Alston & Bird Consumer Finance Blog


CFPB’s Proposed Insufficient Fund Fee Rule – Narrow in Scope with Potential for Greater Impact

What Happened?

On January 24, 2024, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a proposed rule that would prohibit covered financial institutions from imposing a nonsufficient funds (NSF) fee when consumers initiate transactions that are instantaneously or near instantaneously declined (the Proposed Rule). According to the CFPB, such fees are not based on the transaction amount or processing cost and take unreasonable advantage of a consumer’s lack of understanding of the material risk, costs or conditions of the product or service. In the Preamble to the Proposed Rule, the CFPB recognizes that “currently covered financial institutions rarely charge NSF fees on covered transactions” and, thus, the “CFPB is proposing this rule primarily as a preventive measure.” With that said, the Proposed Rule is significant in that the Bureau also clarifies its approach to assessing abusive practices.

Why is it Important?


In January 2022, the CFPB launched an initiative to reduce certain fees charged by banks and other companies under its jurisdiction, by issuing a Request for Information (Fee RFI) seeking public comment regarding fees that are not “subject to competitive processes that ensure fair pricing.” The CFPB continues to focus on these so-called “junk fees,” which the Bureau described in its Fee RFI, in part, as “fees that far exceed the marginal cost of the service they purport to cover, implying that companies are not just shifting costs to consumers, but rather, taking advantage of a captive relationship with the consumers to drive excess profits.” The Bureau’s attention is now on NSF fees.

The Proposed Rule

The Proposed Rule may be narrow in scope, but much broader in potential impact. It would prohibit a “financial institution” from charging an NSF fee to a consumer who attempts to withdraw, debit, pay, or transfer funds from their “account” that is declined instantaneously or near instantaneously by the “financial institution.” For purposes of the Proposed Rule, the term “account” and “financial institution” are defined consistent with Regulation E. Thus, a financial institution includes a bank, savings association, credit union, or any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide electronic fund transfer services. An account is defined equally broad to include: (i) checking, savings, or other consumer asset account held by a financial institution (directly or indirectly), including certain club accounts, established primarily for personal, family or household purposes, and (ii) a prepaid account. An account would not include, among others, escrow accounts for real estate taxes or insurance or an occasional or incidental credit balance in a credit plan. It is also worth noting that, according to the CFPB, checks and ACH transactions are not covered by the rule unless they evolve in a way to be cleared instantaneously.

While the scope of the Proposed Rule is narrow, the Bureau’s interpretation of abusiveness as articulated in the Proposed Rule is not. By way of background, Section 1031 of the Consumer Financial Protection Act (CFPA) prohibits unfair, deceptive, or abusive acts or practices (UDAAPs) under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The Proposed Rule finds that charging an NSF fee in instantaneously or near instantaneously declined transactions violates the “lack of understanding” prong of the abusiveness standard. Under the CFPB’s Policy Statement on Abusive Acts or Practices, the “lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service” concerns gaps in understanding affecting consumer decision making.

The Proposed Rule attempts to fine tune the “lack of understanding” analysis by distinguishing prior comments the Bureau made in its 2020 Payday Lending Rule, by clarifying that:

  • “[L]ack of understanding under the abusiveness standard of UDAAP is not synonymous with reasonable avoidability under the unfairness standard.”
  • Magnitude and risk of harm are distinct and should have no bearing on a “lack of understanding” analysis.
  • A consumer’s lack of understanding should not be characterized as general or specific as such framework is unhelpful in determining whether consumers understand the material risks, costs or conditions of a financial product or service.

Under the Proposed Rule, the Bureau has preliminarily determined that the charging of such fee is abusive under Section 1031(d) of the CFPA as it would take “unreasonable advantage of consumers’ lack [of] understanding of the material risks, costs, or conditions associated with their deposit accounts” and that “covered financial institutions that charge NSF fees on covered transactions would be benefiting from negative consumer outcomes that result from…a consumer’s lack of understanding.”

