CFPB Proposes Rule to Prohibit Contract Provisions Which Waive Legal Rights
The CFPB issued a proposed rule to prohibit consumer financial services providers from using contract provisions which waive or limit certain substantive rights and protections granted by law.
The CFPB asserts in the proposed rule that financial services companies sometimes include coercive terms and conditions in the boilerplate language or fine print of standardized form contracts which result in waivers of consumer rights. The agency claims such contract provisions may be unenforceable and can constitute a UDAAP violation, and that the rule is meant to emulate requirements which already apply to some covered financial services companies under the FTC Act.
The proposed rule contains three major prohibitions:
- Consumer contract terms or conditions that purport to waive substantive legal rights and protections. This would include waivers of causes of action, remedies, or longer statutes of limitations which are provided under state or federal consumer protection laws. However, it would not limit clauses on “procedural” rights, such as those related to venue, arbitration, or class action waivers.
- Clauses which allow a company to unilaterally change, modify, revise, or add a material term to a contract.
- Contract provisions which restrain a consumer’s lawful free expression. This would cover, for example, terms that prevent a consumer from posting a negative review about a company or from acting contrary to a company’s preferred religious or political views.
Separately, the rule adds a requirement that lenders must provide cosigners on credit agreements with certain disclosures about their liability and prohibits misrepresentations to cosigners. Another provision in the proposed rule prohibits entities which are collecting a debt related to a credit agreement from charging late fees based on a consumer’s failure to pay a prior late fee.
Comments on the proposed rule are due to the agency by April 1, 2025.
