CFPB Remains Undecided on Definition of ‘Abusive:’ Kraninger

The CFPB has not decided whether it should use its rulemaking power or other tools to better define “abusive acts or practices” agency Director Kathy Kraninger said Tuesday.

The agency has the power to act against financial institutions based on “Unfair, Deceptive Abusive Acts or Practices.”

She said that through Federal Trade Commission actions and case law, the definitions of unfair and deceptive have been clearly defined.

The same is not true for abusive acts or practices.

“We have heard from some stakeholders that there is some uncertainty,” she said, adding that evidence gathered as a result of the symposium will be used to determine how the agency should proceed.

The CFPB appears to have slowed down the process of defining “abusive.”

Former Acting CFPB Director Mick Mulvaney had expressed concerns that the lack of a definition could lead to regulation by enforcement actions and that he intended to try to better define the term.

However, when the CFPB issued its Spring regulatory agenda, the issue was placed in its “long-term action” section.

In testimony prepared for the session, attorneys and academics clearly were divided about whether such a definition is needed.

“First, the purported cloud of uncertainty created by the prohibition on ‘abusive’ acts or practices has been exaggerated,” said Nicholas Smyth, Pennsylvania’s senior deputy Attorney General and assistant director for consumer financial protection. “The ‘abusive’ prohibition does not stifle innovation any more than the prohibitions on unfairness or deception do.”

He said that Congress intentionally left the term vague and that any agency action to better define it might violate federal law.

A former CFPB official agreed.

“To the extent there are any lingering compliance concerns, the Bureau can successfully address those concerns through no-action letters, guidances, and the like, instead of through a rule,” said Patricia McCoy, the agency’s former first assistant director for mortgage markets, now a law professor at the Boston College Law School.

Others disagreed.

“Providing a clear and predictable definition of ‘abusiveness’ should be a high priority for the new leadership of the CFPB in building an agency culture that promotes the rule of law, economic prosperity, and consumer welfare,” said Todd Zywicki, a law professor at the Antonin Scalia School of Law at George Mason University.

However, Eric. Mogilnicki, an attorney with Covington & Burling said a definition is critical

“No one benefits from the current lack of clarity around the ‘abusive’ standard,” he said.