The Bureau summarily dismissed that such risks could be mitigated, as disclosure would be too costly, too unfeasible, and unlikely to eliminate the risk. Rather, “[d]rawing on its experience and expertise regarding consumer behavior, the CFPB believes that if a transaction entails material risks or costs and consumers derive minimum or no benefit from the transaction, it is generally reasonable to conclude that consumers who nonetheless went ahead with the transaction did not understand the material risks, costs or the conditions to those risks or costs.”

In other words, the CFPB appears to believe that no consumer would initiate a transaction knowing that they have insufficient funds and that a fee could be charged if their transaction is declined, despite the fact that (1) the vast majority of consumers have readily available access to their bank account balances, (2) such fees are generally disclosed to consumers, and (3) consumers contractually agree to pay such fees.

What Do You Need to Do?

While the Proposed Rule has limited application, the Bureau’s interpretation of the abusiveness standard could have far broader implications, as the Bureau could deem as abusive any fee which it determines provides little to no consumer benefit. For example, it is unclear what would stop the Bureau from prohibiting other fees as abusive, based on a determination that such fees provide little to no consumer benefit and that financial institutions are “benefiting from negative consumer outcomes that result from…a consumer’s lack of understanding,” given that the Bureau’s rationale appears to give little regard to consumer disclosures or contract law.

Therefore, given the potential downstream implications of the CFPB’s broad interpretation of abusiveness, companies subject to the CFPB’s jurisdiction should carefully review the Proposed Rule and consider submitting a comment letter, even if the Proposed Rule itself would not directly apply to the company. The Proposed Rule’s comment period expires on March 25, 2024.


CFPB Issues Policy Statement on Dodd-Frank “Abusiveness” Standard, But Important Uncertainties Remain

A&B ABstract:

The Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) issued a Policy Statement to provide a framework for how it intends to apply the Dodd-Frank Act’s “abusiveness” standard going forward in its supervision and enforcement activities. While this framework attempts to provide clarity where the Dodd-Frank Act left uncertain what acts and practices would be considered “abusive,” the Policy Statement fails to address several key issues. In particular, the Policy Statement does not identify specific conduct that would be considered abusive—leaving public statements on such issues to enforcement matters and litigation.

Background to the Policy Statement

The Dodd-Frank Act (“the Act”) added a prohibition on “abusive” acts and practices to the established prohibition on unfair or deceptive acts and practices. Over the years, the Federal Trade Commission’s policy statements, enforcement actions, and judicial precedents have defined the prohibitions on “unfair” and “deceptive.” The abusiveness standard is less developed. The Act grants the CFPB authority to declare an act or practice as “abusive” if the act or practice: (1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer. This Policy Statement follows a symposium convened by the CFPB in 2019 where a panel of academics and regulatory and industry experts debated, among other issues, whether the CFPB should further define abusiveness.

Defining “Abusive” in Precedent

The CFPB and other agencies have seldomly alleged a standalone “abusive” claim; instead, such claims are generally paralleled by claims of “unfairness” and “deceptiveness.” When alleging abusive practices, the CFPB almost always alleged deceptive or unfair practices based on the same set of underlying facts. For example, in 2017 the CFPB alleged that a loan servicer routinely entered student loan borrowers into forbearance without adequately providing information to borrowers regarding possible income-based repayment plans. The CFPB argued that the servicer’s actions constituted both abusive practices and unfair practices under the Act, and the Court agreed.  While such decisions have provided some guidance on what constitutes an abusive practice under the Act, the courts, in reviewing such allegations, considered the statutory language but did not offer any guidance on what conduct might be construed as “abusive” but not construed as “unfair.”

