Prohibited Terms and Conditions in Agreements for Consumer Financial Products or Services (Regulation AA)

CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1027</CFR> <DEPDOC>[Docket No. CFPB-2025-0002]</DEPDOC> <RIN>RIN 3170-AB23</RIN> <SUBJECT>Prohibited Terms and Conditions in Agreements for Consumer Financial Products or Services (Regulation AA)</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Proposed rule; request for comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB) is proposing to prohibit certain contractual provisions in agreements for consumer financial products or services. The proposal would prohibit covered persons from including in their contracts any provisions purporting to waive substantive consumer legal rights and protections (or their remedies) granted by State or Federal law. The proposal would also prohibit contract terms that limit free expression, including with threats of account closure, fines, or breach of contract claims, as well as other contract terms. The proposal would also codify certain longstanding prohibitions under the Federal Trade Commission's (FTC) Credit Practices Rule. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before April 1, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by Docket No. CFPB-2025-0002 or RIN 3170-AB23, by any of the following methods: • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> Follow the instructions for submitting comments. A brief summary of this document will be available at <E T="03">https://www.regulations.gov/docket/CFPB-2025-0002.</E> • <E T="03">Email: 2025-NPRM-REGAA@cfpb.gov</E> . Include Docket No. CFPB-2025-0002 or RIN 3170-AB23 in the subject line of the message. • <E T="03">Mail/Hand Delivery/Courier:</E> Comment Intake—Prohibited Terms and Conditions in Agreements for Consumer Financial Products or Services (Regulation AA), c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. <E T="03">Instructions:</E> The CFPB encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to <E T="03">https://www.regulations.gov.</E> All submissions, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Submissions will not be edited to remove any identifying or contact information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> George Karithanom, Regulatory Implementation and Guidance Program Analyst, Office of Regulations, at 202-435-7700. If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Summary of the Proposed Rule</HD> Consumer finance companies often limit or restrict individual freedoms and rights by including coercive terms and conditions in contracts of adhesion. These types of contracts—which are ubiquitous in transactions for consumer financial products or services—are drafted by the companies or their lawyers and presented to consumers on a “take it or leave it” basis. Form contracts can create operational efficiencies for large businesses, but in recent years they have been used to constrain fundamental freedoms and rights that are recognized and protected under the U.S. Constitution and statutory and common law. While the Bill of Rights, with limited exceptions, only protects people from government actions, jurists have long recognized affirmative obligations regarding certain private actors, <SU>1</SU> <FTREF/> and scholars and jurists are increasingly recognizing that corporate intrusion into historically recognized individual rights poses a similar threat as government intrusion. <SU>2</SU> <FTREF/> Clauses buried in the fine print of these contracts can have dramatic consequences for consumers—for instance, by waiving statutory protections passed by elected officials in Federal or State government, by surrendering due process rights upon default, by undermining consumers' right to contract and giving companies the power to unilaterally amend material terms of the contract at any time, or by constraining consumers' ability to exercise free speech. These clauses usually provide little or no benefit to consumers, but they can be valuable to companies by insulating them from accountability or advancing managers' political interests. <FTNT> <SU>1</SU>   <E T="03">See generally Ganesh</E> Sitaraman, <E T="03">Deplatforming,</E> 113 Yale L.J. 497 (2023). </FTNT> <FTNT> <SU>2</SU>   <E T="03">See</E> Tunku Varadarajan, <E T="03">The `Common Carrier' Solution to Social-Media Censorship,</E> Wall St. J. (Jan. 15, 2021), <E T="03">https://www.wsj.com/articles/the-common-carrier-solution-to-social-media-censorship-11610732343</E> (interviewing