CFPB Issues Policy Statement on Abusive Acts or Practices

On April 3, 2023, the Consumer Financial Protection Bureau (CFPB) issued a Policy Statement on abusive acts and practices. Since Congress passed the Consumer Financial Protection Act of 2010 (CFPA or “Act”), the CFPB has used the provisions of the Act to condemn those who engage in the prohibited abusive conduct.  

The Policy Statement provides that the CFPA was designed to protect against two types of abusive acts: (1) material interference, and (2) taking unreasonable advantage. For an action to be categorized as abusive, the act or practice conducted must fall into one, or both, of these categories.  

Material Interference 

The CFPB defines material interference as interfering with “the ability of a consumer to understand a term or condition of a consumer financial product or service.” Material interference may include acts or omissions that withhold, downplay, or hide information from the consumer. Material interference can occur in various forms, including:  

• buried disclosures, such as fine print, complex language, or omissions; 

• physical or digital interference, such as impeding a consumer’s ability to see, hear, or understand the terms and conditions; and  

• overshadowing, which includes placing certain content in a way that interferes with a consumer’s comprehension of other content. 

Material interference, though not limited to the below outlined methods, can be proven by: 

1. reasonably inferring that an act or omission interferes with a consumer’s ability to understand a term or condition when the entity intends it to interfere; 

2. establishing that a natural consequence of an act of omission would be to impede a consumer’s ability to understand; or  

3. providing evidence that an act did impede a consumer's understanding. 

Taking Unreasonable Advantage 

Unreasonable advantage concerns “the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service.” An entity can take unreasonable advantage of a consumer in three particular circumstances, which include: 

1. gaps in understanding, where consumer’s lack of understanding of the material risks, costs, or conditions of the product or service affects their decision making; 

2. unequal bargaining power, such as taking advantage of a consumer’s inability to switch providers or make other decisions; and 

3. consumer reliance on an entity, including a consumer reasonably relying on an entity to make, or advise them on, decisions for the consumer. 

This article by Morgan Lewis notes that the Policy Statement declines to narrow the definition of “abusiveness” as it has been defined in the statute, nor was it issued in an attempt to “focus or set limits on the exercise of the statutory authority toward the end of the consensus.” They warns that companies under CFPB jurisdiction should prepare for closer scrutiny regarding abusiveness. In order to do so, Morgan Lewis recommends updating compliance governance, evaluating sources of consumer revenue, considering third-party risk, assessing advertising claims, and lastly, balancing when to “[accede] to the CFPB’s interpretation of the law and choosing where to take a narrower, reasonable reading of the law.”