The CFPB’s reticence to prosecute claims of abusive practices created a vacuum of interpretive guidance on how the abusiveness standard actually constrains businesses, beyond the black letter definition contained in the Act. For example, questions remained as to what act or practice would “materially interfere” with a consumer’s understanding of terms and conditions, or what exactly would constitute a financial service provider “taking unreasonable advantage” of a consumer seeking a product of service. These undefined terms left confusion and uncertainty for covered persons seeking to avoid violations. By contrast, the unfairness and deceptiveness standards (which were already in place before the Act’s introduction of an abusiveness standard) have been subject to decades of case law and agency interpretations, which have yielded clear guidance on what acts and practices are considered unfair or deceptive.

Content of the Policy Statement

The Policy Statement acknowledges that “[u]ncertainty remains as to the scope and meaning of abusiveness,” which “creates challenges for covered persons in complying with the law,” and it sets forth a framework regarding how the CFPB will enforce the abusiveness standard. It does not, however, describe or provide examples of precisely what conduct the CFPB would deem abusive.

The Policy Statement describes three categories of principles that the CFPB intends to apply to its supervision and enforcement actions.  The CFPB has stated that the principles reflect the standards it has applied in prior actions.

  1. Benefits vs. Harms: “The Bureau intends to focus on citing conduct as abusive in supervision and challenging conduct as abusive in enforcement if the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers (including its effects on access to credit).” The Policy Statement notes that incorporating this principle “not only ensures that the Bureau is committed to using its scarce resources to address conduct that harms consumers, but also ensures that the Bureau’s supervisory and enforcement decisions are consistent across matters.
  2. No Dual Pleadings: The Bureau intends to avoid “dual pleading” of abusiveness along with unfairness or deception violations which arise from all or nearly all the same facts, and alleging “stand alone” abusiveness violations that “demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis.” The Bureau believes that this approach to pleading will “provide more certainty to covered persons as to the metes and bounds of conduct the Bureau determines is abusive” and “facilitate the development of a body of jurisprudence as to the conduct courts conclude is abusive.”
  3. Good Faith” Limits on Monetary Relief: “[T]he Bureau generally does not intend to seek certain monetary remedies for abusive acts or practices if the covered person made a good-faith effort to comply with the law based on a reasonable—albeit mistaken—interpretation of the abusiveness standard. However, if a covered person makes a good-faith but unsuccessful effort to comply with the abusiveness standard, the Bureau still intends to seek legal or equitable remedies, such as damages and restitution, to redress identifiable consumer injury.”

The Policy Statement in Context

The Policy Statement is not a CFPB rulemaking. Rather, the Policy Statement merely “constitutes a general statement of policy that is exempt from the notice and comment rulemaking requirements of the Administrative Procedure Act” and is only “intended to provide information regarding the Bureau’s general plans to exercise its discretion.” It “does not impose any legal requirements on external parties, nor does it create or confer any substantive rights on external parties that could be enforceable in any administrative or civil Proceeding.” As such, while the Policy Statement is intended as a helpful guide to the Bureau’s enforcement philosophy with regard to the abusiveness standard, it is not law, and is subject to revision in the event of any change in the CFPB’s leadership, policies, or priorities.

The Policy Statement is not expected to affect ongoing litigation.  In remarks to the United States House of Representative Financial Oversight Committee on February 6, 2020, CFPB Director Kathleen Kraninger stated that “At this point, we have not amended any filings in court and don’t intend to related to this specifically,” indicating that the CFPB doesn’t anticipate repleading any of its pending court enforcement actions in light of the Policy Statement.


While the principles outlined in the Policy Statement provide an indication of how the CFPB will react to conduct it deems to be “abusive,” it falls short of providing clarity on it will deem abusive, thereby continuing the uncertainty regarding the abusive standard that has existed since its inception. Moreover, the principles set forth in the Policy Statement are themselves subject to uncertainty. For example, it is unclear what exactly constitutes consumer benefits or harms and how those factors are weighed to determine whether conduct is abusive; likewise, it is unclear what types of actions are sufficient to demonstrate a good-faith effort to comply with the law under a mistaken interpretation of the abusiveness standard.

