Go-To Guide:

• CFPB proposes rule requiring nonbanks to “register” with the CFPB if they include certain terms and conditions in their form contracts, including in their website terms of use
• The registry would serve as a public database tracking firms that use form contracts to waive or limit certain consumer rights
• The CFPB intends to use the registry to fulfill its market monitoring function and to prioritize supervisory examinations and enforcement actions

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On Jan. 11, the Consumer Financial Protection Bureau (CFPB) released a proposed rule that would require certain nonbank financial companies subject to its supervisory jurisdiction to submit annual reports about their use of terms and conditions that attempt to waive or limit consumer rights and protections. The proposed rule would establish a publicly available registry of nonbanks that use terms and conditions that, in the CFPB’s view, pose risks to consumers.

“Some companies slip terms and conditions into their form contracts that try to take away consumer protections, try to limit how consumers exercise their rights, or try to quiet consumer complaints or criticism,” the agency said in its press release announcing the proposed rule. “More broadly, the terms and conditions potentially undermine consumer financial protection law.”

Market Monitoring, Supervision, and Enforcement

The CFPB intends to use the registry to fulfill its market-monitoring obligation and facilitate its risk-based nonbank supervision program. In other words, the registry will enable the CFPB to assess the impact of the use of terms and conditions that attempt to waive or limit consumer right and protections and to prioritize supervisory examinations and enforcement actions for those nonbanks that use those terms and conditions.

“While banks and credit unions are subject to routine examination by regulators, many nonbank companies are not,” CFPB Director Rohit Chopra said in a statement on the proposed rule. “The CFPB would use data from the registry to identify supervised nonbanks and the risks their terms and conditions pose, prioritize which firms to examine, and plan the scope of those exams.”

Registration and Required Reports

The proposed rule would require supervised nonbanks to register annually with the CFPB and submit annual reports regarding their use of “covered terms and conditions.” That would include any term or condition in any consumer facing contract, including website terms of use, that: limits the nonbank’s liability; limits the time period, forum, or venue in which a consumer may file a legal action; requires a consumer to bring a legal action in arbitration; waives any claim or legal protection that a consumer could otherwise pursue; precludes a consumer from bringing or participating in a class action; or limits a consumer’s right to complain or post a review.

The required reports would include identifying and administrative information about the supervised nonbank and details regarding its use of covered terms and conditions, with the supervised nonbank required to identify, among other things, each consumer product or service for which it uses a covered term or condition, each state in which it offers that product or service, and each covered term and condition it uses for each such product or service.

Consumer Advocate and Industry Response

Consumer advocates have voiced support for the CFPB’s proposed rule. “A public database tracking contracts waiving consumer rights—which consumers are regularly forced into accepting—is a welcome and timely proposal,” said Martha Perez-Pedemonti, a consumer rights attorney with Public Citizen.

But some industry groups are concerned. “Today’s proposal from the Consumer Financial Protection Bureau to establish a public registry for terms and conditions in consumer contracts is yet one more attempt to try and eliminate the use of arbitration agreements—which is why the proposal mentions arbitration 152 times,” said Bill Hulse, vice president at the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. “This is despite the fact that Congress passed a law blocking the CFPB’s last attempt to ban arbitration agreements.”

Our Take

The CFPB’s proposed rule will, if issued, require almost every supervised nonbank to either revise its consumer-facing contracts to make them more consumer friendly or state to the CFPB (and the world) publicly that it uses terms and conditions that, in the CFPB’s view, pose risks to consumers. But while supervised nonbanks wait for a final rule (if any), they—and other entities who may by impacted due to relationships with supervised nonbanks—should consider strategies for reducing risks, including by taking steps to confirm that their use of covered terms and conditions fall within industry norms.

Comments on the CFPB’s proposed rule are due by March 13, 2023.