The Consumer Financial Protection Bureau does not have the authority to prohibit contractual provisions in agreements for consumer financial products or services that waive “substantive” consumer legal rights and protections, so it should rescind a proposed rule attempting to do just that, the American Bankers Association and two associations said today.
Under the proposed rule, the CFPB is seeking to crack down on alleged abuses in standard-form contracts, citing its authority to prohibit acts or practices that are unfair, deceptive or abusive, or UDAPP, under the Dodd Frank Act. The proposed rule was issued in January in the final weeks of the Biden administration, which ABA, the Bank Policy Institute and the Consumer Bankers Association noted in a joint letter to the bureau. “(I)t appears that the CFPB rushed to publish this proposal (among others) without the research and analysis necessary for a rule that would require extensive revisions to consumer financial contracts,” the associations said.
The CFPB does not have the UDAPP authority it claims, the associations said. “In a free market economy, contract terms clearly and conspicuously disclosed in a timely manner are generally considered lawful unless specifically prohibited by Congress or a state legislature. The CFPB cannot use its UDAAP rulemaking authority to ban contract provisions that Congress has not prohibited.” They added that the CFPB’s overreach in the proposal is similar to its attempt to use UDAAP to fill gaps in fair lending laws, which was overruled by a federal court.
The associations also noted that the proposal would restrict arbitration agreements in contravention of Congress’s disapproval, under the Congressional Review Act, of the CFPB’s 2017 rule restricting arbitration agreements. The Congressional Review Act provides that once a rule has been disapproved, the agency cannot issue a substantially similar rule without express Congressional authorization.
In addition, the proposal is defective in several respects, such as relying on data from the 1980s, with the bureau having performed only “a cursory analysis of costs and benefits” to support the proposed restrictions, they said.
“The CFPB’s analysis contains inadequate supporting research and reflects no legal precedent,” the associations said. “Indeed, the proposal would, for example, ban waivers based merely on supervisory findings included in two editions of the CFPB’s supervisory highlights and an enforcement action that was settled without admission of wrongdoing by the defendant. These actions do not reflect independent support for the CFPB’s assertion that it has the authority to prohibit contract terms.”