Notably, however, the Policy Statement expressly left open “the possibility of engaging in a future rulemaking to further define the abusiveness standard,” which presumably may take the form of enforcement actions, CFPB advisories or other guidance, or updates to the CFPB examination manual.

NY DFS unveils Consumer Protection Task Force, adds Former CFPB Deputy Director

A&B ABstract:

Less than one month into the new year, New York’s Department of Financial Services (DFS) has taken strong measures to make good on its proclamation that  “2020 must be the year of the consumer” by: (1) unveiling a 12-member Consumer Protection Task Force to help implement an extensive consumer protection agenda; and (2) adding former CFPB Deputy Director Leandra English as a special policy advisor to the Superintendent.

The Consumer Protection Task Force

On January 9, Superintendent Lacewell announced the roll-out of a 12-member Consumer Protection Task Force to “further DFS’ mission to protect consumer as the federal government rolls back important consumer protections.”  In his annual State of the State, Governor Cuomo expressed his belief that with the current Administration’s “rolling back of consumer protections and regulations, Americans are more exposed to predatory and abusive practices than at any time since the 2008 financial crisis.”  The DFS press release noted that one of the task force’s immediate focuses will be to help bring to fruition “the extensive consumer protections proposals included in Governor Cuomo’s 2020 State of the State agenda” which includes such initiatives as: (1) licensing and regulating debt collection companies; (2) the codification of a Federal Trade Commission rule banning confessions of judgment; (3) strengthening the state’s consumer protection laws to protect against unfair, deceptive, and abusive practices; (4) cracking down on elder financial abuse; and (5) increasing access to affordable banking services.

According to the DFS, task force members will “provide formal input on the [DFS’] consumer engagement, policy development and research” in order to “ensure that consumer’s always come first as the [DFS] develops policies and regulates the financial services industry.”  The 12-member committee consists of: (1) Chuck Bell, Programs Director for the advocacy division of Consumer Reports; (2) Elisabeth Benjamin, Esq., Vice President of Health Initiatives at the Community Service Society; (3) Carolyn Coffee, Esq., Director of Litigation for Economic Justice at Mobilization for Justice; (4) Beth Finkel, State Director for the New York State Office of the AARP; (5) Jay Inwald, Esq., Director of Foreclosure Prevention at Legal Services NYC; (6) Paul Kantwill, Esq., Distinguished Professor in Residence and Executive Director, Rule of Law Program at Loyola University Chicago School of Law; (7) Neha Karambelkar, Esq., Staff Attorney at Western New York Law Center; (8) Kristen Keefe, Esq., Senior Staff Attorney with the Consumer Finance and Housing Unit at Empire Justice Center; (9) Peter Kochenburger, Esq., Executive Director of the Insurance LLM Program and Deputy Director of the Insurance Law Center at the University of Connecticut Law School; (10) Sarah Ludwig, Esq., Co-Director of New Economy Project; (11) Frankie Miranda, Executive Director at the Hispanic Federation; and (12) Cy Richardson, Senior Vice President at the National Urban League.

Superintendent Lacewell noted that, as the federal government, in her words, “dismantles consumer protections across the board, New York has intensified its commitment” to “further solidify New York’s reputation as the consumer protection capital of America.” Lacewell added that, “[w]ith the federal government stepping down and refusing to enforce critical consumer protection law, we must make 2020 the Year of the Consumer.”

NY DFS Adds Former CFPB Deputy Director Leandra English

On January 14, 2020 the DFS announced that former CFPB Deputy Director Leandra English would be joining the DFS as a special policy advisor reporting directly to Linda Lacewell.  According to the press release, Ms. English will “help develop policy initiatives and manage DFS’ consumer protection agenda” and her appointment “strengthens the mission of the [DFS] to protect and empower New York consumers as Washington continues to roll back on consumer protections.”  Ms. English is well known for leaving the CFPB after having been appointed acting director by departing director Richard Cordray only to see the President’s administration issue a dual appointment, naming Mick Mulvaney as acting director.  The ensuing legal dispute reached the U.S. Court of Appeals for the D.C. Circuit before Ms. English ultimately resigned.

