CFPB Issues Proposed Rule On Form Contracts – Financial Services

The Consumer Financial Protection Bureau (“CFPB”)
issued a proposed rule last week addressing the “Registry of Supervised Nonbanks that Use Form
Contracts to Impose Terms and Conditions that Seek to Waive or
Limit Consumer Legal Protections.” Comments on the
proposed rule must be received by the CFPB by March 13, 2023 or
thirty (30) days following publication of the proposed rule in the
Federal Register, whichever date is later.

The CFPB has a long history battling against the use of
arbitration clauses in consumer financial services, and issued a final rule regarding their use in
2017 (“arbitration rule”). However, Congress intervened
and issued a joint resolution disapproving of the arbitration
agreement rule, pursuant to the Congressional Review Act, rendering
the final rule null and void, with no force or effect. This new
proposed rule has a more limited applicability but a broader scope,
in terms of substance, than the arbitration rule and does not seek
to directly forbid or prohibit arbitration clauses and other types
of limitations on the ways consumers can contest agreements with
financial institutions. With respect to its limited applicability,
the rule would apply only to nonbank financial institutions that
are subject to supervision by the CFPB, unless their total annual
receipts are less than $1 million. However, with respect to its
more expansive scope, the rule would require such supervised
financial institutions to register and provide copies of so-called
“form agreements” that include any provision deemed by
the CFPB to “pose risks to consumers.” Such provisions
definitely include arbitration clauses, but also include such
pedantic provisions as choice of forum or venue and caps limiting
liability.

Implicit in the way the rule is written is that the CFPB would
use the registration information to effectively cast a negative
light on the companies that have such clauses, and “[m]ost
immediately, the information collected by the registry would
facilitate the [CFPB]’s prioritization and implementation of
examination work in its statutorily-mandated risk-based nonbank
supervision program.”

Cadwalader will be providing a more in-depth memo on the
proposed rule shortly.

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