Abusiveness. The CFPB s New Enforcement Tool. Ori Lev Partner Mayer Brown

Transcription

1 Abusiveness The CFPB s New Enforcement Tool Ori Lev Partner Mayer Brown olev@mayerbrown.com Christopher Shelton Associate Mayer Brown cshelton@mayerbrown.com

2 Speakers Ori Lev Partner Mayer Brown Christopher Shelton Associate Mayer Brown 2

3 From UDAP to UDAAP Federal Trade Commission Act, 1938 Unfair (causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and which is not outweighed by countervailing benefits to consumers or to competition). Deceptive (likely to materially mislead a consumer whose interpretation is reasonable under the circumstances). Dodd-Frank Act, 2010 Unfair Deceptive Abusive (??) 3

4 Use of Abusiveness in CFPB Enforcement Cases Number of CFPB Enforcement Cases Abusiveness Not Alleged Abusiveness Alleged Total May

5 Abusiveness: Four Separate Theories ( Prongs ) of Liability 5

6 Use of Specific Abusiveness Prongs by the CFPB 30 Number of Claims (Some Cases Include Multiple Claims) Total May 2016 Prong (1) Prong (2)(A) Prong (2)(B) Prong (2)(C) 6

7 Prong (1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service. Only three CFPB cases invoke Prong (1). Generally involves misrepresentations that prevented consumers from understanding a term or condition of a financial product. In one recent case, minimizing the amount of time that the consumer had to view a key document was used to support a Prong (1) claim. Prong (1) has generally been used in combination with other abusiveness prongs, as part of a kitchen sink or belt and suspenders approach. 7

8 Prong (2)(A) takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service. Ten cases invoke Prong (2)(A). (2)(A) can be thought of as Deception Plus. A deceptive statement or omission is often the basis for the consumers lack of understanding, and then accepting money from the consumers often constitutes taking unreasonable advantage of the consumers lack of understanding. 8

9 Prong (2)(A) takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service. Example of (2)(A): company that offered pension advances obscured the true nature of the credit transaction by denying that their product was a loan and failed to disclose or denied the existence of an interest rate and fees associated with the loans. 9

10 Prong (2)(B) takes unreasonable advantage of the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. 11 cases invoke Prong (2)(B). (2)(B) can be thought of as Unfairness Plus. The consumer s inability to protect her interests under (2)(B) is very similar to a substantial injury that is not reasonably avoidable by consumers under the unfairness doctrine. 10

11 Prong (2)(B) takes unreasonable advantage of the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. Example of (2)(B): A payday lender allegedly created an artificial sense of urgency to induce delinquent borrowers with a demonstrated inability to repay their existing loan to take out new loans. 11

12 Relationship of Prongs (2)(A) and (2)(B) Arguably, all (2)(A) cases could also be (2)(B) cases. A consumer who does not understand the material terms of a financial product presumably cannot protect her interests in selecting or using it. (2)(A) (2)(B) 12

13 Prong (2)(C) takes unreasonable advantage of the reasonable reliance by the consumer on a covered person to act in the interests of the consumer. Only three cases invoke Prong (2)(C). Cases so far have tended to focus on schools and student loan counselors who induce students trust and then allegedly take advantage of that trust by advising the students to purchase financial products that are not beneficial. (2)(C) might also apply in other contexts where the defendant has a relationship of trust with vulnerable consumers. 13

14 How Is Abusiveness Distinctive from Unfairness and Deception? Possible Areas Where Abusiveness is Distinctive: Suitability: A number of cases under (2)(A), (2)(B), and (2)(C) focus on the defendant s knowledge that the financial product is not in the consumer s best interest. Steering: Some cases under (2)(A) and (2)(B) concern directing consumers to financial products containing lessfavorable terms than might be available to them elsewhere. 14

15 QUESTIONS

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