Ms. English’s most recent work was as Director of Financial Services Advocacy for the Consumer Federation of America (CFA), a “national nonprofit organization dedicated to advancing the consumer interest through research, advocacy, and education.”  One of Ms. English’s initiatives in that role was to support the Forced Arbitration Injustice Repeal Act (H.R. 1423), known as the “FAIR” Act, which would eliminate compulsory arbitration in consumer contracts and was passed by the House of Representatives in the Fall by a 225-186 vote.  Upon the bills passage, Ms. English commented that, “Americans deserve their day in court, but when companies force consumers into signing away their rights, the chances of a fair outcome diminish drastically. We thank the House for taking this important step in eliminating these clauses from contracts for products consumers use every day including credit cards and checking accounts. We now need the Senate to act to protect consumers.”


As the DFS continues its push to strengthen protections for New York consumers in 2020, it will be interesting to watch how such initiatives impact the DFS’ investigative and enforcement priorities.  Moreover, as New York is a bellwether state, it will be interesting to see whether other states follow suit.

A Closer Look at the CFPB’s Proposed Debt Collection Rules – Part Three: Important Details Relating to Disclosures and Debt Validation Notices

A&B Abstract

This blog post is part three of a five-part series examining the Consumer Financial Protection Bureau’s (the “CFPB” or “Bureau”) proposed rule amending Regulation F (“Proposed Rule”), which implements the Fair Debt Collection Practices Act (“FDCPA”) to prescribe rules governing the activities of debt collectors.

In part one of this series, we provided a brief overview of the FDCPA and the Proposed Rule’s most impactful provisions.  In part two, we summarized the key provisions of the Proposed Rule relating to debt collector communications with consumers.  This post summarizes the key provisions of the Proposed Rule relating to debt collectors’ disclosures to consumers. These include provisions relating to key proposed disclosures, namely the requirements relating to debt validation notices, and the electronic provision of required disclosures.


Section 809(a) of the FDCPA requires that within five days after the initial communication with the consumer in connection with the collection of any debt, a debt collector must provide the consumer with a validation notice (unless the required information is contained in the initial communication, or the consumer has paid the debt). The statute requires the notice to include:

  • The amount of the debt;
  • The name of the creditor to whom the debt is owed;
  • A statement that unless the consumer disputes the validity of the debt (or any portion thereof) within 30 days after receipt of the notice, the debt collector will assume the debt to be valid;
  • A statement that if the consumer notifies the debt collector in writing during the 30-day period that the debt (or any portion thereof) is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer, and the debt collector will mail the consumer a copy of the verification or judgment; and
  • A statement that, upon the consumer’s request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Proposed Debt Validation Notice Requirements

To address perceived inadequacies in the processes relating to validation and verification, the Bureau has proposed Section 1006.34 to clarify what validation information debt collectors must provide to consumers.

First, the Proposed Rule would clarify that a debt collector may satisfy the initial disclosure requirement by sending a consumer a validation notice that satisfies the delivery requirements of proposed Section 1006.42(a): (1) in the initial communication; or (2) within five days thereafter.  However, as under Section 809(a), the disclosure requirement does not apply if the consumer has paid the debt prior to the time the notice is required to be sent.  As these provisions are largely consistent with the statute, they do not appear to present significant challenges for implementation.

Second, the Proposed Rule would require the validation information to be “clear and conspicuous,” which the CFPB would define consistent with how that term is used in other consumer financial services laws and implementing regulations.  Accordingly, for a disclosure to satisfy the standard, it would have to be: (1) readily understandable; (2) for a written or electronic disclosure, in a location and type size that are readily noticeable to consumers; and (3) for and oral disclosure, given at a volume and speed that are sufficient for a consumer to hear and comprehend it.

