Contract Terms and Conditions Come Under CFPB Scrutiny

The Consumer Financial Protection Bureau (CFPB or Bureau) has issued a circular warning covered persons that including unlawful or unenforceable terms and conditions in consumer contracts can violate the prohibition on deceptive acts or practices in the Consumer Financial Protection Act (CFPA).

According to the CFPB, a representation or omission is deceptive if it is likely to mislead a reasonable consumer and is material, i.e., “involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.” For example, a contractual provision stating that a consumer agrees not to exercise a legal right is likely to affect a consumer’s willingness to attempt to exercise that right in the event of a dispute.

Covered persons and service providers, as defined by the CFPA, must comply with the prohibition on deceptive acts or practices in the statute. The inclusion of certain terms in contracts may violate the prohibition when applicable federal or state law renders such contractual terms, including those that purport to waive consumer rights, unlawful or unenforceable.