Regulatory and Enforcement Alert
CFPB Rescinds Policy Statement on Meaning of “Abusive”—Signaling a
Shift Towards a More Aggressive Enforcement Approach
March 12, 2021
In one of its first formal acts since the beginning of the Biden Administration, the Consumer Financial Protection
Bureau (CFPB) this week announced the rescission of a January 2020 policy statement that sought to define“abusive acts and practices” by applying certain limiting principles. This significant move highlights a reversal of
the Bureau’s prior policy of restraint in pursuing abusiveness claims and foreshadows a more aggressive CFPB
approach to enforcement more generally.
The Dodd-Frank Act, which created the CFPB, gave the Bureau the authority to punish firms for violating thelongstanding federal prohibition on “unfair” or “deceptive” acts or practices, while also introducing a new“abusive” standard. Dodd-Frank’s definition of abusiveness includes whether a company’s policy materiallyinterfered with a consumer’s ability to understand terms and conditions of a financial product or service andwhether a company took advantage of that misunderstanding. But this definition drew criticism for being vague
and failing to provide sufficient notice as to what rose to the level of abusive.
In an apparent effort to define the concept last year, then-CFPB director Kathy Kraninger unveiled a Policy
Statement that announced three new principles that the CFPB would apply relative to its authority to pursue
abusive acts and practices: (1) consideration of whether the harm to consumers from the conduct outweighed thebenefits; (2) avoidance of add-on abusiveness claims where the conduct is alleged to be unfair or deceptive; and(3) declination to seek civil penalties or disgorgement where the respondent made a good-faith effort to comply
with the abusiveness standard.
In explaining its decision to reverse the Kraninger Policy Statement, the Bureau noted that based on its review andpractical experience, “the principles set forth in the Policy Statement do not actually deliver clarity to regulatedentities” and in fact hinder the Bureau’s ability to achieve its statutory objective of protecting consumers fromabusive practices.
“Going forward, the CFPB intends to exercise its supervisory and enforcement authority consistent with the fullscope of its statutory authority under the Dodd-Frank Act as established by Congress,” the Bureau said in a press
release. “The CFPB intends to consider good faith, company size, and all other factors it typically considers as it
uses its prosecutorial discretion.” Nevertheless, we can expect as the CFPB under the Biden administration begins

Simpson Thacher & Bartlett LLP

Regulatory and Enforcement Alert – March 12, 2021

2to flex its resources and “discretion,” the prior criticism that the standard for abusiveness is hazy—and thus theapplication inconsistent and unpredictable—to resurface.
The move to rescind the policy comes as President Biden’s choice to lead the Bureau, Rohit Chopra, moves closer
to anticipated confirmation by the full Senate following a deadlocked 12-12 vote on his confirmation by the Senate
Banking Committee. Although it remains to be seen precisely how the new CFPB leadership will apply theabusiveness standard in supervision and enforcement matters, the announcement is consistent with expectationsof a more aggressive enforcement program and increased regulatory scrutiny.

For further information about this alert, please contact one of the following members of the Firm’s Litigation
Department.
NEW YORK CITY
Brooke E. Cucinella+1-212-455-3070
brooke.cucinella@stblaw.com

Stephen M. Cutler+1-212-455-2773
stephen.cutler@stblaw.com

Michael J. Osnato, Jr.
+1-212-455-3252
michael.osnato@stblaw.com

Anar Rathod Patel+1-212-455-2206
apatel@stblaw.com

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