Third, the Proposed Rule would require a debt collector to include in the validation notice information about the debt that would be sufficient to enable the consumer to identify, and determine whether they owe, the debt.  Specifically, such information would include:

  • the consumer’s name and mailing address, which would have to be the most complete information the debt collector obtained from the creditor or another source;
  • the name of the creditor, which the CFPB proposes to make the creditor as of the itemization date;
  • the account number;
  • the amount of the debt;
  • information about consumer protections, including the right to dispute a debt and to request the name and address of the original creditor, as provided under Section 809(b) of the FDCPA; and
  • a consumer response form that a consumer may use to exercise such rights (e.g., submitting a dispute or requesting original creditor information), which would include express elective statements that a consumer could use to ensure that debt collectors provide the appropriate information.

Fourth, to comply with the validation disclosure requirements of Section 809(a) of the FDCPA and 12 C.F.R. § 1006.34 of the Proposed Rule, the CFPB has proposed a Model Validation Form (B-3).  The Bureau would permit a debt collector to adjust the content, format and placement of certain validation information within the model form, provided that the resulting disclosures are substantially similar to the model.

Disclosure of the Amount of Debt

The proposed requirements relating to the amount of the debt are worth note.  First, the Proposed Rule would require a debt collector to disclose both: (1) the current amount of the debt; and (2) the amount of the debt as of the “itemization date.”  The amount would have to be presented in tabular format, and reflect interest, fees, payments, and credits (or, if applicable, a disclosure that no interest, fees, payments, or credits were assessed or applied to a debt).  The Bureau has requested comment on whether the itemization should be more detailed, whether itemization is practicable for all categories of debt, and whether the proposed itemization would cause conflicts with other applicable laws and requirements.

Second, the Proposed Rule would define the “itemization date” as any of the following reference dates on which the debt collector can ascertain the amount of the debt: (1) the last statement date; (2) the charge-off date; (3) the last payment date; or (4) the transaction date;  Notably, while the Proposed Rule would allow a debt collector flexibility in determining which reference date to choose as the “itemization date,” it would require a debt collector to use the same date consistently for disclosures for that same consumer, to ensure that changes in the reference do not undermine the Bureau’s purpose of providing clear and consistent information in disclosures under proposed Section 1006.34.  Additionally, debt collectors would have to take care to identify the creditor as of the chosen itemization date.  The CFPB has requested comments on whether: (1) the proposed definition of “itemization date” will facilitate disclosure, (2) would capture all debt types; (3) whether additional clarification is needed; and (4) whether the potential reference dates should be ordered in a hierarchy in order to improve consumer understanding of the required disclosures.

Third, the Proposed Rule includes special disclosure requirements for the amount of the debt for debt collectors collecting mortgage debt that is subject to Regulation Z, 12 C.F.R. § 1026.41.  Given that that regulation requires the delivery of regular periodic statements that includes itemized fee information, the CFPB’s proposal reflects that for such loans the “amount of the debt” information that would otherwise be required under the Proposed Rule would already be delivered to consumers.  Accordingly, the Proposed Rule would permit a debt collector collecting a mortgage debt subject to the periodic statements requirement of Regulation Z a copy of the most recent periodic statement provided to the consumer at the same time as the validation notice, and refer to the periodic statement in the notice, in order to satisfy the itemization requirement.  In doing so, the Proposed Rule would provide flexibility to mortgage servicers in complying with the “amount due” itemization requirement.  The Bureau is requesting comment on how this exemption would apply to servicers exempt from the periodic statement requirement (e.g., for borrowers in bankruptcy).  However, we note that the periodic statement requirements also do not apply to open-end and reverse mortgage loans.  Thus, it appears that servicers of open-end and reverse mortgage loans would not be given the same flexibility in complying with the “amount due” itemization requirement.  In addition, it is unclear whether the provision of a periodic statement, in lieu of the itemized amount due, could create borrower confusion to the extent the amount listed on the periodic statement materially differs from the “current amount of the debt,” which must continue to be disclosed.

