Consumer Financial Protection Circular 2024-03
Can persons that include unlawful or unenforceable terms and conditions in contracts for consumer financial products and services violate the prohibition on deceptive acts or practices in the Consumer Financial Protection Act (CFPA)?
Yes. “Covered persons” and “service providers” must comply with the prohibition on deceptive acts or practices in the CFPA.1 The inclusion of certain terms in contracts for consumer financial products or services may violate the prohibition when applicable federal or state law renders such contractual terms, including those that purport to waive consumer rights, unlawful or unenforceable.
Many federal laws—including statutes enforced by the CFPB—render unlawful or unenforceable various contract terms in certain contexts. For example, as highlighted in a recent CFPB compliance bulletin,2 the Consumer Review Fairness Act of 2016 generally prohibits the use of form contracts that limit how consumers communicate their reviews, assessments, or similar analysis of the sale of goods or services, and invalidates these types of contract terms and conditions.3 As another example, Regulation Z, which implements the Truth-in-Lending Act (TILA), prohibits the inclusion in a residential mortgage loan or open-ended consumer credit plan secured by the principal dwelling of terms requiring arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling claims arising out of the transaction.4 The Electronic Fund Transfer Act (EFTA) prohibits contract terms that contain a “waiver of any right conferred” by EFTA and prohibits waivers of any “cause of action” under EFTA.5 And the Military Lending Act and its implementing regulations generally prohibit terms in certain consumer credit contracts that require servicemembers and their dependents to “waive the covered borrower’s right to legal recourse under any otherwise applicable provision of State or Federal law . . . .”6
In addition to express prohibitions like these, a recent federal district court decision held that the Servicemembers Civil Relief Act (SCRA) renders unenforceable provisions in contracts with servicemembers that purport to waive their right to participate in class actions to enforce the SCRA.7 The Federal Trade Commission also administers laws that forbid certain contractual waivers.8 And certain state laws similarly prohibit or restrict the use of waivers in consumer contracts.9
