Academic journal article ABA Banking Journal

Looking for Clues on "Abusive": First CFPB Action Doesn't Provide Much Clarity

Academic journal article ABA Banking Journal

Looking for Clues on "Abusive": First CFPB Action Doesn't Provide Much Clarity

Article excerpt

While I was pretending to enjoy shopping with my girlfriend, she asked me to select my favorite dress. I said, "The pink one." She replied, in a condescending tone, that it was "fuchsia." To some, discerning subtleties in the hues of women's clothing is still easier than understanding the difference between "deceptive/unfair" and "abusive" in the 2010 Dodd-Frank Act (DFA). The act allows the Consumer Financial Protection Bureau (CFPB) to prohibit unfair, deceptive, and abusive acts and practices to consumers. The terms "unfair" and "deceptive" have been well established by regulators and the courts for over a decade. However CFPB's authority to prohibit "abusive acts" is new and was defined for the first time in the DFA. Section 1031 defines an abusive practice as one that materially interferes with a consumer's ability to fully understand a consumer financial product or service, or takes unreasonable advantage of one or more of the following: a consumer's confusion of the risks or costs of the product; the inability of the consumer to protect his interest when selecting a consumer product; or the consumer's reasonable reliance on a vendor to act in the interest of the consumer. The new standard is confusing because it distinguishes abusive practices from those that are unfair and deceptive without explaining how they differ.

On May 6, 2013, CFPB tried to provide some clarity when it brought its first enforcement action against a business for abusive acts. CFPB filed a complaint against American Debt Settlement Solutions (ADSS) and its president, alleging the Florida debt-relief company misled consumers and charged illegal fees for its services. …

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