CFPB Proposed Rule Might Require FinTech Companies to Register Form Contracts Terms and Conditions
The Consumer Financial Protection Bureau (CFPB or Bureau) has proposed a new system that would require nonbank financial companies to register their use of certain terms and conditions. The proposed rule[1] (Rule) seeks to collect information about the use of terms and conditions that attempt to “censor…customers and force individuals [to surrender] their legal rights.” The Consumer Financial Protection Act of 2010 requires the Bureau to monitor the financial product and services market for risks to consumers. The Bureau claims that “any time a consumer legal protection is being relinquished or constrained pursuant to a term or condition contained in a form contract, some degree of risk to the consumer arises. For that reason, an assessment of the risk is warranted.”
Bureau Director Rick Chopra announced that the United States is following the lead of many neighbors abroad, such as Australia, the United Kingdom, and the European Union, all of whom have recently enacted similar regulations in the interest of decreasing consumer risk. The United States has been taking steps to ensure “that standard form contracts are free of coercive and onerous terms so that consumers can have confidence to enter into a form contract.” In the past, Congress has taken precautions that include enacting the Consumer Review Fairness Act, and the FTC instituted the Credit Practices Rules, which sought to ban the use of unfair contract terms. Today, companies still routinely use gag clauses, such as fining individuals for their speech or forbidding consumers from filing complaints.
According to Chopra, the need for the Rule stems from an “asymmetric power balance” between companies and consumers. The “take it or leave it” terms and conditions that customers often click in agreement are not subject to negotiation, and the Bureau deems most of the services the contract forms are linked to critical to consumers’ daily lives. Covered terms and conditions will include: “waivers of claims a consumer can bring in a legal action; limits on the company’s liability to a consumer; limits on the consumer’s ability to bring a legal action by dictating the time frame, forum, or venue for a consumer to bring a legal action; limits on the ability of a consumer to bring or participate in collective legal actions such as class actions; limits on the ability of the consumer to complain or post reviews; certain other waivers of consumer rights or other legal protections; and arbitration agreements.”
The Rule would require nonbank companies under Bureau supervision “to register their use of contract terms that seek to waive or limit consumer rights and legal protections.” The Bureau says this information will allow it to identify the risks posed by companies’ terms and conditions and prioritize which firms to examine and in what scope. The Bureau decided the collected information would be published to aid law enforcement and other regulators in detecting the use of prohibited contract terms. The publication is also intended to help the public gage the use of these terms and how they are used in today’s market for the use of research and consumer education.
Comments to the Rule should be received by March 13, 2023 and can be submitted to the following:
· Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments.
· Email: 2023-NPRM-ContractsRegistry@cfpb.gov. Include Docket No. CFPB-2023- 0002 or RIN 3170-AB14 in the subject line of the message."
· Mail/Hand Delivery/Courier: Comment Intake—Nonbank Registration and Collection of Contract Information, Consumer Financial Protection Bureau, c/o Legal Division Docket Manager, 1700 G Street NW, Washington, D.C. 20552. Because paper mail in the Washington, D.C. area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically.
[1] https://files.consumerfinance.gov/f/documents/cfpb_registry-of-supervised-nonbanks_2023-01.pdf