To say that 2020 has already started off as a busy year for the Consumer Financial Protection Bureau (CFPB) might be an understatement.
In the most recent news late last week, the CFPB said it would change the way it defines and addresses “abusive” practices within the financial services arena. In essence, the change means that the agency is limiting how it can pursue such practices, which fall under a standard known as “Unfair or Deceptive Acts or Practices” (UDAAP).
The change may have been telegraphed more than a year ago in October 2018, when Mick Mulvaney, who had been serving as acting director of the agency, said that the CFPB was working on a new regulation to define those practices, as reported in The Wall Street Journal. Mulvaney told a banking conference that, in contrast to standards that define “unfair” and “deceptive” practices, “to my knowledge, I don’t think ‘abusive’ is nearly as well-established in the law. … We need some examples of things that are abusive, but not unfair or deceptive.”
Now, under the current leadership of Kathy Kraninger, the more explicit definitions that seek to address what some critics had said were “vague” may curb the scope of what is considered abusive practices. This may translate into fewer enforcement actions, such as fines, levied against financial services firms.
“The Dodd-Frank Act is the first Federal law to broadly prohibit 'abusive' acts or practices in connection with the provision of consumer financial products or services,” the CFPB said in a statement. “However, nearly a decade after the act became law, uncertainty remains as to the scope and meaning of abusiveness. This uncertainty creates challenges for covered persons in complying with the law, and may impede or deter the provision of otherwise lawful financial products or services that could be beneficial to consumers.”
The statement contended that Congress did not provide a complete list of abusive practices upon the advent of Dodd-Frank. Key among the changes: The CFPB will challenge the conduct that may be defined as “abusive” only when harm to consumers is judged to outweigh the benefits. In addition, the CFPB will seek monetary damages in the instance that a firm acts with a lack of “good faith” to comply with laws.
It’s noteworthy that the abusiveness standard stretches across 32 cases from 2011 to the end of last year. In the most recent action, the CFPB said that the new definitions will help to better manage “scarce resources.” The nod toward “scarce resources” may signal a shift toward pursuing fewer cases — dovetailing with a looming Supreme Court hearing, which may come as soon as March, into the constitutionality of the agency itself. In the case, captioned Seila Law LLC v. Consumer Financial Protection Bureau, the structure of the agency is at issue.
As reported, the CFPB is run by a single director, who can only be removed “for cause” by the president of the United States. The plaintiffs have argued that the structure gives the director unconstitutional distance from federal authority.
At The State Level
In the meantime, states are making bids to increase their own oversight of financial services firms and consumer-facing activities, particularly concerning debt collection.
In recent weeks, both New York and California have sought more authority over debt collection, even as the CFPB mulls rule changes that would make it easier for debt collectors to be in contact with companies and individuals via phone, text and email. Those two states have historically not licensed debt collectors (other states do), and that might change.
In New York, Governor Andrew Cuomo announced last month that he was proposing new licensing and oversight requirements for debt collectors. He said, "We license barbers, home inspectors and used car dealers in New York — so it makes no sense that we don't have the authority to license an industry that can cause families financial ruin.”
In California, Governor Gavin Newsom proposed in his annual state budget that there be wider regulation of debt collectors and other financial services firms through a revamp of the Department of Business Oversight, creating a new Department of Financial Protection and Innovation.
For further evidence of the push for states’ cementing of authority within financial services, New York State Attorney General Letitia James is leading a 24-state “coalition,” which has filed an amicus brief with the U.S. Supreme Court, arguing for the CFPB’s continued existence — and that state powers be kept in place even if the current CFPB structure is ruled to be unconstitutional.
Only a few weeks in, and the flurry of activity might already reshape the way financial services are regulated, and by whom.
Digital Taxes, Abroad
Separately, in Davos this past week, with a nod toward digital taxes and trade disputes, the U.S. has suspended tariffs that would have been levied on French imports amid disagreements over digital taxes that France imposed on Big Tech firms. French Minister of the Economy and Finance Bruno Le Maire said there had been a postponement on payment of the taxes to the end of the year.
“There’s still some work to be done,” he said at a conference in Davos.
The U.S. and France have agreed to work on a framework that would touch on taxation — namely, whether companies can decide to reallocate a percentage of profits (the U.S. position), or whether such taxation should be compulsory, CNBC reported. An agreement among OECD countries would spur France to end its national digital tax.
“We still need to have a clear understanding of what will be the working basis at the OECD. And we want this basis to be solid, credible and fair. An optional basis would not be credible,” Le Maire said.