CFPB Proposed Rule Puts Non-Bank Consumer Contract Clauses Under Heightened Scrutiny
The Consumer Financial Protection Bureau (CFPB), the primary federal regulator charged with enforcing consumer financial protection laws, recently announced a proposed rulemaking that would require the myriad non-banks subject to CFPB authority to disclose various consumer contract provisions that the CFPB deems potentially harmful on a public registry. These provisions include arbitration requirements; waivers of claims a consumer can bring in a legal action; limits on a company’s liability to a consumer; clauses limiting a consumer’s ability to bring legal actions by dictating the time frame, form, or venue for legal action; limits on the consumer’s ability to voice complaints or post reviews; and other waivers of consumer rights and legal protections.
In issuing the Proposed Rule, the CFPB cited various concerns about asymmetry in information and sophistication between businesses and end consumers, including the use of fine print that results in “adhesion contracts,” and the increased use of “click-through” contracts, which are often not reviewed by consumers.
While there are numerous substantive consumer protections under Federal, State, Tribal and local law, the CFPB notes that contract terms that seek to waive or limit applicable legal protections—even if not expressly prohibited by applicable law—still pose risks to consumers. Therefore, the CFPB notes that public policy justifies establishing a database that would allow the CFPB to collect information about standardized terms and conditions to learn more about supervised nonbank’s business practices and the associated risks to consumers. The CFPB also explains that there is currently no comprehensive registry of supervised nonbanks, but the ability to identify such entities would further inform how the CFPB addresses risks to consumers and allow for more robust and continuous monitoring. The CFPB notes that publishing registration information identifying the supervised nonbanks that use covered terms and conditions would also be helpful to consumers when disputes arise and would save consumers time by making unfavorable terms more apparent.
The Proposed Rule would impact a large swath of consumer financial services industry participants—specifically, nonbanks in markets for mortgage lending, payday lending, and private student lending, and what the CFPB defines as “larger participants” in markets for consumer reporting, consumer debt collection, student loan servicing, international money transfers, and automobile financing. This, in particular, would impact entities such as online lending platforms and financial technology (fintech) businesses, generally, that service consumers but do not hold bank charters.
The comment period for the Proposed Rule lasts until March 13, 2023, or 30 days after publication in the Federal Register, whichever is later. The CFPB requests comments on the overall approach of the Proposed Rule’s topics, including what constitutes the risks to consumers that may be protected by the Proposed Rule’s disclosure requirements; the amount of time supervised nonbanks would need to comply with the Proposed Rule; what should be considered a covered form contract; and what terms should be covered by the Proposed Rule.
Supervised nonbanks should carefully review the Proposed Rule and submit comments during the comment period. As we anticipate the Proposed Rule will become a final rule in some form, supervised nonbanks should also begin reviewing their form consumer contracts with a close eye towards issues that the CFPB has already identified.