Proposed Validation Period Requirements

In addition to the validation notice requirements discussed above, Section 809 of the FDCPA requires a debt collector to satisfy certain requirements if a consumer, within the 30-day validation period: (1) disputes a debt; or (2) requests the name and address of the original creditor.  To ensure that consumers can take advantage of this protection, the Proposed Rule would require a debt collector to disclose to a consumer the date on which the verification right expires (i.e., the date on which the 30-day period ends).

The Proposed Rule would define the validation period as beginning on the date on which a debt collector provides the validation information, and ending 30 days after the consumer receives or is assumed to receive such information.  Under the Proposed Rule, the latter date would be any date that is at least five business days (excluding Saturdays, Sundays, and legal public holidays) after the debt collector provides the validation information.  If a consumer does not receive the original validation notice, and the debt collector sends a subsequent notice, the Proposed Rule would calculate the validation period from the date of receipt (or assumed receipt) of the subsequent notice.

The Bureau is seeking comment on how debt collectors determine the end of the validation period, and on whether the timing presumption should be modified (including to account for differences in mail versus electronic delivery).

Proposed Provisions Relating to Translation of Disclosures

To address concerns regarding LEP consumers, the Proposed Rule would include provisions relating to the translation of information from validation notices.

Specifically, the Bureau proposes to permit a debt collector to include in a validation notice optional information (in Spanish) on how a consumer may request the notice in Spanish, if the debt collector chooses to provide a Spanish-language translation.  To determine the potential impact of this provision, the CFPB has requested comments on: (1) debt collectors’ current Spanish-language, and other non-English language, collection activities; (2) examples of supplemental Spanish-language instructions to request a translated validation notice; and (3) the benefits and risks of such an approach.

Further, the Proposed Rule would allow a debt collector to provide a translation of the validation notice in any language other than English if the debt collector: (1) also sends an English-language validation notice in the same transmittal; or (2) previously sent an English-language validation notice.  This provision of the proposal recognizes, but does not mirror, obligations that may arise under state law regarding the provision of translated documents to LEP consumers.  By declining to mandate multiple translations, the Bureau’s proposal would avoid imposing significant costs on debt collectors who may not deal with significant LEP populations.  However, the Bureau is seeking comment on whether a debt collector should be required to provide a translated non-English validation notice (in a language other than Spanish) at the request of the consumer.  Such a requirement could expand the cost of compliance with the Proposed Rule, particularly for debt collectors whose exposure to LEP consumers is more limited.

Electronic Disclosure Requirements

To recognize the role that electronic communications play in debt collection activities, the Proposed Rule would:

  • Permit debt collectors to include electronic contact information (website and email address) in the validation notice;
  • If a debt collector sends a validation notice electronically, require the debt collector to include a statement regarding how a consumer can take responsive actions (e.g., disputing the debt) electronically, and permit the debt collector to include such information in a disclosure that is not provided electronically;
  • Require a debt collector to provide required disclosures in a manner that is reasonably expected to provide actual notice and in a form that the consumer can keep and access later; and
  • If a debt collector provides required disclosures electronically, mandate compliance with the federal E-SIGN Act or equivalent processes.

The Bureau is giving particular consideration to how consumers might respond to electronic validation notices.  Specifically, the Proposed Rule considers how a debt collector may include prompts and hyperlinks in validation notices to facilitate consumer responses.  The former director of the Federal Trade Commission’s Bureau of Consumer Protection, David Vladeck, recently published an opinion article in which he highlighted several cybersecurity concerns related to the permissible use of hyperlinks under the Proposed Rule.  Specifically, the former director noted that:

Encouraging use of hyperlinks by unknown parties undermines government warnings about the risks of doing so and exposes consumers to criminal exploitation. Scammers pushing links with viruses, malware, and identity theft scams are almost certain to impersonate debt collectors. Consumers will face a catch-22: Click and risk a virus or a scam, or don’t click and miss potentially legitimate information about why a debt collector is going after you and how to dispute the debt.

