• CFPB Files First “Abusive Practices” Enforcement Action
  • June 6, 2013 | Authors: David N. Anthony; Paige S. Fitzgerald; Virginia Bell Flynn
  • Law Firm: Troutman Sanders LLP - Richmond Office
  • On May 30, 2013, the Consumer Financial Protection Bureau (CFPB) brought its first enforcement action in which it alleged that a regulated entity had engaged in “abusive practices.” The CFPB's complaint was filed in federal district court against a Florida debt-relief company, and was based, in part, on the Dodd-Frank Act's prohibition of unfair, abusive acts or practices (UDAAP) in the consumer-financial marketplace. Because of the lack of any clear definition of the Dodd-Frank Act's “abusive practices” standard, an action of this type has been highly anticipated. Congress and businesses alike have voiced concerns to the CFPB over the vague UDAAP standard, which results in compliance challenges for entities subject to CFPB jurisdiction.
    In its complaint, the CFPB seeks a judgment of $500,000 against American Debt Settlement Solutions, Inc. (ADSS) and seeks to dismantle the Company based upon unfair, deceptive, and abusive practices by “misleading customers about the debt relief services it would provide and collecting fees without carrying out that work.” The CFPB specifically named the president as a defendant because he is the owner of the company, and, as the owner, actually managed ADSS’s day-to-day operations. The CFPB also alleges that ADSS's abusive practices took "unreasonable advantage of consumers' lack of understanding" regarding the benefits from enrolling in ADSS's debt-relief program. 
    Until the filing of this complaint, the CFPB had declined to take any formal position regarding its view of what exactly constitutes an abusive practice under the Dodd-Frank Act. However, in a statement heralding its initial enforcement action related to the prohibition on abusive acts or practices, the CFPB provides some additional guidance regarding the abusive practices standard: "If someone - a person or a company - takes unreasonable advantage of a consumer in certain ways or interferes with a consumer’s ability to understand a term or condition of a financial product or service, the Bureau may take enforcement action."
    In its statement, the CFPB concludes that it “is working to ensure federal consumer financial laws are being followed at every stage of the process and is focusing not only on debt-relief companies, but also those who facilitate their unlawful conduct and who may also violate federal consumer financial laws.” While the CFPB's complaint and statement are directed specifically toward the debt-relief industry, Director Cordray makes it clear that he is concerned with entities that interact directly with consumers that owe large debts; he explains that “consumers struggling to pay off debt are among the most at risk and deserve better.”
    Practical Implications
    Since the enactment of the Dodd-Frank Act, entities subject to the CFPB's enforcement and oversight powers have been concerned about the Act's ambiguous “abusive practices” standard and what exactly the CFPB might consider as abusive. For the first time, both through the allegations contained in its complaint filed against ADSS and its president as well as in its statement issued after the filing of this complaint, the CFPB has offered some insight into the definition of an abusive practice. At this stage, however, the standard enunciated by the CFPB might best be considered as a tool for evaluating a company's processes; outside of the debt-relief industry, the CFPB has not articulated any specific acts that it might consider to be abusive. Accordingly, companies subject to the CFPB's jurisdiction will need to keep abreast of the CFPB's future enforcement actions as a way of understanding the CFPB's view of the “abusive practices” standard. Finally, given Director Cordray's commentary, it appears that any company that routinely interacts directly with debt-burdened consumers, especially those in the debt collection industry, will likely be at the forefront of the CFPB's development of the "abusive practices" standard.