Richard Epstein); <E T="03">Biden</E> v. <E T="03">Knight First Amend. Inst.,</E> 141 S. Ct. 1220, 1222-24 (2021) (Thomas, J., concurring) (raising concerns about the ability of companies to constrain free speech and recognizing that doctrines involving common carriers or public accommodation may be an appropriate solution). </FTNT> Federal and State legislatures and regulators have taken action against these kinds of one-sided terms in consumer contracts. For instance, the FTC issued in 1984 a rule commonly known as the “Credit Practices Rule,” which prohibited certain creditor remedies in consumer credit contracts. <SU>3</SU> <FTREF/> Congress has also enacted numerous statutes limiting companies' ability to use certain one-sided contract terms, such as through inclusion of anti-waiver provisions in several consumer financial laws  <SU>4</SU> <FTREF/> and passage of the Consumer Review Fairness Act of 2016, which prohibits companies that use form contracts from restricting consumers' right to provide negative reviews. <SU>5</SU> <FTREF/> The CFPB has also recently issued guidance warning companies that they could violate the law by using unenforceable terms and conditions in their consumer contracts, including terms and conditions in violation of the Consumer Review Fairness Act. <SU>6</SU> <FTREF/> <FTNT> <SU>3</SU>  Credit Practices Rule, 49 FR 7740 (Mar. 1, 1984). </FTNT> <FTNT> <SU>4</SU>   <E T="03">See, e.g.,</E> 10 U.S.C. 987(e)(2) (expressly prohibiting waivers of right to recourse under any State or Federal law in contracts with covered servicemembers). </FTNT> <FTNT> <SU>5</SU>  Public Law 114-258, codified at 15 U.S.C. 45b. </FTNT> <FTNT> <SU>6</SU>  Consumer Fin. Prot. Bureau, <E T="03">CFPB Consumer Financial Protection Circular 2024-03, Unlawful and unenforceable contract terms and conditions,</E> (June 4, 2024), <E T="03">https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2024-03/.</E> </FTNT> While defenders of civil liberties rightly focus on the risk of government infringement on constitutional freedoms, the CFPB is also concerned about large consumer financial companies' use of contracts of adhesion to curtail those same rights, especially due process, the freedom to benefit from a contract, the rule of law as established by democratically elected officials, and free expression. The CFPB is also concerned that certain terms used in these contracts deny consumers the benefits of a free market—one that is “fair, transparent, and competitive.”  <SU>7</SU> <FTREF/> Under the CFPA, the CFPB may issue rules applicable to providers of consumer financial products or services (known as “covered persons” under the statute) to identify and prevent “unfair, deceptive, or abusive acts or practices.”  <SU>8</SU> <FTREF/> The CFPB is relying on this authority in this proposed rule to protect consumers from harms that often arise from contracts of adhesion used to constrain fundamental rights and freedoms. <FTNT> <SU>7</SU>  12 U.S.C. 5511(a). </FTNT> <FTNT> <SU>8</SU>  12 U.S.C. 5531(b). </FTNT> First, the CFPB is proposing to codify the Credit Practices Rule as applied to covered persons subject to the CFPA. As noted above, the FTC first issued the Credit Practices Rule in 1984. Although that rule applied only to creditors within the FTC's jurisdiction, banking regulators subsequently issued their own credit practices rules applicable to banks, Federal credit unions, and savings associations. <SU>9</SU> <FTREF/> The rules issued by the banking regulators were repealed upon enactment of the CFPA (which transferred those agencies' consumer financial protection authorities to the CFPB). However, in 2014 the Federal financial regulators—including the CFPB—issued joint interagency guidance clarifying that financial institutions could violate the law by including in consumer credit contracts any provisions prohibited by the Credit Practices Rule. <SU>10</SU> <FTREF/> Thus, in this proposed rule, the CFPB is codifying the Credit Practices Rule with regard to all covered persons, and the CFPB does not anticipate that this provision of the rule will have a substantial material effect on the market as covered persons are already likely to be in compliance with these prohibitions. <FTNT> <SU>9</SU>  These regulations were previously codified at: 12 CFR 227.11 through 227.16 (part of Regulation AA) (banks); 12 CFR 535.1 through 535.5 (savin ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 247k characters. 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