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CFPB "Abusive" Rulemaking?

posted by Adam Levitin

Acting BCFP CFPB Director Mick John Michael Mulvaney announced this week that the CFPB would be undertaking a rulemaking to define "abusive," the third part of the UDAAP triad. The CFPB's key organic power is to prohibit unfair, deceptive, and abusive acts and practices.  Unfair and abusive have statutory definitions, whereas deceptive does not, but "abusive" is a new addition to the traditional UDAP duo of unfair and deceptive.  Mr. Mulvaney suggests that a definitional rulemaking is necessary so that regulated entities will know what the law is. 

Actually, it's very clear what "abusive" means, at least as applied by the CFPB to date.

"Abusive" basically means nothing more than unfair or deceptive. By my count, the CFPB has brought some 206 enforcement actions to date.  Of these, the CFPB brought "abusive" claims in only 27 cases, and in all but one of those cases, the actions alleged to be abusive were also alleged to be either unfair or deceptive.  All 27 "abusive" cases were brought under Director Cordray. 

Given the way the CFPB has deployed "abusive" to date, it's hard to see what the concern about "uncertain law." The CFPB really hasn't used enforcement actions as a proxy for rulemaking, at least with the "abusive" power. At best, the CFPB has deployed "abusive" as a sort of belt-and-suspenders pleading strategy. If I were advising a financial institution client, I'd say that there was little to worry about with the new "abusive" power. The Mulvaney CFPB won't use it at all, and even under the supposedly radical Cordray Directorship, it didn't have any bite. In other words, there's not an actual problem here of unclear law as applied—there's not even that an issue on which one can disagree.

It's not at all clear to me that a Mulvaney CFPB will be able to finalize an "abusive" rulemaking before 2021.  Such a rulemaking would presumably have to go through the SBREFA process and also through consultation with federal prudential regulators.  It will also be required to contain a cost-benefit analysis. And the rule will be automatically subject to a reassessment within 5 years (but it could be less).  All of the frictions that exist on CFPB rulemaking apply here as well.  And then there's the fact that "abusive" has a statutory definition and a legislative history that substantially limits what can be done with a rulemaking.  Defining terms like "unreasonable advantage" or "materially interferes" without being arbitrary and capricious will be challenging. All of this means that there is a host of potential Administrative Procedures Act (and Consumer Financial Protection Act) challenges to any rule—both on the process and on the substance of the rule being "arbitrary and capricious."

A final observation. While I assume that Mulvaney's interest in a rulemaking is to cabin off the "abusive" power, it would actually have one surprising effect:  it would enhance the enforcement authority of state attorneys general.  The Consumer Financial Protection Act allows for its enforcement by state attorneys general.  But the state AGs are not allowed to bring UDAAP actions against national banks or federal savings associations except under a UDAAP rulemaking done by the CFPB. Once the CFPB does a UDAAP rulemaking of any sort, state AGs will be able to bring suits alleging "abusive" behavior against national banks and federal savings associations. I suspect that Mr. Mulvaney hasn't considered that. But I can think of some rather influential financial institutions that might not want a UDAAP rulemaking, even if it is a restrictive one....


Excellent post. Could the rule simply say the state AGs cannot enforce it? I would think not given the language of the statute, but I wonder about your thoughts.

Even putting such an arguably unenforceable restriction in the rule might be enough to discourage state AGs as they would have to win on two points: (1) the restriction is unenforceable and (2) the facts in the case indicate an abusive practice.

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