The Obama's Administration Consumer Financial Protection Agency Bill and Abusive Practices

by Jeff Sovern

Subtitle C of the Obama administration's bill to create a Consumer Financial Protection Agency would give the CFPA the power to promulgate rules "identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service."  The bill would also permit the agency to take action to prevent someone from engaging in such a practice.  The phrase "unfair and deceptive" has a long history in litigation under the Federal Trade Commission Act, and in fact the bill copies the FTC Act's definition of unfair, drawn in turn from a 1980 FTC Policy Statement, that acts cannot be declared unfair unless "the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and such substantial injury is not outweighed by countervailing benefits to consumers ot to competition."  So those phrases seem relatively well understood.  But what are abusive practices?  The Fair Debt Collection Practices Act bars abuse in debt collection, § 1692d, but presumably the CFPA's authority to ban abusive practices would extend beyond debt collection.  For example, suppose the CFPA declared that it is an abusive practice to provide for a balloon payment in a mortgage in which the borrower has no real expectation of a substantially higher income when the balloon payment comes due (as might be true of a medical student, for example).  Should courts uphold such a determination?  Here's a definition of abusive from dictionary.com:

1.	using, containing, or characterized by harshly or coarsely insulting language: an abusive author; abusive remarks.

2.	treating badly or injuriously; mistreating, esp. physically: his abusive handling of the horse.

3.	wrongly used; corrupt: an abusive exercise of power.

It seems unlikely that the word as used in the bill should be confined to use of bad language, and obviously it isn't directed to physical abuse.  That third definition--wrongly used; corrupt--seems more relevant.  Most practices that satisfy that definition would also seem unfair.  But abusive must mean something that is neither unfair nor deceptive; otherwise, why include it?  And it should also mean something different from unconscionable, because the drafters didn't use that term either.  My own guess is that it would give the CFPA the power to ban clauses that permit a business to take advantage of a consumer because the business has power the consumer doesn't, perhaps because of information asymmetries.  But it's just a guess.

Comments

[Iola B. Francois]

Consumers are actually abused daily? This is due to arbitration clauses and allowance of this abuse by such as ballooning payments, being imposed upon the consumer without the ramifications being explained (If there were any once the initial loan with interest has been paid in full). Without the consumer being informed and in possible dire straits, an informed choices are not made.

The payments and interest: made by consumers, in any form of money with personal property used as collateral, to the lender in exchange for loan of money, is being abused by lenders all over the US today.

Payments are set up to be made by: the consumer before he/she actually, is no longer obligated to make payments? Then, by these contracts of arbitration and ballooning payments in lieu of not taking what ever merchandise is used as collateral, et al should the consumer be unable to continue to pay regularly, after the initial or original loan is paid in full?

These loan companies locally: will offer the consumer a choice, non payment for a month and small amounts of money, in exchange for the consumers signature on, yet another contract? This action will start payments all over again, of the original loan, et al. Horrific to any consumer and then being threatened: regularly by the loan company with, jail or taking possession of the personal items the consumer used as collateral?
Continuous dialy calls of harrassment and being told this would continue until these payments are made.

I for one am getting on in years and disabled in status right now. Many issues have been taken advantage of by one particular loan company, before it was realized the amount of money being paid all over again, once my signature was on another contract of arbitration et al and the same with my daughter who was out of work for almost a year: with me paying her payments and being asked to make them by the loan company manager? I know for a fact that her loan would have been paid in full by now, if they had not told her she had to come in and sign yet another contract and now threaten her with jail, et al

All of these actions are daily and the US is already in financial straits> Yet some are allowed to continue to take advantage and scam to get money from those they feel are destitute in actuality. What could we do?