CFPB Proposes Rule to Rein in Nonbank Arbitration Contracts

Earlier this month, the Consumer Financial Protection Bureau (CFPB) announced a proposed rule to establish a public registry of supervised nonbanks’ terms and conditions in contracts that claim to limit or waive consumer rights and protections.

“The registry would inform how the CFPB conducts its supervision of nonbank financial companies,” said CFPB Director Rohit Chopra in a statement. “The CFPB would use data from the registry to identify supervised nonbanks and the risks their terms and conditions pose, prioritize which firms to examine, and plan the scope of those exams.”

Chopra said that when purchasing a product, consumers are typically required to click a checkbox agreeing to “terms of service” that are not subject to negotiation, and usually favor the company.

“For example, some consumer contracts have included ‘gag clauses,’ which forbid a consumer from posting a negative online review or filing a complaint,” Chopra said. “More recently, we have seen one company seeking to include language in its ‘acceptable use’ agreement that gives the company the ability to ‘fine’ individuals for their speech.”

If finalized, the Bureau says that the proposed rule would identify information on form contract terms and conditions that limit consumer rights, as well as increase market transparency and boost risk-based oversight. Both company information and information about the terms and conditions they provide would be published in the registry.

Nonbanks subject to CFPB supervision include: a nonbank as to which the CFPB has enforced risk-based supervisory authority, a provider that is considered “a larger participant of a market for other consumer financial products or services,” and a provider of residential mortgage loans, payday loans, or private education loans.

Representative Patrick McHenry (R-N.C.), Chairman of the House Financial Services Committee, criticized the proposal, saying that it “will facilitate the naming and shaming of firms to empower progressive activists. Requiring nonbank financial firms to register publicly with the Bureau is unprecedented—no other industry is required to make public such detailed contract information.”