Consumer Finance Protection Bureau Proposes Registry of Non-bank Entities Adhesive Boilerplate Terms

Back in January, the Consumer Finance Protection Board (CFPB) announced that it was creating a Registry of Supervised Nonbanks that Use Form Contracts to Impose Terms and Conditions that Seek to Waive or Limit Consumer Legal Protections.  The proposal and explanation run to 223 pages.

If you want the tl/dr version, CFPB Director Rohit Chopra (below, right) explains the reasons for the registry here.  The gist is that the CFPB does not like one-sided form contracts and terms of service.  One practice that Director Chopra highlights is "gag rules" that prohibit or even threaten to fine users who post negative comments about a product or website.    Another is contractual waivers that prevent consumers from suing companies, even thought those companies reserve their own right to sue their users or customers.  

Congress has already enacted the Consumer Review Fairness Act, which prohibited “gag clauses” in certain form contracts.  In so doing, Congress built on a tradition in U.S. law of ensuring that standard form contracts are free of coercive or onerous terms.  Similar regulation is in place Australia, Japan, the United Kingdom and the European Union.  The American Law Institute's new Restatement of Consumer Contracts Law recognizes the right of consumers to challenge not only unconscionable contracts but also the terms and conditions adopted as a result of a deceptive act or practice.

Director Chopra identifies the proposal as having three main features:

Our proposal has a number of key features:

First, the registry would help regulators and law enforcement more easily detect when companies are offering products and services using prohibited, void, and restricted contract terms described above. This would be especially useful to state and tribal regulators with limited resources to alert or take action against companies violating the law.

Second, the registry would assist the CFPB and the public to understand the types of terms and conditions that are in use in today’s marketplace, and their effect on the adequacy of underlying consumer financial protection laws that are being waived or limited. This would allow the CFPB and others to study the use of these terms, along with their risks and benefits, to inform our research, consumer education, and other functions.

Finally, the registry would inform how the CFPB conducts its supervision of nonbank financial companies. While banks and credit unions are subject to routine examination by regulators, many nonbank companies are not. 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.

Let's hope that SCOTUS allows the CFPB to continue its important work in the realm of consumer protection.