CFPB Proposes Rule to Prohibit "One-Sided Terms" in Consumer Contracts
Commentary by Thomas Delaney
The CFPB proposed a rule to eliminate "coercive terms and conditions" in consumer finance contracts, targeting provisions that restrict consumer expression or allow companies to unilaterally amend contracts.
In the proposal, the CFPB asserted that consumer finance companies often limit individual rights by presenting contracts to consumers on a "take it or leave it" basis. While these "form contracts" are efficient for companies, the CFPB argued that "they have been used to constrain fundamental freedoms and rights that are recognized and protected under the U.S. Constitution and statutory and common law."
First, the CFPB proposed to re-codify the Credit Practices Rule (which prohibits certain creditor remedies in consumer credit contracts) under Regulation AA as applied to covered persons subject to the CFPA. Under the CFPA, the CFPB may issue rules applicable to providers of consumer financial products or services (known as "covered persons" under the statute) to identify and prevent "unfair, deceptive, or abusive acts or practices."
Second, the CFPB proposed to forbid covered persons from including in their consumer contracts any terms or conditions that purport to waive substantive legal rights. This includes clauses that:
- "waive provisions of law designed by democratically elected officials to benefit or protect consumers."
- "reserve a company's discretion to amend a material term of the contract unilaterally."
- "restrain a consumer's free expression by, for example, limiting a consumer's right to provide a negative review or even engage in certain disfavored political speech."
The CFPB preliminarily concluded that use of these clauses may constitute an unfair or deceptive act or practice.
Comments on the proposal are due by April 1, 2025.
Commentary
Consumers who object to terms and conditions in finance contracts retain the ultimate option of dropping the underlying product and going to another provider, an option somewhat facilitated by the open banking regulation the CFPB issued last October.
As meritorious as the issues in this proposed rule may be, and they are far from new, Chair Chopra must recognize that his days leading the CFPB are numbered. Rather than resign or offer his resignation, as is customary for political appointees at the change of administrations, he has instead chosen to remain in the role of political antagonist, directing the CFPB to issue last minute proposals intentionally designed to draw President Trump's ire and presumably hasten his inevitable firing as some indulgent act of political self-immolation. Sadly, such bureaucratic grandstanding only serves to give credence to those that argue that federal agencies have lost their civic way.