As forecasted in its 2022 Fall Rulemaking Agenda discussed here, today the Consumer Financial Protection Bureau (CFPB) published a proposed rule with request for public comments that would require certain nonbank covered entities, with limited exceptions, to submit information on terms and conditions in their form contracts that “seek to waive or limit individuals’ rights and other legal protections.” The covered entities would be required to submit this information on a yearly basis and the terms and conditions collected would then be posted in a registry that would be open to the public as well as other consumer financial protection enforcers. The CFPB states that it is proposing the rule pursuant to its authority under the Consumer Financial Protection Act of 2010 to monitor markets for consumer financial products and services that pose risks to consumers and to conduct a risk-based non-bank supervision program for the purpose of assessing compliance with federal consumer financial laws. According to the CFPB, the information gathered will facilitate its “prioritization and implementation of examination work in its statutorily-mandated risk-based non-bank supervision program.”
The CFPB’s rationale for the rule is to reduce the risk to consumers from form contracts, commonly referred to as contracts of adhesion. According to the CFPB, consumers lack the incentive to carefully review form contracts because they are largely non-negotiable. Further, the CFPB believes that public policy disfavors form contract terms that seek to waive or limit legal protections because they risk harming consumers.
The proposed rule is broadly focused on the following types of terms and conditions, which the CFPB argues have long been disfavored as a matter of public policy:
- Waivers of claims a consumer could file in a legal action.
- Limits on the consumer’s ability to bring legal action by dictating the time frame, forum, or venue for a legal action.
- Limits on the ability of a consumer to bring or participate in collective legal actions, including class actions.
- Limits on the ability of consumers to complain or post reviews.
- Arbitration agreements.
The CFPB would use the information to inform its examination process as follows:
“[I]f the [CFPB] scheduled an examination at an entity who had registered its use of a covered term or condition that appeared to be prohibited by [f]ederal consumer financial law, the [CFPB] likely would incorporate the use of this term or condition into the scope of an exam …. That review could inform examiners’ conclusions concerning the presence of a UDAAP, a risk of a UDAAP, or a compliance management system concern. Examiners also could coordinate with other regulators about their findings, especially if they implicate consumer legal protections administered by the other regulators.”
Interested parties may submit comments on the proposed rule until the later of March 13, 2023 or 30 days after publication of the proposed rule in the Federal Register.