Financial services industry groups are staunchly opposing a proposal by the Consumer Financial Protection Bureau (CFPB or Bureau) to require supervised nonbank entities to provide information about their use of certain terms and conditions in standard-form contracts. The CFPB would then compile this information into a registry available to the public. In individual letters dated April 3, the U.S. Chamber of Commerce, American Financial Services Association, Independent Community Bankers of America, Online Lenders Alliance, Financial Technology Association, INFiN, Association of Credit and Collection Professionals (ACA International), and National Association of Federally‐Insured Credit Unions, as well as a coalition of 11 other industry associations (the Associations), expressed their collective displeasure with the idea.
In its 2022 Fall Rulemaking Agenda published in early January, discussed here, the CFPB announced it was developing a proposal to collect standard terms used in contracts that are not subject to negotiation or are not prominently advertised, including arbitration clauses, forum-selection clauses, limitations periods, and class action bans. Notably, the proposed rulemaking does not regulate or prohibit any of the covered terms and conditions, it instead requires covered entities to report publicly when they are used.
But industry groups see the CFPB’s current proposal as an end run around its Congressionally-overridden arbitration rule. In 2017, the CFPB issued an arbitration rule that, while it did not ban arbitration clauses outright, forbade financial firms from using customer contract terms to block consumers from pursuing class actions. As discussed here, the rule never went into effect because the day after it was promulgated, Congress enacted a joint resolution of disapproval under the Congressional Review Act, which was later signed by the President.
As ACA International pointedly stated in its letter, instead of banning arbitration clauses, it sees the “fine print” registry as an attempt by the CFPB, “to use the glare of public pressure and the threat of public enforcement measures and private litigation to pressure individuals and entities to no longer include arbitration clauses.”
Similarly, INFiN lodged its concerns, stating in its letter: “There is little distinction between the nonbank registry the CFPB is proposing to create now, and its intention to publish information, and the now-disapproved Arbitration Rule. Moreover, the intent of each CFPB rule is the same — to discourage the use of arbitration agreements.”
In addition to the arbitration rule objections, many industry groups objected to the cost of complying with the proposed rule. The U.S. Chamber of Commerce noted in its letter, “the Bureau’s discussion of the costs of the Rule downplays the significant burdens of requiring covered entities to submit detailed information to the agency.”
Similarly, in their joint letter, the Associations pointed out that the costs of compliance by an entity would be more than just monetary. “The Bureau simply ignores the most serious costs associated with the Proposed Rule: the potential reputational costs and increased risks of being subject to enforcement action, supervisory burdens, and private litigation after being branded a “risky” company by the Bureau. These are meaningful costs for any business that might find itself on the public registry — potentially just because it uses lawful contract terms approved of by courts and Congress.”
Troutman Pepper will continue to monitor important developments involving the CFPB and the “fine print” registry and will provide further updates as they become available.