Letter to CFPB on the Statement of Policy Regarding Abusive Acts and Practices

Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

To Whom it May Concern:

The American Bankers Association appreciates the opportunity to comment on the Consumer Financial Protection Bureau's Statement of Policy Regarding Prohibition on Abusive Acts or Practices.

I. Summary of the Comment

The policy statement purports to summarize precedent and to set forth the Bureau's analytical framework for abusiveness claims to help regulators and financial institutions identify unlawful acts or practices. ABA agrees that industry and consumers would benefit if financial service providers could readily identify – and avoid – abusive acts or practices. The Bureau indicates it wants the policy statement to provide the same helpful and lasting guidance found in the Federal Trade Commission's (FTC) policy statements on unfairness and deception. However, for the reasons discussed, the policy statement will not achieve that goal.

Indeed, we fear that the CFPB's new policy statement portends history will repeat itself. In discussing the FTC statements, the Director states, "In my view, setting aside the ideological assumptions they reflected, part of the reason why the policy statements proved successful and authoritative was because they were practical and because they created rules of thumb and presumptions about the law. In short, they were influential because they were helpful to practitioners, enforcers, and industry. We want today's policy statement to be similarly helpful."

However, the "ideological assumptions" that underlie the FTC's policy statements are precisely why they have proven to be helpful, practical and enduring. These assumptions resulted from the history and context for the FTC's policy statements. The FTC issued the unfairness policy statement in 1980, after decades of "over-exuberance" during which "the agency tested the outer limits of its [unfairness] powers, "which led to such an outcry that the Commission was at risk of losing its authority to prevent unfair acts and practices. The Commission also adopted a policy statement on deception in 1983, that helped clarify that the standard for deception was not any consumer, but a consumer "acting reasonably in the circumstances."

The FTC's policy statements reflect the fact that unfettered agency discretion is an inefficient use of resources, violates principles of fair notice and due process, and that market regulation must account for not only the costs of a challenged practice but also its potential benefits, to avoid unintended consequences. Ignoring the historical context for the FTC's policy statements, and how that context influenced the assumptions embedded in them, increases the likelihood that the Bureau's policy statement will not last.

The FTC's self-imposed restrictions on its discretion led to broad acceptance of the policy statements. Indeed, Congress eventually codified the policy statements and used them to define unfairness and deception in the Dodd Frank Act itself. In contrast, the CFPB's policy statement, with its lack of limits and its failure to consider costs and benefits, underscores what former FTC Commissioner Timothy Muris feared about the insertion of abusiveness in the Dodd Frank Act: "'Abusive' has unfortunate echoes to the FTC's use of unfairness in the 1970s that led the agency to assert unprecedented and ultimately destructive power."

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