CFPB issues warning on ‘fine-print tactics‘ used to ‘trick‘ consumers

On an enforcement streak since the U.S. Supreme Court rejected a challenge to its funding mechanism in mid-May, the Consumer Financial Protection Bureau (CFPB) is now targeting the use of what it deemed ”unlawful or unenforceable” terms and conditions in contracts.

On Tuesday, the U.S. consumer financial watchdog released a circular warning companies that use ”fine-print tactics to trick consumers” about the risk of violating the Consumer Financial Protection Act.

In practice, the CFPB said companies are using terms and conditions that make consumers give up certain legal rights and protections. A common issue is adding a general liability waiver to protect companies from suits when some states have laws with exemptions to these waivers. 

”Federal and state laws ban a host of coercive contract clauses that censor and restrict individual freedoms and rights,” CFPB Director Rohit Chopra said in a prepared statement. ”The CFPB will take action against companies and individuals that deceptively slip these terms into their fine print.”

The target on terms and agreements comes a day after the CFPB announced the creation of a public database of nonbank repeat offenders and about one week after it issued a request for information regarding fees charged by mortgage providers, which it calls ”junk fees.”  

These actions follow the Supreme Court’s decision to reject a broad challenge to the CFPB’s funding mechanism brought by payday lending groups led by the Community Financial Services Association of America (CFSA).

In the mortgage industry, the CFPB mentioned unlawful terms that waive borrowers’ rights that cannot be waived. A Supervisory Highlights from the Summer of 2015 refers mainly to home equity installment loan agreements.

According to the document, Regulation Z says that contracts for credit transactions secured by a dwelling, including home equity lines of credit, may not bar a consumer from bringing a claim to court under any provision for damages or other relief concerning any alleged violation of Federal law.

”Despite this requirement, at one or more supervised entities, language in the ‘General Waiver Provisions’ of agreements provided that consumers who signed the agreements waived all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of the agreement,” the document adds.  

The CFPB also mentioned unlawful terms that require servicemembers and their dependents to waive their right to legal recourse and other terms forcing homeowners into arbitration or other nonjudicial procedures to resolve problems with a mortgage transaction.

According to the CFPB, the circular provides guidelines on ”fine print tricks” and clarifies that companies are liable even when the terms were borrowed from templates and widely available contracts.