WASHINGTON—The CFPB’s recent proposal to ban contract clauses that strip away “fundamental freedoms” could mean more red tape for credit unions, one attorney contends.
Brandy Bruyere, partner at Honigman LLP, spoke with CUToday.info about the agency’s s proposed rule that would stop financial companies from “forcing” Americans to choose between participating in the financial system or giving up their rights, including those guaranteed by the Constitution.
The proposed rule seeks to stop companies from using a variety of contract clauses that limit fundamental freedoms, including waivers of substantive legal rights and fine print that suppresses speech.
“I see this as a back door to try to reduce or eliminate contract terms like class-action waivers,” Bruyere said. “I also am very wary of the attempt to limit amendments to agreements. We’ve seen a few states where courts looked for affirmative consent for any membership and account agreement amendments, despite long-standing practices and many other states’ court opinions upholding the principal that if consumers do not like changes in product terms and conditions, they can switch to another provider.”
Bruyere pointed out this proposal is paired with recent CFPB regulations requiring advance notice of changes resulting in higher costs or lower dividend rates on accounts.
A 'Nightmare'
“It would be a nightmare to need to manage different membership and account agreements over a long period of time, tracking what members did or did not accept changes,” she said.
Brandy Bruyere
The CFPB said it is proposing to block companies from:
- Undermining Rule of Law: “The Constitution vests legislative power in Congress and reserves important authorities for the States. The CFPB is protecting that legal structure by ensuring that large companies cannot use form contracts to opt out of statutes passed by Congress or state legislatures, including protections for servicemembers, laws prohibiting elder fraud, and accountability for corporate lawbreaking,” the CFPB said.
- Deplatforming and Suppressing Speech: “The rule would bar companies from fining, suing, or deplatforming based on consumer comments, reviews, or political or religious views. It protects consumers' right to exercise free speech, including a consumer’s right to share negative reviews about a financial firm’s products or services, as well as political speech with which the company’s management disagrees,” the CFPB said.
- Amending Key Terms by Fiat: “By stopping companies from unilaterally updating contracts in their favor, the rule seeks to protect consumers’ right to benefit from the contracts they agree to and gives people the ability to make decisions about their options in the marketplace,” the CFPB said.
- Forcing Customers to Automatically Plead Guilty: “The CFPB is proposing to codify existing prohibitions against taking a consumer’s property without judicial due process or oversight. These longstanding prohibitions include prohibitions against ‘confessions of judgment,’ which force consumers to essentially plead guilty even if they have defenses,” the CFPB said.
However, like many of the rules proposed by the CFPB before a new director is named by President Trump, the chance they will become final could be slim, Bruyere reminded. As CUToday.info reported, newly confirmed Treasury Secretary Scott Bessent may be tapped to step in as acting head of the CFPB, as well.
“Overall, much like the other late-stage Chopra rules, I would expect this to not be acted on by the incoming administration,” she said. “Some of this, however, may lay some groundwork for a future administration, with the idea that past proposed rules can more easily be re-proposed and finalized if/when the regulatory pendulum swings back in the other direction.”