Nonbank contracts claiming to waive consumer rights would be subject to registry under proposal

Contracts by nonbanks that claim to waive or limit consumer rights and protections – including bankruptcy and liability amounts – would be subject to a public registry of terms and conditions under a proposal issued Wednesday by the federal consumer financial protection agency.

The proposed rule from the Consumer Financial Protection Bureau (CFPB) that would establish the registry is aimed at what the bureau called “take it or leave it” form contracts that, the agency said, surrender rights of consumers.

The proposal would require nonbanks subject to CFPB supervision to submit information on terms and conditions in form contracts they use that seek to waive or limit individuals’ rights and other legal protections, the agency said. That information would be posted in a registry that will be open to the public, including to other consumer financial protection enforcers, according to CFPB.

The bureau said that, apart from specified exceptions, the proposal would cover all nonbanks subject to its supervisory jurisdiction – including those operating in payday lending, private student loan origination, and mortgage lending and servicing. Larger participants operating in student loan servicing, automobile financing, consumer reporting, consumer debt collection, and international remittances would also be subject to the rule, the agency said.

“Many companies’ financial products and services require consumers to sign lengthy form contracts,” the bureau said in a release. “The companies write the form contracts as well as define any choices offered, and consumers cannot negotiate. 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, and more broadly, the terms and conditions potentially undermine consumer financial protection law.

“There is often little choice for consumers except to sign these form contracts due both to their market pervasiveness and the critical role the products and services play in people’s daily lives,” the CFPB said.

According to the bureau, the proposal would allow CFPB to seek information on contract terms and conditions seeking to waive any constitutional, statutory, or common law legal protection, right, or defense; restrict the ability of consumers to complain; limit the time or place for consumers to bring legal actions; limit liability amounts; waive class action rights; and impose arbitration provisions. Both company information and information about the use of the terms and conditions would be published.

The proposal would also, CFPB said, provide important support for the CFPB’s monitoring of supervised markets. Specifically, collecting and publishing information about the identities of nonbanks and their contract terms and conditions would allow for enhanced risk-based government oversight. “The CFPB and agencies from all levels of government would be able to consider the information when prioritizing their supervision and enforcement resources,” the bureau said.

CFPB Proposes Rule to Establish Public Registry of Terms and Conditions in Form Contracts That Claim to Waive or Limit Consumer Rights and Protections

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