The public comment period closed yesterday on the Consumer Financial Protection Bureau’s proposed rule to create a public registry for terms and conditions in non-negotiable nonbank contracts that limit consumer rights and protections. The proposal recognized a certain powerlessness of consumers who are forced to surrender critical rights when seeking out essential financial products. Part of the loss of rights stems from consumers’ lack of understanding or knowledge that certain protections leave them in the fine print when they sign up with a financial service or product.
The public registry’s comment period’s closing coincided with the Bureau’s same-day release of a policy statement that defines “abusive,” a legal standard beyond “unfair” and “deceptive” created in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The term also recognizes the vast differences in how consumers and financial institutions understand contract terms and how they’re able to collect information and evaluate risks in financial products.
There is an epic imbalance between what consumers know and what they can do versus what financial services providers know and what they can do, especially in the fine print.
The CFPB’s policy statement is an in-depth document. It runs through the history of unfair and deceptive practices, the run-up to the financial crisis, the determination of the new “abusive” standard in the Dodd-Frank Act, and the Bureau’s enforcement actions so far that have alleged abusive conduct.
Among other incredibly substantive points, the Bureau’s statement discussed “actions or omissions that obscure, withhold, de-emphasize, render confusing, or hide information relevant to the ability of a consumer to understand terms and conditions…(and that includes) disclosures that limit people’s comprehension of a term or condition, including but not limited to, through the use of fine print, complex language, jargon, or the timing of the disclosure.”
In his remarks on the new policy statement, which aptly took place before an audience of law professors and students at the University of California-Irvine Law School, Director Rohit Chopra commented on consumer understanding: “(C)oming out of the financial crisis, Congress responded by prohibiting companies from setting people up to fail. When enacting measures to prevent abusive practices, Congress banned companies from leveraging someone’s lack of understanding or inability to protect themselves in order to take an unreasonable advantage. In doing so, Congress recognized that gaps in understanding or unequal bargaining power were circumstances that law breaking companies could exploit.” Truth!
The statement released yesterday is the CFPB’s second attempt to tackle abusiveness. The first was announced in January 2020 followed by strenuous objections from consumer advocates and approving nods from corporate law firms. The agency rescinded the statement in 2021 in the new Biden Administration after it determined that the guideline was contrary to the CFPB’s mission of protecting consumers.