by Jeff Sovern
In its ongoing efforts to weaken the CFPB and consumer protection generally, the House Financial Services Comittee's Subcommittee on Financial institutions and Consumer Credit held a hearing on May 21 on eleven bills. I will talk in this post about only one, the so-called ‘‘Preventing Regulatory Abuse Act of 2014, sponsored by Representative Barr. As regular readers of the blog are likely to know, the Dodd-Frank Act authorized the CFPB to take action against entities within its jurisdiction that engage in unfair, deceptive, or abusive practices. Mr. Barr's bill would direct the CFPB to issue a proposed rule defining abusive within fifteen days of the bill's enactment and would block the Bureau from using its power under the abusive prong until the rule was issued.
I can appreciate that the industry would like to know what "abusive" means. Congress did too, and no doubt that's why it defined abusive in the statute. Here's what Congress wrote:
The Bureau shall have no authority under this section to declare an act or practice abusive in connection with the provision of a consumer financial product or service, unless the act or practice—
(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
(2) takes unreasonable advantage of—
(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
(B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
(C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
That's a pretty good definition, in my view. But the industry claims it needs to know more so it can predict whether particular actions are abusive. Personally, I would love to hear examples of the conduct that the industry speculates might be abusive under that definition but isn't certain about. So far, I haven't heard any, which makes me wonder whether the rule is really needed or whether this is part of a different agenda, the anti-consumer protection, anti-CFPB agenda. I can't remember hearing calls for similar rules when the Fed was given the power to block abusive lending in 1994, a power the Fed basically ignored until 2008, though perhaps I just overlooked those calls. Maybe what's really going on is that instead of an agency that was sympathetic to lenders having the power to ban abusive practices, the power is now in the hands of an agency charged with protecting consumers, and the industry wants to prevent that agency from using that power. But let's assume that the industry genuinely needs clarification. That still leaves open the question of whether this is a good bill.
The bill calls upon the Bureau to act within 15 days! Haven't they ever heard that haste makes waste, look before you leap, or Rome wasn't built in a day? Those cliches are cliches because they reflect a basic truth: that moving too quickly often leads to errors. if Mr. Barr genuinely wanted a good rule, wouldn't he want the Bureau to take the time to craft it well? No doubt the Bureau is still figuring out how best to use its abusiveness power. The Federal Trade Commission had decades of experience with its power to ban deceptive practices before it issued its 1983 policy statement on deception, and likewise had decades of experience with its power to ban unfair practices before it issued its 1980 policy statement on unfairness. The Bureau may not need decades before it is ready to issue a policy statement or rule on abusiveness, but surely it needs much more time than it has had. And why a rule? Why isn't a policy statement, which was good enough for the FTC, good enough for the Bureau? Yes, rules are subject to notice and comment, but is the industry having difficulty making its voice heard? Not, apparently, in the House.