Banks and lenders need to be aware of the Consumer Financial Protection Bureau’s powers under its “unfair and abusive” oversight, according to the American Bankers Association.
“The CFPB is using enforcement actions rather than rulemaking to clarify what it means by “abusive” acts or practices,” ABA said in a notice, referencing a report prepared by ABA’s American Bankers Insurance Association counsel.
The report notes a recent enforcement action by the CFPB taken against a Florida debt collection company under Dodd Frank, citing “unfair and deceptive” practices by the company.
“The CFPB recently used its powers under the Dodd-Frank Act to prohibit an “abusive” act or practice, a term added to the long-understood “unfair and deceptive” standard but that remains unclear,” the ABA report states. “In an action against a Florida debt settlement company, the CFPB’s allegations of abusive acts or practices relied on two aspects of Dodd-Frank’s “abusive” definition: taking “unreasonable advantage of” customers’ “lack of understanding,” and consumers’ “reasonable reliance” on the efficacy of the firm’s services.”
The debt settlement enforcement action marked the first of its kind by the CFPB, raising awareness to those companies falling under the agency’s oversight. In particular, ABA warned insurance companies of the implications, although the rule applies to all companies in the consumer finance market.
“Banks engaged in the sale of insurance should be aware of the circumstances under which acts or practices they use could be considered ‘abusive’ by the CFPB,” the report concluded.
Written by Elizabeth Ecker