What Loan Servicers Must Know: How the CFPB’s 2020 Policy Statement on ‘Abusiveness’ Jibes with its Positions in Enforcement Cases
The Policy, announced on January 24, 2020, and made effective on the same date, comes six months after the Bureau’s July 2019 Symposium on the same topic (Symposium). This blog post will address: (i) the Policy’s contents, and (ii) how the Policy fares in comparison to the Bureau’s previously asserted positions in litigation.
I. Key Aspects of the Policy
Senator (and presidential candidate) Elizabeth Warren, who helped create the Bureau, has asserted that it was intended to take the “tricks and traps out of financial products” to protect consumers. In the Bureau’s press release announcing the Policy, current Bureau Director Kathleen Kraninger echoed Senator Warren’s statement in substance but was less stringent in tone. Indeed, Director Kraninger touted the importance of the Bureau’s enforcement of “clear rules of the road” and explained that the new Policy will “foster[ ] a culture of compliance” and “consumer beneficial products” by providing a “solid framework to prevent consumer harm.”
The Policy’s Clarifications
The 17-page Policy provides the following meaningful clarifications:
- The Bureau restates the four-pronged legal standard for “abusive acts or practices” that Congress originally inserted in Section 1031 of the Dodd-Frank Act in 2010, indicating that the Policy statement is neither a legislative fix nor an amendment by rulemaking. To meet the abusive standard, the Bureau must demonstrate that one, rather than all, of the four prongs, are met.
- The Bureau has filed 32 enforcement actions that included abusive acts or practices claims since its inception in 2011, the first of which was developed by an author of this blog post. The Bureau rightly noted in the Policy that the complaints or consent orders in those actions—standing alone—provide scant guideposts to the industry regarding which “unique fact patterns” would warrant the application of only the abusiveness standard, as opposed to the application of both the abusiveness standard and an unfairness or deception claim.
- The Policy is not only in response to the Symposium but also to the Bureau’s previous Request for Information process regarding “Adopted Regulations and New Rulemaking Authorities” and “Inherited Regulations and Inherited Rulemaking Authorities.” The Bureau undertook these efforts under former Acting Bureau Director Mick Mulvaney.
- The Bureau (rightly) believes that the Policy’s injection of clarity into the abusiveness standard is in the best interests of all stakeholders. Armed with better information concerning the legal standards that govern, the consumer financial services industry is now better positioned to understand and achieve compliance, which in turn benefits consumers who receive products and services that are consistent with the Bureau’s expectations.
The Impact of the Policy Moving Forward
The Policy also sets forth the following three key “use[s]” for the “abusiveness standard in [the Bureau’s] supervision and enforcement matters going forward”:
- In order to achieve its goals of efficiency and consistency, the Bureau intends to bring abusive claims only where “the harms to consumers from the conduct outweigh its benefits to consumers (including its effects on access to credit).” Thus emerges the Bureau’s striking concession that its authority under the abusive standard ought to mimic the “unfairness” standard on the Federal Trade Commission’s Section 5 authority at least in some respects. While the FTC can find an act to be unlawful only if the conduct has no countervailing benefit to competition or consumers, the Bureau may declare conduct unlawful even if it offers a countervailing benefit to competition. This is a logical distinction in light of the policy objectives and contexts of “abusive” in the Dodd-Frank Act and “unfairness” in the Federal Trade Commission Act.
- In its future enforcement actions and periodic Supervisory Highlights bulletin, the Bureau will more explicitly state and distinguish the facts that give rise to “abusive” conduct as opposed to “deceptive” or “unfair” conduct in any particular matter.
- In an effort to avoid creating a chilling effect or prompting over-deterrence for companies who may seek to develop products or policies that may benefit consumers, the Bureau inserted a pseudo-mens-rea prerequisite to monetary relief stemming from an abusive violation. For purposes of damages analyses, this means that the Bureau will not seek restitution or redress for an abusive act, so long as the company or person has made a “good-faith effort to comply with the law based on a reasonable—albeit mistaken—interpretation of the abusiveness standard.” Before companies begin investing in opinion letters from counsel in order to shore up their “good faith” evidence, though, we believe that companies must consider the following elements: the Policy neither amended the $5,000, $25,000, or $1 million per day penalty matrix in the Dodd-Frank Act, nor cabined the obtainable amount of relief from “unfairness” or “deceptive” claims. Therefore, this aspect of the Policy should not be viewed as a panacea for entities seeking to reduce their monetary exposure from potentially UDAAP-related conduct.
Formal Rulemaking May Follow
Importantly, no aspect of the Policy is self-executing or constitutes a legislative amendment, meaning that none of the above statements carries with it the force of law. The Bureau announced but did not commit to, the possibility of a formal rulemaking on abusiveness in the future. Until then, it is helpful to compare the Policy to the Bureau’s current enforcement activity.
II. Policy vs. Real-Life Litigation
A longstanding Bureau enforcement action involves a novel abusiveness claim against Navient, one of America’s largest student loan management companies whose former parent company is Sallie Mae. Given the passage of time between the Bureau’s commencement of the Navient matter in 2017 under former Bureau Director Richard Cordray and the newly effective Policy, one has to wonder what changes in the Bureau’s abusiveness position occurred in the months leading up to the 2019 Symposium and the 2020 announcement of the Policy. The Navient case provides at least the starting point to that process.
