CFPB cautions against unenforceable contract terms and conditions

Federal Issues CFPB Compliance Contracts

On June 4, the CFPB issued Circular 2024-03, which cautioned covered persons under the CFPA against contracts for consumer financial products or services, including illegal or non-binding clauses. The Bureau said that such clauses may mislead consumers into thinking they have forfeited legal rights, which would violate the CFPA. Specifically, consumer contracts that falsely claim to restrict consumer rights (including liability waivers and mandatory arbitration clauses) can violate the prohibition on deceptive acts. CFPB Director, Rohit Chopra, said in an accompanying press release that the Bureau will address companies that “deceptively slip these terms into their fine print.” The Bureau reiterated prior guidance that disclaimers in a contract such as “subject to applicable law” do not cure misrepresentations caused by an unenforceable contract term. Past CFPB actions have addressed “deceptive contract terms” in various consumer finance areas, including mortgages, bank accounts, remittance transfers, and auto loans. The CFPB said it will continue to ensure fair consumer interactions with financial institutions, including efforts to regulate nonbank companies' contract terms and uphold the right to post honest online reviews. The Bureau also said it supported servicemembers' rights to challenge unlawful contract terms through legal action.