Consumer Financial Protection Bureau (“Bureau” or “CFPB”) commentators often distinguish between two classes of cases: “whack-a-mole” cases against small fringe entities vs. large fines imposed on mainstream institutions. This is, in some ways, a hollow distinction. The CFPB may use cases against non-traditional financial companies in order to pressure test CFPB’s novel authorities.
What does this mean for businesses and consumer-finance practitioners? To truly understand what’s coming down the pike as to CFPB enforcement, careful attention must be paid to both classes of cases. Do not pooh-pooh the small cases because an established brand is absent from the defendants’ list. What matters is that each case may reveal disruptive flex points, as CFPB attorneys apply relatively new laws to definitively new fact patterns. Which brings us to. . .
Libre by Nexus, Inc. (“Libre”). Libre is a bail bonds company whose business is tailored to serve a subset of consumers who may not have access to mainstream credit products: immigrants. Nevertheless, in the enforcement action, Consumer Financial Protection Bureau et al. v. Libre by Nexus, Inc., et al. (USDC, W.D. Va.), the Bureau brings forth a cornucopia of Dodd-Frank Act goodies to chew on for weeks (which we plan to do).
Let us begin by discussing abusive. This is incredibly timely, by the way, because the popular press has reported earlier this week on the CFPB’s reversal of its prior abusiveness stance. (Was it really a stance to begin with? More on this to come.) As you may have seen, commentators have explained that under the Biden administration, the CFPB has rescinded the Trump administration policy statement on “abusive acts and practices,” and the CFPB now expressly states that enforcing the “abusive” standard is part of its Congressional mandate. Interesting.
What does “abusive” even mean? As Mark Cuban would say when describing aspects of the SEC’s regulatory sphere, there simply is no “bright line rule” in the form of a regulation at the CFPB, which would define abusive. Instead, here we must default to the statutory language. The statute states that the Bureau has no authority under the Dodd-Frank Act (its enabling statute) to declare an act or practice abusive with regard to providing a consumer financial product or service, unless the act or practice:
Prong 1: materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
Prong 2: takes unreasonable advantage of (A) a lack of understanding by 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.
While I was at the Bureau in the early years, I was the enforcement attorney, alongside my colleague and fellow CFPB alum, Meredith Osborn, who brought the first case in American history under the abusiveness standard, which was filed in May 2013. I also conducted training of examiners at the FDIC about how to detect an abusive practice. In my personal opinion and not based upon any confidential information from within the Bureau, an abusive act must be something different than a deceptive or unfair act. One approach is to decide that an abusive theory is available if the act seems predatory, but there is: a lack of reasonableness in the reliance by the consumer on the false statement, a lack of risk of substantial injury to consumers, or the presence of the consumer’s ability to avoid the harm. (These last three things are defenses to the deception or unfair elements in UDAAP.) Such an approach would ensure abusiveness is not superfluous by reason of redundancy with deception or unfairness. Nonetheless, deception facts may accompany abusiveness, because the untruthful statement can be the means through which the provider’s advantage is rendered “unreasonable.”
So. . . how did the CFPB apply abusive in Libre? In its February 22, 2021 Complaint, the Bureau (and the State Attorneys General in Massachusetts, New York, and Virginia) alleged that Libre operates a business targeting immigrants held in federal detention. Libre also offers immigration bonds to help detainees (or families of the detainees) get them out of detention. Libre describes its services to consumers as an easy and affordable way to secure the release of detainees from federal custody. Since 2014, Libre’s contracts with consumers required up-front payments of 20%, a $420 advance payment, and an activation fee of up to $460. Consumers who use the services are required to “lease” GPS-tracking ankle monitors until the case is resolved. Unlike a fully-paid bond, the fees are not refunded. At bottom, the CFPB alleges that immigrants pay more in Libre fees than they would for a refundable U.S. Immigration and Customs Enforcement bond.
As to allegations of deception (distinct from abusive), the Complaint explains that Libre had committed the following: coercing non-English speakers to sign financial predatory contracts, misleading consumers to believe that Libre is affiliated with immigration authorities, making false threats to collect debt (such as threatening the accountholder will be deported), and incentivizing company employees to misrepresent consumers’ obligations and make improper collection threats.
What was alleged to be abusive? As stated in the Complaint, Libre knew that many of its clients and co-signers did not understand English and that some were unable to read (in any language). Libre knew this was the case, but proceeded to rush clients through the enrollment process and misrepresent material terms of the company’s written agreement to consumers before they enrolled.
Accordingly, the Bureau alleged, Libre had “materially interfered with the consumers’ ability to understand the terms and conditions of Libre’s offers of credit.” (See Compl. paras. 188-189.) While the Complaint is not a final finding or ruling that any entity violated the law, the CFPB is using the Libre case to flesh out the boundary lines of Prong 1 (listed above) of the Dodd-Frank Act’s abusiveness standard. The litigation is groundbreaking as the first federal court case brought by the CFPB to assist immigrants and obtain redress for perceived consumer harm, without directly applying a usury cap or price-setting (which CFPB expressly lacks the legal authority to do). The abusiveness law is the vehicle that is used to do so.
Although the “policy statements” of an agency are informative, case precedents are illustrative.
We will be back at this topic again soon, including with a discussion of a recent abusiveness case brought during the Trump administration (when the prior policy was in force) against a major bank. We will also be in touch with regard to the other key developments, from enforcement tactics and civil procedure perspectives, that are manifested in the Libre case, including in the motion to dismiss briefing.
[3/18 correction: a rocky start to the blog, whoops! The case was filed in the Western District of Virginia, as already flagged in the parenthetical, not in West Virginia. Thank you to a fastidious reader who raised this. We pledge to ensure any future references to John Denver songs are nice and tight.]