Title: Protecting Consumers: CFPB Cracks Down on Deceptive Contract Terms
Deceptive Contract Terms: A Warning from CFPB
Introduction:
The Consumer Financial Protection Bureau (CFPB) has recently issued a circular warning financial institutions against using deceptive contract terms. The agency found that some companies include unenforceable terms in their consumer financial products and services contracts, potentially confusing customers about their legal rights and protections.
Protecting Consumer Rights:
1. Misleading Liability Waivers and Legal Discourse:
The CFPB highlights how some firms employ a tactic of adding a “general liability waiver” to contracts, claiming to shield themselves from lawsuits. However, the agency emphasizes that many states have laws that exempt specific situations from these waivers, rendering them unenforceable. Similarly, the Military Lending Act prohibits credit contracts from forcing service members to waive their right to legal discourse.
2. Restrictions on Mortgage Rules and Fine Print:
The Truth in Lending Act forbids fine print in mortgage rules that coerce homeowners into arbitration or nonjudicial processes for resolving issues with mortgage transactions. The CFPB uncovered deceptive mortgage contract terms that purported to waive borrowers’ rights, which legally cannot be waived.
3. Unenforceable Provisions under Consumer Protection Laws:
The agency discovered instances where banks included clauses in contracts preventing customers from seeking legal recourse to prevent wrongful garnishments. However, the right to challenge garnishments is protected by law and cannot be waived. Similarly, a remittance transfer service provider included misleading disclosure statements limiting customers’ rights to resolve errors, which is unenforceable under the Electronic Fund Transfer Act and the Remittance Rule. Additionally, an auto loan service provider included language suggesting customers could not exercise their bankruptcy rights, which is also unenforceable.
Preserving Fair Interactions with Financial Institutions:
1. Protecting Consumer Speech:
The CFPB has informed banks and financial firms that attempting to silence customers from posting honest reviews online through contract terms could be illegal. The agency aims to ensure that people’s interactions with financial institutions are free and fair.
2. Proposed Rule on Contractual Term Details:
The CFPB proposed a rule last year requiring certain nonbank firms to provide the agency with contractual term details that claim to limit or waive customer rights. This proposal aims to crack down on coercive contract clauses that restrict individual freedoms and rights.
Recent Actions Against Deceptive Practices:
1. Think Finance LLC’s Deceptive Practices:
In May, the CFPB announced that consumers “deceived” by Think Finance LLC would receive over $384 million in compensation. The agency filed a lawsuit against the company in 2017, stating that Think Finance made false demands and illegally took money from consumers’ bank accounts for debts that were not owed under state laws in 17 states.
2. Compensation for Victims of LendUp Loans:
The CFPB distributed almost $40 million to over 118,000 Americans who were “deceived” by fintech firm LendUp Loans. The company allegedly promised higher loan amounts and lower interest rates for timely repayment, but failed to deliver on these claims.
Conclusion:
The Consumer Financial Protection Bureau is dedicated to safeguarding consumer rights by cracking down on deceptive contract terms. By warning financial institutions against using unenforceable and misleading clauses, the agency aims to ensure that interactions between consumers and financial institutions are transparent, fair, and respectful of legal protections. Recent actions against companies engaged in deceptive practices underscore the CFPB’s commitment to holding accountable those who exploit consumers through unfair or misleading practices.