In CFPB v. Navient Corporation et al., the Bureau alleged in Count I of its Complaint that Navient failed to inform borrowers about income-driven repayment plans, rather than claiming that Navient made misrepresentations or misstatements. Navient sought to dismiss the Bureau’s claim, arguing that it “had no duty to provide individualized financial counseling to borrowers.” Judge Robert D. Mariani disagreed, denying Navient’s motion to dismiss for the following reasons:
- First, the Bureau’s Complaint adequately pled an abusive claim by alleging that Navient “took unreasonable advantage of a borrower’s reasonable reliance that Navient would act in the borrower’s interest” because “Navient made various statements on their webpage that indicated that if a borrower in financial distress contacted them, Navient would give them enough information about different repayment options so the borrower could make an informed decision about which repayment plan was right for them.”
- Second, the Bureau’s Complaint also adequately alleged “that, when borrowers called, Navient representatives did not give complete information on income-driven repayment plans and instead pushed borrowers into forbearance,” which “was both detrimental to borrowers and beneficial to Navient.” The Court held that these allegations were sufficient at the pleading stage to allege that “Navient took unreasonable advantage of borrowers’ reasonable reliance on Navient’s statements that Navient would give them adequate information to properly choose a repayment plan.”
- Third, from a pleading perspective, Navient and the Court exchanged an illuminating dialogue during the motion to dismiss hearing. Navient’s counsel argued that, under the federal pleading standards in Iqbal and Twombly, the Court should not accept the truth of a “steering” label as true, where “steering” itself was a conclusory term and not a description of conduct. The Court confirmed that it understood Navient’s argument but countered that the Bureau’s Complaint alleged that “Navient’s compensation policy for its customer service representatives incentivizes them to push borrowers into forbearance, without adequately exploring income-driven repayment plans with those borrowers.” Therefore, even if one were troubled by the word “steering,” the Court was satisfied that the Bureau’s Complaint described the conduct of the Navient representatives without relying on that term.
- Fourth, and finally, the Court disagreed with Navient’s argument that the law imposed no duty on Navient as a loan servicer (as opposed to a fiduciary) to provide individualized financial counseling because the Dodd-Frank Act does not establish “an underlying duty” as a necessary element for abusiveness. Even if it did, “the Court [was] satisfied that Navient’s active conduct created a duty to act in accordance with their own statements.”
III. The Ultimate Impact of the Policy Remains to Be Seen
Notably, the Bureau has not dropped the abusiveness claim from the Navient litigation as of the date of this post, notwithstanding the passage of nine months since Judge Mariani’s Order denying Navient’s motion to dismiss and the Bureau’s articulation of its position that “the same factual allegations that form the basis of the [abusiveness claim] also violate the [Dodd-Frank Act’s] prohibition on unfair acts or practices.”
Furthermore, even if Navient were to prevail on the abusiveness claim based on its current defense, it would not necessarily prove that the Bureau’s litigation positions comport with the new Policy. Though many of the filings in the Navient matter are sealed, Navient more recently argued in a public motion that the Court should grant partial summary judgment in its favor because, as a factual matter, Navient had repeatedly informed borrowers about income-driven repayment options. Should the Court have occasion to rule on this factual matter and decide in Navient’s favor, it would still fail to address the Bureau’s position in the enforcement matter that it may bring abusiveness claims that are predicated on the same facts as unfairness claims—a position that is inconsistent with the Policy.
Moving forward, loan servicers and companies should carefully review pending enforcement matters to ascertain Bureau expectations under the abusive standard.
The Arent Fox Consumer Financial Services team will continue to monitor the Bureau’s implementation of the Policy moving forward. If you have any questions about the Policy or other Consumer Financial Services issues, please contact Jenny Lee, Jake Christensen, or the Arent Fox professional who usually handles your matters.
 This distinction only applies to a comparison of the Bureau’s “abusive” standard per the Policy vs. the FTC’s “unfairness” standard. Of course, if the Bureau were to bring an “unfairness” claim under the Dodd-Frank Act, the elements would be identical to those of the “unfairness” claim under the FTC Act.
 CFPB v. Navient Corp. et al, No. 3:17-CV-00101 RDM, Pl.’s Compl. 1, ECF No. 1 (M.D. Pa. Jan. 18, 2017) (complaint).
 The Court restated the Bureau’s argument that “Navient violated the [Dodd-Frank Act’s] prohibition on abusive acts or practices” because “Navient’s webpage stated that Navient would help borrowers find a repayment option appropriate for the individual borrower’s situation but that Navient instead steered borrowers into forbearance without adequately advising them about other repayment options.” Id. Mem. Op. at 44, ECF No. 57 (denying Def.’s mot. to dismiss).
 Id. at 45.
 Id., Hr’g Tr. 20:2–20:20, ECF No. 55.
 Id. at 20:20–21:7.
 Id., Mem. Op. at 46–47, ECF No. 57.
 Id. at 47.
 The Court denied the motion without prejudice as premature because discovery is still open and forbade further motions for summary judgment until after the close of discovery. While fact discovery closed on October 9, 2019, expert discovery in the case remains open through February 20, 2020. Id., Def.’s Brief in Supp. of Mot. for Partial Summ. J. at 1–2, 5, 10, ECF No. 161; Id., Order at 3, ECF No. 228 (Order denying Def.’s Mot. for Partial Summ. J.).
 The Bureau asserted this position again just two weeks before the Policy announcement in a January 10, 2020 Motion in Limine. Id., Br. In Supp. of Mot. in Limine at 3, ECF No. 392.
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