Warning against the use of fine print claiming to limit certain consumer rights and protections, the Consumer Financial Protection Bureau (CFPB) issued a circular advising financial institutions that including such terms and conditions in consumer contracts may violate the Consumer Financial Protection Act (CFPA).
The types of fine print the CFPB is concerned about attempts to confuse people about their rights, such as clauses common in general liability waivers which purport to fully insulate companies from legal action. Most states have laws detailing exemptions to such waivers, and several federal consumer financial protection laws provide irrevocable protections that cannot be taken away from consumers, regardless what a contract says.
The Truth in Lending Act prohibits fine print requiring homeowners to enter into arbitration or other nonjudicial procedures to resolve problems encountered during a mortgage transaction. CFPB examiners have identified several repeated examples of deceptive contract terms purporting to waive mortgage borrowers’ rights that cannot be waived.
Another example of a federal consumer protection law that guarantees consumer protection rights is the Military Lending Act, which generally prohibits terms requiring servicemembers and their dependents to waive their rights to legal recourse in certain consumer credit contracts.
“Federal and state laws ban a host of coercive contract clauses that censor and restrict individual freedoms and rights,” CFPB Director Rohit Chopra said. “The CFPB will take action against companies and individuals that deceptively slip these terms into their fine print.”
The circular offered many details about other commonly used terms and conditions that are unlawful or unenforceable and frequently appear in contracts for consumer financial products or services. The bureau framed the warning as part of its broader efforts to ensure freedom and fairness in people’s interactions with financial institutions.
The CFPB recently created a database to track nonbank entities that repeatedly violate consumer financial protection laws.
It explained how and when fine print in contracts for financial products and services amounts to an attempt to trick and intimidate consumers. Companies may be liable even if the unenforceable terms are borrowed from form templates or widely available contracts.
In addition to contracts provided to mortgage borrowers, the circular also highlighted deceptive terms often used in contracts provided to bank account holders, remittance transfer consumers and auto loan borrowers.
The CFPB noted it recently filed an amicus brief with the Justice Department in an effort to help ensure servicemembers can file lawsuits under the Servicemembers Civil Relief Act notwithstanding unenforceable fine print in contracts.