FORETHOUGHT - Whyte Hirschboeck Dudek SC

a certain annual percentage rate would
be considered abusive. Similarly, such a
standard could allow the CFPB to decide
that certain creditors should not be able to
offer additional products in connection with
its loan product offerings, just because it
considers the additional product abusive.
Without a clear understanding of what the
abusive standard means, creditors would
understandably be hesitant to offer new
credit products.
Indeed, implementation of a standard
based on some undefined concept of what
is abusive could have devastating effects.
Dodd-Frank Contemplates a Narrow Definition
of “Abusive” Acts. The better position is that
the broad and malleable definition outlined
above is not warranted by the language
of Dodd-Frank. Simply put, the abusive
standard is circumscribed by Dodd-Frank,
and should be narrowly defined by the
CFPB in its enforcement policies.
The only new element that the statutory
definition of abusive adds (above and
beyond what unfair and deceptive bring
to the table) relates to a consumer’s
understanding of the material risks,
costs, or conditions of a product or
service. Without committing an unfair or
deceptive act or practice (which is already
prohibited), a creditor acts “abusively”
when it either (1) materially interferes
with a consumer’s ability to understand
a financial product; or (2) recognizes
that a prospective borrower does not
understand the material risks, costs, or
conditions of the product or service (e.g.,
a consumer with a discernible incapacity,
such as not speaking English or being
mentally challenged) and with that
knowledge, commits an act or practice
that takes unreasonable advantage of
the prospective borrower’s known lack
of understanding.
With these statutory definitions in mind,
there are several standards that the
CFPB should heed in interpreting and
implementing the abovementioned
abusive “add-on” to its power. These
standards are not new concepts, but
are rather reiterations of fundamental
(and reasonable) concepts of law. The
importance of expressly tying them to
the CFPB’s enforcement policies of the
abusive standard, however, should not be
considered unimportant. Following these
standards will ensure an interpretation and
implementation of the abusive standard
that is consonant with the definitions of
abusive as set forth in Dodd-Frank, and
FINANCE 15