06/05/24

The Consumer Financial Protection Bureau today released a circular that warns against unlawful or unenforceable terms and conditions in contracts for consumer financial products or services. In a statement, the bureau said that many contracts include terms and conditions claiming to limit consumer rights and protections. One such term is a general liability waiver, “which purports to fully insulate companies from suits even though most states have laws that create hosts of exemptions to these waivers.”

The CFPB is issuing this Circular to emphasize that covered persons who include unlawful or unenforceable terms in their consumer contracts may violate the CFPA’s prohibition on deceptive acts or practices.

Covered persons may violate the CFPA’s prohibition on deceptive acts or practices if they include terms, including waiver provisions, in their consumer contracts that are rendered unlawful or unenforceable by federal or state law. Under the CFPA, a representation or omission is deceptive if it is likely to mislead a reasonable consumer and is material. A representation is “material” if it “involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.” A contractual provision stating that a consumer agrees not to exercise a legal right is likely to affect a consumer’s willingness to attempt to exercise that right in the event of a dispute. Moreover, certain categories of information, including express representations, are presumptively material.

The CFPB explained that “including an unenforceable material term in a consumer contract is deceptive, because it misleads consumers into believing the contract term is enforceable,” and that “disclaimers in a contract such as ‘subject to applicable law’ do not cure the misrepresentation caused by the inclusion of an unenforceable contract term.”

 Similarly, qualifying a provision that purports to waive a consumer right with “except where unenforceable” is unlikely to cure the provision’s misleading or material nature. Neither do disclaimers that are issued after the fact.

In the Circular, the CFPB gives examples taken from examinations.  The OBL recommends that Bank Members read the circular and reach out with any further questions to Evan Kleymeyer at ekleymeyer@ohiobankersleague.com.