Last week, the Consumer Financial Protection Bureau (CFPB) proposed a rule to establish a public registry of terms and conditions in form contracts that purport to waive or limit consumer rights and protections.
The rule would require supervised nonbanks to register with the CFPB if their contractual terms and conditions include provisions seeking to restrict certain consumer rights or to waive any constitutional, statutory, or common law legal protection, right, or defense.
The rule would require registration of form contracts that:
- Waive the claims a consumer can bring in a legal action
- Limit the company's liability to a consumer
- Limit consumers' ability to bring a legal action by dictating the time frame, forum, or venue for a consumer to bring a legal action
- Limit the ability of consumers to bring or participate in collective legal actions such as class actions
- Limit the ability of consumers to complain or post reviews
- Contain any arbitration agreement
- Otherwise purport to waive any other consumer legal protection, including any specified right, defense, or protection afforded to the consumer under constitutional law, a statute or regulation, or common law.
The public registry would include both the company information and information about the use of specific terms and conditions.
According to the CFPB, the rule is intended to address issues arising from lengthy form contracts that cannot be negotiated and 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 are offering products and services using prohibited, void, and restricted 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 exams.
The rule is reminiscent of the CFPB's 2017 Arbitration Fairness Rule, which sought to ban the use of class action waivers in arbitration provisions in consumer financial services contracts. A subsequent joint resolution passed by Congress disapproved the Arbitration Agreements Rule under the Congressional Review Act (CRA), rendering the Arbitration Agreements Rule without force or effect. In contrast to the ban on arbitration provisions set forth in the 2017 rule, the rule that the CFPB now proposes would require companies to report and register their contracts - not ban these 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 modified terms and conditions, in one case finding 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, assessments, or similar analysis 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 that offer services in the financial space will need to take stock of their current consumer-facing terms and conditions to determine whether modifications are needed and whether they will be subject to the registration requirement. Companies should also be mindful that class action plaintiffs' attorneys will be carefully watching and using businesses' public registrations - or failure to register - as new avenues to challenge the enforceability of many of these provisions.
Comments to the proposed rule must be submitted by March 13, 2023. Contact the authors of this article if you are interested in submitting comments, learning more about the rule, or assessing your terms and conditions.
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