Companies that provide consumer financial services and products be warned—a careful review of your fine print may be in order. Although broad disclaimers, liability waivers, and releases tend to be commonplace in general terms of service, they can be highly problematic in the consumer financial services space.

The Consumer Financial Protection Bureau (CFPB) issued a Circular on June 4, 2024, warning against the use of contract terms that purport to limit consumer rights and protections in contravention of state laws and federal consumer financial protection laws. In the CFPB’s view, these terms may deceive consumers into believing that they have signed away their legal rights or protections, when in fact those protections are guaranteed by law. As such, the CFPB’s Circular concludes that the inclusion of such terms in contracts for consumer financial products and services could violate the prohibition on deceptive acts or practices in the Consumer Financial Protection Act (CFPA). In other words, not only could such consumer contract terms be unenforceable, they may lead to an enforcement action.

As CFPB Director Rohit Chopra has announced, “[t]he CFPB will take action against companies and individuals that deceptively slip these terms into their fine print.” Violations of the CFPA can result in enforcement actions with civil monetary penalties. Examples of past enforcement actions taken by the CPFB in this area include a consent order against a bank with a $10 million civil money penalty (for deceiving consumers through contract terms purporting to waive their rights to hold the bank liable for improperly responding to garnishment orders when, in fact, this right could not be waived), and a consent order against a remittance transfer provider with a civil money penalty of $1.6 million (for including misleading statements in disclosures purporting to limit consumers’ error resolution rights, which would be unlawful under the Electronic Fund Transfer Act and the Remittance Rule).

The CFPB’s Circular builds on other related initiatives, such as the CFPB’s proposed rule last year that would require certain supervised nonbank companies to register with the CFPB information about their use of contractual terms that claim to waive or limit consumer rights.

Practical Takeaways

In light of the CFPB’s heightened attention on contracts for consumer financial products and services, companies in this industry (or considering expanding into it) would be well-advised to be proactive and vigilant in ensuring their customer-facing terms and conditions are tailored to the nuances of their offering and, importantly, the consumer financial protection laws that may apply. Companies can take the first steps toward preparing for this stepped-up CFPB scrutiny by considering the following when drafting customer-facing contract terms for consumer financial products or services:

• Avoid inclusion of overbroad waivers of responsibility that effectively eliminate any ability for a consumer to seek damages or obtain recourse. Contractual waivers and disclaimers should be tailored to your financial product or service, and should not purport to waive specific rights that consumers expressly receive under federal consumer financial protection laws (which we have previously discussed here) or other state or federal law (such as state privacy law restrictions on the sale of personal information, state requirements on disclosure and notice of automatically-renewing subscriptions, or the federal restriction on the limitation of how consumers communicate their review of a product or service).
• Shortcuts like relying on generic disclaimers or qualifiers (such as “subject to applicable law” or “except where unenforceable”) will not cure the inclusion of potentially deceptive or misleading terms in their agreements. The CFPB has explicitly stated that this type of drafting is unlikely to correct the misrepresentation caused by the inclusion of an unenforceable term. Similarly, borrowing fine print from form templates or widely available contracts will not mitigate regulatory risk. The CFPB has cautioned that companies may be liable even if the unenforceable terms are borrowed from such other sources.
• Seek to write contracts in plain English and easy for your consumer-customer to understand and stay away from burying important contractual terms (particularly those relating to liability, fees, or waivers or rights) in the fine print. Clear consumer terms have the dual advantage of both improving public perception and consumer relationships and reducing regulatory scrutiny and potential liability.

For more information about this CFPB circular and other practical considerations, please reach out to Jess Cheng, Scott McKinney, or another member of Wilson Sonsini’s fintech and financial services practice.