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CFPB Issues Guidance Against Deception in Contract Fine Print

The Consumer Financial Protection Bureau (CFPB) issued a Consumer Financial Protection Circular 2024-03 warning that the use of unlawful or unenforceable terms and conditions in contracts for consumer financial products or services may violate the prohibition on deceptive acts or practices in the Consumer Financial Protection Act (CFPA).

According to the press release, Director Chopra said, “Federal and state laws ban a host of coercive contract clauses that censor and restrict individual freedoms and rights… The CFPB will take action against companies and individuals that deceptively slip these terms into their fine print.”

Under the CFPA, a representation, omission, act or practice is deceptive when:

  • The representation, omission, act, or practice misleads or is likely to mislead the consumer.
  • The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances.
  • The misleading representation, omission, act, or practice is material.

The CFPB indicated that it has taken action against what it believes to be unlawful conduct on many occasions over the past several years, including deceptive behavior:

  • Mortgage borrowers: CFPB examiners have repeatedly  found examples of deceptive contract terms purporting to waive mortgage borrowers’ rights that cannot be waived.
  • Bank accountholders: The CFPB found that a bank deceived consumers through contract terms that it claimed waived consumers’ right to hold the bank liable for improperly responding to garnishment orders when, in fact, this right could not be waived. The bank inserted these terms into deposit agreements with broad fine print language.
  • Remittance transfer consumers:The CFPB found that a remittance transfer provider violated the Consumer Financial Protection Act’s deception prohibition when it included misleading statements in disclosures purporting to limit consumers’ error resolution rights, which would be unenforceable under the Electronic Fund Transfer Act and the Remittance Rule.
  • Auto loan borrowers: The CFPB found an auto loan servicer deceptively included language in contracts that indicated that consumers could not exercise bankruptcy rights, when in fact, waivers of bankruptcy rights generally are void as a matter of public policy.

Credit unions are strongly recommended to review their product and service contracts to identify and modify any terms that may violate the CFPA’s prohibition on deceptive acts and practices. The CFPB has indicated that “companies may be liable even if the unenforceable terms are borrowed from form templates or widely available contracts.”

Access the ‘Compliance Hotline’
Your League-member benefits include the Compliance Hotline — providing exclusive access to dedicated compliance experts:

Using the above phone number and email address, you can gain access to a knowledgeable team that’s ready to address all your credit union’s compliance inquiries — promptly and efficiently. With the Compliance Hotline, you can proactively respond to impromptu questions and issues by getting clarity and insight on technical topics that normally slow you down. We want to help you unlock the full potential of your League membership by leveraging the resources and support you need to navigate the complex world of compliance effortlessly. We’re ALWAYS just a phone call or email away!

Additionally, other League-member compliance resources include:

  • ViClarity
  • CU PolicyPro
  • ComplySight
  • InfoSight
  • CU Store
  • Record Retention Guide
  • GRC Technology Solutions 

For more information, email Lisa Quaranta.

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