Earlier this week (April 3, 2023), the Consumer Financial Protection Bureau (CFPB) issued a policy statement serving as a reminder to lenders of the Bureau’s 13-year-old rule against “abusive” conduct. The statement not only explained the legal prohibition relating to abusive conduct in consumer financial markets, it also summarized over a decade of precedent.
The purpose of the CFPB is to lead the enforcement and supervision efforts necessary in identifying and ending abusive conduct by lenders against consumers. In 2010 and in response to the mortgage and financial crisis, the United States Congress passed the Consumer Financial Protection Act of 2010, resulting in the creation of prohibition on abusive conduct. The Act tasks the federal banking regulators, CFPB and states with the responsibility of enforcing the prohibition on abuse, putting the CFPB in charge of administering it. This issued policy statement is meant to assist consumer financial protection enforcers in identifying wrongdoing, and help financial firms avoid committing abusive acts or practices against consumers.
“In response to the predatory mortgage lending practices that drove the financial crisis, Congress banned abusive conduct in consumer financial markets,” CFPB Director Rohit Chopra said in the policy statement news release. He also added that the latest guidance is designed “to provide an analytical framework to help federal and state agencies hold companies accountable when they violate the law and take advantage of families.”
According to the CFPB, the policy statement outlines how abusive conduct typically involves obscuring key features of a product or service, or leveraging certain consumer disadvantages such as the lack of understanding or the unequal bargaining power to gain an unreasonable advantage. “In particular, the statement describes how the use of dark patterns, set-up-to-fail business models like those observed before the mortgage crisis, profiteering off captive customers, and kickbacks and self-dealing can be abusive,” the bureau said.
The CFPB has gone after companies who engage in “dark practices” in the subscription industry earlier this year. These are tactics websites used to mask information, make it hard to cancel subscriptions or to convince customers to click links or make inadvertent purchases.
More recently, the agency released new rules that will change small business lending. As PYMNTS wrote last week, there’s a change coming up, just around the corner for lenders for both banks and non-banks; they’ll have to broaden the data they collect to determine who gets new business loans. Lenders will need, more and more, to rely on digital, tech-driven means of compiling critical borrower information to satisfy the new mandates for what is currently estimated to be a $1.4 trillion industry.
“There is currently limited data on small business entrepreneurs’ access to credit, and no comprehensive information available about small business lending,” the CFPB said last week. “For decades, the government has assembled data pursuant to Congressional mandates on residential mortgages.” Under the new rules, lenders who issue more than 100 small business loans per calendar year would be required to collect and analyze demographic, geographic and other data. As PYMNTS notes, that figure covers more than 95% of small business loans issued in the states.
“This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly,” Chopra added while announcing the changes.
The policy statement will be published in the Federal Register, and the public will have until July 3, 2023 to submit their comments.
This country cannot afford to go through another financial crisis such as the one we had back in 2010; lenders have to be more conscientious of their lending practices and absolutely must stop leveraging the consumers’ lack of understanding and awareness.
On the flip side, consumers need to take more initiative towards understanding the ins and outs of the typical financial transactions they engage such as but certainly not limited to real estate purchases and sales, mortgages and credit building.
inVIVO financial is here to assist consumers achieve the best results in there personal finance transactions.
Contact the inVIVO financial consumer advocacy team today with any questions you may have about consumer finance related policies.