On June 4, 2024, the Consumer Financial Protection Bureau issued a circular warning against the use of unlawful or unenforceable terms and conditions in contracts for consumer financial products or services. According to the CFPB, companies use this fine print tactic to try to trick consumers into believing they have given up certain legal rights or protections.

When financial institutions take these types of actions, they risk violating the Consumer Financial Protection Act. The recent circular warning is part of the CFPB’s stated effort to ensure freedom and fairness in people’s interactions with financial institutions.

“Federal and state laws ban a host of coercive contract clauses that censor and restrict individual freedoms and rights,” said CFPB Director Rohit Chopra. “The CFPB will take action against companies and individuals that deceptively slip these terms into their fine print.”

Many consumer contracts include terms and conditions that claim to limit consumer rights and protections, according to the CFPB. The Bureau believes that this fine print may just be an attempt to confuse people about their rights. For example, a general liability waiver that purports to fully insulate companies from legal liability even though many states have laws that create exemptions.

Similarly, several federal consumer financial protection laws offer protections that cannot be taken away from people, regardless of what a contract states.

For example, the Military Lending Act generally prohibits terms in certain consumer credit contracts that require servicemembers and their dependents to waive their right to legal recourse. Another example is mortgage rules - implementing the Truth in Lending Act - which prohibit fine print that forces homeowners into arbitration or other non-judicial procedures to resolve problems with a mortgage transaction.

The circular explains how and when fine print tricks and intimidation in contracts for consumer financial products and services may violate the Consumer Financial Protection Act’s prohibition on deceptive acts and practices. Note that companies may be liable even if the unenforceable terms are borrowed from form templates or widely available contracts.

The CFPB has taken action with respect to this unlawful conduct on many occasions over the past several years, including on deceptive behavior toward:

• Mortgage borrowers: CFPB examiners have repeatedly found examples of deceptive contract terms purporting to waive mortgage borrowers’ rights that cannot be waived.
• Bank accountholders: The CFPB found that a bank deceived consumers through contract terms that it claimed waived consumers’ right to hold the bank liable for improperly responding to garnishment orders when, in fact, this right could not be waived. The bank inserted these terms into deposit agreements with broad fine print language.
• Remittance transfer consumers: The CFPB found that a remittance transfer provider violated the Consumer Financial Protection Act’s deception prohibition when it included misleading statements in disclosures purporting to limit consumers’ error resolution rights, which would be unenforceable under the Electronic Fund Transfer Act and the Remittance Rule.
• Auto loan borrowers: The CFPB found an auto loan servicer deceptively included language in contracts that indicated that consumers could not exercise bankruptcy rights, when in fact, waivers of bankruptcy rights generally are void as a matter of public policy.

The circular builds on previous initiatives and guidance provided by the CFPB. In 2023, the CFPB proposed a rule to require certain supervised nonbank companies to register with the CFPB information about their use of contractual terms that claim to waive or limit consumer rights. The CFPB also has explained that banks and financial companies attempting to silence consumers from posting honest online reviews through contract terms undermine fair competition and may be breaking the law.

The CFPB additionally has highlighted that certain tuition payment plans include terms and conditions that are likely unenforceable. And the CFPB recently filed an amicus brief with the Justice Department to help ensure that servicemembers can file lawsuits to enforce the Servicemembers Civil Relief Act notwithstanding unenforceable fine print in contracts.

You can read the consumer financial protection circular, Unlawful and unenforceable contract terms and conditions.

Takeaway: Consult with a seasoned ecommerce lawyer to review applicable consumer contracts and implement measures designed to ensure that terms do not violate the CFPA, or other federal or state law. Importantly, introductory language in contracts such as “except where prohibited by law” may be considered deceptive.