Last week, the Consumer Financial Protection Bureau (CFPB) proposed a rule to establish a public registry of terms and conditions in the form of contracts that purport to waive or limit consumer rights and protections.
The rule would require supervised non-banks to register with the CFPB if their contract terms and conditions include provisions that seek to limit certain consumer rights or to waive any constitutional, statutory or common law legal protection, right or defense.
The rule will require registration of form contracts such as:
- Waiver of the requirements a consumer can raise in a court case
- Limit the company’s liability to a consumer
- Limit consumers’ ability to bring legal action by dictating the time frame, forum or venue for a consumer to bring legal action
- Limit consumers’ ability to bring or participate in collective legal actions such as class actions
- Limit consumers’ ability to complain or post reviews
- Contains any arbitration agreement
- Otherwise purported to waive other legal protections for consumers, including any specified right, defense or protection afforded to the consumer under constitutional law, a statute or regulation or common law.
The public register will include both company information and information about the use of specific terms and conditions.
According to the CFPB, the rule is intended to address problems arising from lengthy, non-negotiable contracts that limit rights otherwise available to consumers. In a separate statement, CFPB Director Rohit Chopra stated that the proposed rule would “help regulators and law enforcement more easily detect when companies offer products and services using prohibited, void and restrictive contract terms.” In addition, Chopra noted that the CFPB will use data from the registry to identify supervised nonbanks and the risks their terms and conditions pose, prioritize which firms to examine and plan the scope of those examinations.
The rule is reminiscent of the CFPB’s 2017 Arbitration Fairness Rule, which sought to ban the use of class actions in arbitration provisions in consumer financial services contracts. A subsequent joint resolution passed by Congress rejected the arbitration agreement rule under the Congressional Review Act (CRA), rendering the arbitration agreement rule without force or effect. Unlike the ban on arbitration provisions set forth in the 2017 rule, the rule the CFPB is now proposing would require companies to report and record their contracts — not ban those provisions altogether.
The proposal comes as consumer-facing contracts and terms and conditions are already being closely scrutinized by courts and regulators. For example, the Ninth Circuit refused to enforce a mandatory arbitration provision in terms and conditions because the hyperlinks were not sufficiently conspicuous to bind consumers. Other courts have held companies to a high standard when seeking to enforce changed terms and conditions, and in one case found email notice, without more, to be insufficient. And the FTC has aggressively enforced the Consumer Review Fairness Act (CRFA), which generally prohibits the use of form contracts that limit how consumers communicate their reviews, ratings or similar analyzes of the sale of goods or services.
The CFPB’s move demonstrates federal regulators’ focus on consumer-facing terms and conditions. Fintech companies and others offering services in the financial area will need to review their current consumer-facing terms and conditions to determine whether changes are necessary and whether they will be subject to the registration requirement. Companies should also be aware that class action lawyers will be closely watching and using companies’ public filings—or lack of filing—as new avenues to challenge the enforceability of many of these provisions.
Comments on the proposed rule must be submitted by March 13, 2023. Please contact the authors of this article if you are interested in submitting comments, learning more about the rule, or reviewing your terms and conditions.
The content of this article is intended to provide a general guide to the subject. You should seek specialist advice about your specific circumstances.
