CFPB Uses New Enforcement Power Against “Unfair and Abusive” Practices

The Consumer Financial Protection Bureau last week used its power to prohibit “abusive acts or practices” for the first time since its inception, in bringing a complaint against a Florida debt relief company.

The “unfair and abusive” language gives the CFPB discretion in its claim, a power not before held by any other oversight agency of its kind.

In its allegation, the CFPB claims Florida-based American Debt Settlement Solutions, Inc. (ADSS) and its owner Michael DiPanni routinely charged consumers illegal upfront fees for debt-relief services that rarely, if ever, materialized.

According to the complaint, the company charged $500,000 in illegal fees. The proposed consent order would award a judgement against ADSS for that amount, in addition to a $15,000 civil fee.

“Consumers struggling to pay off a debt are among the most at risk and deserve better,” said CFPB Director Richard Cordray. “We will continue to crack down on this type of harmful behavior.”

The CFPB has not before issued an enforcement action citing “abusive acts or practices. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the bureau has authority to determine whether “someone – a person or a company – takes unreasonable advantage of a consumer in certain ways or interferes with a consumer’s ability to understand a term or condition of a financial product or service.”

The power has been a point of uncertainty among lenders and those who advise them. 

“I think unprecedented is the word of the day,” Pat McManemin, a Dallas-based partner with international law firm Patton Boggs told RMD in 2012. “Everybody’s using it.”

With respect to the unfair and abusive, or deceptive language, it has been somewhat of an unknown until now. 

“The Bureau can make it up as it goes along,” Laurence Platt, financial services counsel with K&L Gates told RMD upon the bureau’s receiving enforcement authority. “If they think the laws are insufficient, all they have to do is claim it to be unfair or deceptive.”

Written by Elizabeth Ecker

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