In light of the risks highlighted by the former director, and other consumer advocates, it is unclear whether the Proposed Rule’s provisions on the use of hyperlinks will make their way into a Final Rule.


While the Proposed Rule would provide debt collectors some flexibility in determining how to comply with the validation notice requirements, the scope of issues on which the Bureau has requested comment in connection with these provisions leaves open the possibility that the new requirements could be significantly more burdensome to implement. As parts four and five of this blog series will discuss in greater depth, the final requirements that the Proposed Rule would impose, and its nuances, are important to note for debt collectors.

Will the CFPB find its Voice on “Abusiveness”?

On June 25, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) kicked off its symposia series with a panel discussion of whether the Bureau should use its rulemaking authority to further define “abusive acts or practices.”  The Dodd-Frank Act added a prohibition on abusive acts and practices to the established prohibition on unfair acts and practices, changing the acronym UDAP to UDAAP.  Over the years Federal Trade Commission (“FTC”) policy statements, enforcement actions, and judicial precedents have defined the prohibitions on “unfair” and “deceptive” conduct.  The abusiveness standard is less developed.

What is “abusive”?

The Dodd-Frank Act makes it unlawful for any covered person or service provider to engage in an “abusive act or practice,” which is one that:

  • materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
  • takes unreasonable advantage of -(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;(B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or(C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

Symposium discussion

 The Bureau convened a panel of academics and regulatory and industry experts who debated:

Should the CFPB define abusiveness?

Only one panelist argued that the Bureau doesn’t have rulemaking authority, despite the express authority granted by the Dodd-Frank Act.  Most agreed that further guidance would be helpful.

Is now the time to further define abusiveness?

While most agreed that further guidance would be helpful, there was much disagreement on whether the CFPB should be the one to issue such guidance. Some participants argued that because the Bureau cannot anticipate the types of problems to address, it should follow the FTC’s example and develop the definition over time through the common law process.  To that end, one panelist cautioned that the Bureau should be careful to not tie its hands too prematurely. By contrast, others argued strongly for the need for guidance that provides boundaries and limiting principles. Legal and compliance professionals require such guidance to facilitate compliance and to provide direction to their companies.  One panelist argued that the Bureau’s current “know it when you see it approach” would be better served with concrete examples.

What form should guidance take? 

Recognizing that promulgating a rule would be a long process, some argued an industry specific no-action letter, or even a discussion in the Bureau’s supervisory highlights, would be appropriate.  Other panelists want more permanence and advocated for a policy statement as a measured next step.

What does abusiveness mean? 

Here, there was a healthy debate.  The panelists considered questions including:

  • Does the abusiveness standard preclude a cost benefit analysis?
  • Should abusiveness be tied to suitability of product rather than reasonableness of the consumer?  Should the definition be tied to specific industries?
  • Is it an individualized inquiry focusing on “a consumer”?
  • Should we look for guidance at the SEC 10(b)(5) rule, or to the laws of other countries (such as Australia), or strictly follow the statutory language?
  • What does behavioral economics tell us?
  • Should abusiveness be defined by example?
  • Is abusive completely separate from unfair or deceptive or is there overlap?

To the last point, the CFPB exam manual provides that “[a]lthough abusive acts also may be unfair or deceptive, examiners should be aware that the legal standards for abusive, unfair and deceptive are each separate.”

What comes next?

What the Bureau will do with the information gathered during the symposium is not clear.    We do know that the CFPB is planning on holding more symposia.  Specifically, the Bureau has announced that future topics will include small business loan data collection, disparate impact and ECOA, cost benefit analysis, and consumer authority for financial data sharing.