CFPB Proposes Rule to Create Public Registry of Terms for Nonbanks

Recently, the CFPB proposed a rule that would require nonbanks subject to the CFPB’s supervisory jurisdiction to submit information on terms and conditions in form contracts (non-negotiable contracts) that would attempt to waive or inhibit consumer’s rights or protections.  The proposed rule would further establish a public registry of those terms.  The dual objectives of this new rule would be to collect information on form contract terms that seek to waive consumer rights (and the companies that use them) and increase transparency to enable improved risk-based government oversight. 

The CFPB through the proposed rule would focus on “covered limitations on consumer legal protections,” generally meaning provisions in form contracts that (among other things):

• preclude a consumer from bringing a legal action after a certain period of time;
• specify a forum or venue where legal actions must be brought;
• limit a consumer’s ability to file a legal action seeking relief for others or seeking to participate in a legal action filed by others;
• limit liability to a consumer in a legal action, such as by capping recovery amounts or types of remedies;
• waive a consumer’s cause of legal action;
• limit a consumer’s ability to make a complaint, review, or similar analysis or statement of a consumer financial product or service; or
• require a consumer to bring any type of legal action in arbitration.

The proposed rule would require annual registration by most nonbanks subject to the CFPB’s supervisory authority, which generally include persons who:

• offer or provide real estate secured consumer loan origination, brokerage, and servicing for personal, family, or household purposes;
• are larger participants in markets for other consumer financial products or services;
• offer or provide to a consumer private education loans;
• offer or provide to a consumer payday loans; and
• the CFPB has by reasonable cause to determine (after notice and response) that the entity is engaging or has engaged in conduct that poses risks to consumers in connection to the offering or provision of consumer financial products or services.

However, the proposed rule would exclude certain persons, including nonbanks (who would otherwise be subject to the CFPB’s supervisory authority), with less than $1 million in annual receipts from offering or providing consumer financial products or services.

The proposed registry would be accessible to the public as well as to other enforcers of consumer financial protections.  The comment period remains open until March 13, 2023, or 30 days after the publication of the proposed rule in the Federal Register (not published at the time of drafting this article), whichever is later.