CFPB Takes Action on Consumer Protection Violations in the Corporate Fine Print

by Christine Hines and Christine Zinner

When consumers purchase many financial products and services they have no say over specific terms and conditions, only the choice of whether to sign or not. Yet, hidden in the fine print in virtually every contract is another grave price consumers unwittingly pay: the removal of many of their legal rights and protections. If consumers want financial services, the fine print — and the proper regulation thereof — is critically important.

Consumer terms and conditions are riddled with clauses that: (1) prohibit consumers from accessing the courts to get their cases heard and instead force them into arbitration, a privately administered proceeding, (2) prohibit consumers from joining claims together when it involves the same misconduct against a repeat offender, (3) force individuals to surrender their constitutional right to a civil jury trial, (4) shorten the time consumers can file their cases (5) undermine consumer protection laws by forcing consumers to waive their rights under these laws, (6) force consumers to abide by another jurisdictions’ laws that could further limit their rights, (7) limit the wrongdoer’s liability and the damages owed; and (8) require secrecy for legal disputes.

These and other contract clauses used in the sale or rental of products and services hamper consumers’ ability to enforce their rights when they are cheated or ripped off. Shockingly, these terms are legal and allowed in most situations and may only be limited by courts applying state laws under certain conditions, and often on a case-by-case basis.

It can get even worse. The level of unfair and abusive terms in the corporate fine print is so severe that the Consumer Financial Protection Bureau this week posted a warning about contract provisions that are already illegal, but that lenders, banks and other financial services providers will include in their terms and conditions anyway. The bureau just declared that such conduct may be considered deceptive under the Consumer Financial Protection Act.

“(T)he inclusion of unlawful or unenforceable terms and conditions in consumer contracts is likely to mislead a reasonable consumer into believing that the terms are lawful and/or enforceable, when in fact they are not,” the bureau said in the circular, or policy statement.

Indeed. We should expect that financial services providers don’t write contracts that have illegal provisions. Most consumers are not aware of, and do not understand much of the content in the fine print, so financial firms get away with adding illegal terms knowing that unsuspecting consumers will accept the order to comply with them. In its review and oversight of financial entities, the CFPB is seeking to stop a most obvious but overlooked violation of consumers’ legal rights in the fine print.

For example, the CFPB identified terms in a bank’s contract with customers that illegally waived their right to challenge garnishment notices. It also highlighted terms from student loan servicers in student tuition payment plans that removed students’ legal protections including their right to hire a lawyer and the right to seek a bankruptcy discharge — both of which are unlawful restrictions.

In its analysis, the CFPB also specifically highlighted several federal consumer laws that have declared illegal certain contract provisions in certain circumstances. They include the Truth in Lending Act regulation, which bans the use of arbitration clauses to resolve claims involving a residential mortgage loan or a home equity line of credit secured by a consumer’s dwelling, the Military Lending Act, which bans terms in certain consumer credit contracts that would force servicemembers into arbitration, rather than allowing their cases to proceed in court, and the Consumer Review Fairness Act, which bans the use of contract terms that restrict how consumers review products and services.

The bureau has also shown great interest in bringing transparency to consumer clauses that restrict consumer rights and protections, including the 2023 proposed regulation to create a public registry that would identify certain risky terms and conditions in non-bank consumer contracts.

While corporate terms and conditions seem a long way off from treating consumers’ legal rights and protections at the levels they require, the CFPB’s continued scrutiny of unfair contract clauses represents important action to help level the playing field for American families.

Christine Hines is senior policy director at the National Association of Consumer Advocates, and Christine Zinner is senior policy counsel at Americans for Financial Reform.