broader in scope with a clearly-identified limiting test. “Abusive” is the outer layer, which overlaps with the two middle layers. However, unlike “unfair,” “abusive” does not have a clearly defined outer limit and is used as a catch-all. Mogilnicki mentions that these "catch-all" provisions lead to accusations that the Bureau is engaging in regulation by enforcement.
Mogilnicki mentioned that legal and compliance professionals in the industry act as an extension of the CFPB by making sure the Bureau’s messages are conveyed to their companies. Clarity would allow these professionals to have a stronger hand in discussions with their business counterparts about why specific actions are and are not advisable.
This symposium made clear one thing: there are deep-rooted disagreements about whether or not there is a need to further define the term “abusive". Roughly half of the group thinks that information currently available--including statutory language and secondary sources--sufficiently clarifies the term. The other half believes that current information sets no limit to the term “abusive,” making it a catch-all that results in compliance difficulties for businesses. There were a lot of perspectives shared, and it will be interesting to see what the Bureau does with this information.