PYMNTS MonitorEdge May 2024

CFPB: Lenders Must Stop Hiding Unlawful Terms in Fine Print

CFPB, loans, fine print

The Consumer Financial Protection Bureau (CFPB) is warning businesses against hiding “unlawful or unenforceable terms” in contracts’ fine print.

“Companies use this fine print tactic to try to trick consumers into believing they have given up certain legal rights or protections,” the bureau said in a news release Tuesday (June 4). “When financial institutions take these types of actions, they risk violating the Consumer Financial Protection Act. Today’s warning is part of the CFPB’s broader efforts to ensure freedom and fairness in people’s interactions with financial institutions.”

According to the release, many consumer contracts contain terms and conditions that claim to limit consumer rights and protections, which the bureau said might just be an attempt to confuse people about their rights.

“A common example is the 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 said.

There are also several federal consumer laws that provide protections that cannot be taken away from people, despite what a contract might claim.

“For example, the Military Lending Act generally prohibits terms in certain consumer credit contracts that require servicemembers and their dependents to waive their right to legal recourse,” the release said.

The regulator said it has taken action against several businesses for these practices over the years, including mortgage companies, banks and remittance services that employed deceptive terms in their contracts.

Tuesday’s announcement came one day after the CFPB said it would establish a registry of nonbank financial companies that have broken consumer laws, designed to help U.S. law enforcement identify and stop repeat offenders.

“Too many American families have been harmed by corporate repeat offenders in a rinse-and-repeat cycle of illegality, where bad actors see fines and penalties as the cost of doing business,” CFPB Director Rohit Chopra said in prepared remarks issued Monday. “Throughout our economy, we have seen fraudsters and scam artists get caught in one part of the country and restart their scheme in a new place hoping to not get caught again.”

Before this, the agency said, orders against offenders were publicly available but are not tracked. And unlike banks, credit unions and many mortgage companies, many other types of financial institutions are not registered or licensed.

With its new registry, the CFPB hopes to help regulators and law enforcement agencies better understand fraudsters, and to assist investors, creditors, business partners and members of the public in conducting due diligence.