Companies can use terms and conditions in non-negotiable form contracts to try to hide consumer harm, to stifle criticism about products and services, and to undermine consumer financial protection law
Today, the Consumer Financial Protection Bureau (CFPB) proposed a rule to establish a public registry of supervised nonbanks’ terms and conditions in “take it or leave it” form contracts that claim to waive or limit consumer rights and protections, like bankruptcy rights, liability amounts, or complaint rights. In some cases, terms and conditions in non-negotiable form contracts mislead consumers into believing the terms or conditions are legally enforceable. Under the proposed rule, nonbanks subject to the CFPB’s supervisory jurisdiction would need to submit information on terms and conditions in form contracts they use that seek to waive or limit individuals’ rights and other legal protections. That information would be posted in a registry that will be open to the public, including to other consumer financial protection enforcers.
“Some companies seek to censor their customers and strip them of their rights by inserting fine print into non-negotiable contracts,” said CFPB Director Rohit Chopra. “The CFPB is proposing a registry of these contract clauses to find out where people are unable to speak up when they’ve been harmed.”
Many companies’ financial products and services require consumers to sign lengthy form contracts. The companies write the form contracts as well as define any choices offered, and consumers cannot negotiate. Some companies slip terms and conditions into their form contracts that try to take away consumer protections, try to limit how consumers exercise their rights, or try to quiet consumer complaints or criticism, and more broadly, the terms and conditions potentially undermine consumer financial protection law. There is often little choice for consumers except to sign these form contracts due both to their market pervasiveness and the critical role the products and services play in people’s daily lives.
Some examples of terms and conditions that would be included in the registry are those that:
- Waive servicemembers’ legal protections: The Military Lending Act (MLA) and the Servicemembers Civil Relief Act (SCRA) set limits on the cost of loans for military families and include numerous other important consumer protections. The MLA broadly prohibits waivers of legal protections and arbitration agreements, and the SCRA limits waivers of its protections. However, some companies include banned arbitration agreements to try to avoid accountability for loans to military families. Other companies have faced regulatory action related to how they obtain waivers of SCRA protections.
- Undermine credit reporting rights: In contracts for credit monitoring products, some consumer reporting companies use terms and conditions that seek to block the ability of consumers to pursue legal action, including through class action lawsuits, to remedy alleged violations of the Fair Credit Reporting Act. For example, a term or condition may seek to limit liability to a class of consumers when a consumer reporting company fails to reasonably investigate inaccurate information on numerous consumer reports.
- Limit lender liability for bank fees caused by a lender’s repeated debit attempts: In contracts for short-term small-dollar loans, some companies seek to waive liability for bank fees that borrowers incur when the lender engages in repeated attempts to debit payments from an account that lacks sufficient funds to cover the debit.
- Mislead consumers by using unenforceable waivers in mortgage contracts: CFPB examiners have regularly identified deceptive acts and practices committed through mortgage lenders’ use of waivers and limitations that are inconsistent with the Truth in Lending Act’s restrictions on the use of waivers and limitations in such transactions.
The CFPB’s rule proposes to require nonbanks that are subject to CFPB supervision and that use form contracts to impose terms and conditions that limit or purport to limit consumer rights and legal protections to register with the CFPB. The proposed rule, if finalized, would:
- Identify and collect information on form contract terms and conditions that seek to waive or limit consumer rights and other legal protections: Under the proposal, the CFPB would seek information on contract terms and conditions seeking to waive any constitutional, statutory, or common law legal protection, right, or defense; restrict the ability of consumers to complain; limit the time or place for consumers to bring legal actions; limit liability amounts; waive class action rights; and impose arbitration provisions. Both company information and information about the use of the terms and conditions would be published.
- Increase market transparency and improve risk-based oversight: When standard terms and conditions seek to limit the ability of consumers to protect themselves, increased public oversight is necessary, and the registry would provide important support for the CFPB’s monitoring of supervised markets. Specifically, collecting and publishing information about the identities of nonbanks and their contract terms and conditions would allow for enhanced risk-based government oversight. The CFPB and agencies from all levels of government would be able to consider the information when prioritizing their supervision and enforcement resources.
Apart from specified exceptions, all nonbanks subject to CFPB supervisory jurisdiction, including those operating in payday lending, private student loan origination, and mortgage lending and servicing would be subject to this proposed rule. Larger participants operating in student loan servicing, automobile financing, consumer reporting, consumer debt collection, and international remittances would also be subject to the rule.
Today’s proposed rule continues the CFPB’s efforts to increase public transparency and to improve oversight of nonbank financial institutions. In December 2022, the CFPB proposed a rule to establish a registry of nonbank financial institutions to detect repeat offenders.
Public input will inform revisions to the regulation text. The public comment period will remain open for 60 days following publication of the proposed rule on the CFPB’s website or 30 days following publication of the proposed rule in the Federal Register, whichever period is longer.
Consumers can submit complaints about financial products and services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).