CFPB Issues Warning to ‘Abusive’ Consumer Finance Firms

The Consumer Financial Protection Bureau is reminding lenders of its 13-year-old rule against “abusive” conduct.

The CFPB issued a policy statement Monday (April 3) explaining its prohibition against abusive conduct in consumer financial market, created in 2010 in response to the Wall Street meltdown two years earlier.

“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 a news release.

He 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 things like a lack of understanding or 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 ahead for lenders — both banks and non-banks — as they’ll now have to broaden the data they collect to determine who gets new business loans.

As noted here, that means that lenders will increasingly need to rely on digital, tech-driven means of compiling critical borrower information to satisfying the new mandates for 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 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 said in announcing the changes.