A first look at implementation of the ‘abusive’ standard

The financial services industry has received its first indication of how the Consumer Financial Protection Bureau (CFPB) is interpreting the new prohibition on "abusive" acts or practices set forth in the Consumer Financial Protection Act (CFPA). In a May 30, 2013 complaint filed in federal court, the CFPB alleged that a debt relief services provider and its owner committed deceptive and abusive acts against its customers..American Debt Solutions, Inc. (ADSS) offered debt relief services to the public whereby, for a fee, it promised to renegotiate or settle consumers' debts with unsecured creditors during the program period. The CFPB alleged that ADSS had, on numerous occasions, enrolled consumers whose financial condition made it highly unlikely that they could complete the program. .ADSS collected detailed financial information from its customers, which, according to the CFPB, indicated that some enrollees would use their last savings paying the enrollment fees collected during the first few months. According to the complaint, although ADSS represented that it would negotiate the settlement of customers' debts during these first few months, it rarely did so. Consequently, some customers paid ADSS significant fees but received no service in return..The CFPB said ADSS took unreasonable advantage of consumers' lack of understanding of how long it would take ADSS to settle their debts and, therefore, how much money they would spend before realizing any benefit from enrolling in the debt relief program. Further, ADSS customers reasonably relied on ADSS to act in their interest by enrolling them in a program they could expect to complete and by settling their debts as soon as possible..Through a consent order, ADSS and its owner were ultimately prohibited from engaging in debt relief services and ordered to pay $15,000 in civil money penalties. Damages of nearly $500,000 were suspended based on the defendants' financial positions and provided they complied with other requirements of the order..While this case did not involve a financial institution, it is likely the CFPB and other bank regulators will continue to watch for false promises and costly products that provide little or no benefit to consumers..Karla Reyerson is an attorney with the Fredrikson & Byron Law firm, Minneapolis.