Beware of companies: the CFPB reviews “all kinds” of clauses in consumer contracts
On September 13, 2022, public justice and other consumer advocacy groups sent a letter to CFPB Director Rohit Chopra urging the CFPB to limit the use of “forced” arbitration provisions by banks and others. consumer credit companies. According to reports in Law360 and BNA, at a virtual event hosted by Public Justice and held the day after the letter was sent, Director Chopra expressed concerns about these provisions and is trying to “understand what the way forward is.”
However, financial services firms should be aware that the CFPB appears to have more than just arbitration provisions on its radar screen. The Law360 The report quotes Director Chopra as saying, “We review all kinds of contractual terms that are inserted into consumer contracts, often in ways that are not negotiated, are not subject to normal competitive processes, and review how to promote fairness, transparency and competition on this front.
Director Chopra seems to suggest that it is problematic that consumer contracts are “often” not individually negotiated. In fact, the days of individually negotiated consumer contracts “are long gone” (to quote the US Supreme Court), and non-negotiated contracts are not inherently offensive. On the contrary, non-negotiated contracts can benefit both consumers and customers. As observed in the Restatement of the Law, Consumer Contracts recently approved by the American Law Institute (ALI):
Standard form contracts have many advantages…. The efficiency of mass production and mass distribution of products and services would be hampered if the terms of each transaction with each consumer had to be negotiated individually. These market efficiencies can benefit all market participants…. Journalists’ notes on the reprocessing also state: “[T]The use of standardization in the production of contractual terms is, like standardization in the production of goods and services, a source of potential benefits for consumers and businesses alike. Standardization supports efficient production and distribution, resulting in lower prices and transaction costs, and the introduction of new forms of products and services.
The Restatement is the culmination of an 11-year project by ALI to determine how contract terms are adopted, modified and enforced in contracts between businesses and consumers. This reflects the collective input of hundreds of professors, consumer advocates, industry lawyers and other interested individuals who have thought carefully about what rules should apply to consumer contracts.
Financial services firms that enter into contracts with consumers will need to closely monitor any further statements from the CFPB regarding the review of contracts. Aside from arbitration clauses, Director Chopra offered no clues about the types of contract terms he finds objectionable or the legal basis for his opinions. We will keep you posted.