The Consumer Financial Protection Bureau on Tuesday renewed warnings to lenders and servicers about "unlawful or unenforceable" contract terms, something it first attempted to address with a controversial proposal for
"Federal and state laws ban a host of coercive contract clauses that censor and restrict individual freedoms and rights. CFPB will take action against companies and individuals that deceptively slip these terms into their fine print," Director Rohit Chopra said in a press release.
The CFPB's new circular warning that the bureau will enforce existing rules governing contracts follows a day after the bureau
One example the CFPB's circular cited for home mortgages involved arbitration requirements and other actions restricting certain borrowers to non-judicial processes. The bureau identified these as potential violations of Reg Z, which implements the Truth in Lending Act. Home equity lines of credit secured by primary residences also are protected by the rule, the CFPB noted.
While consumer advocates have sought more bars on forced arbitration, this may add to Republican debate around
Potentially adding to discussion around arbitration was a May 23 Supreme Court decision in the case Coinbase Inc. v. Suski, which, regarding the type of dispute resolution that should be used, puts more weight on judicial proceedings to resolve contractual conflicts.
The decision in the case involving one contract requiring arbitration and another calling for a judicial procedure indicates that, "it is for the court, not the arbitrators, to decide whether the dispute is to be heard by a court or in arbitration," according to
In its warning about contracts, the CFPB also alluded to loss mitigation disclosure issues by linking to a historical supervisory report that identifies some uses as violations of Reg X and the Real Estate Settlement Procedures Act.
Many examples had more to do with the mis-distribution of the forms or complete lack thereof rather than contract fine print, but some did involve terms of agreement that were inappropriate in the given circumstances, or a transfer that didn't preserve terms.
The CFPB also cited renewed concerns about any contract terms that might violate the rights of military borrowers.
"The Military Lending Act generally prohibits terms in certain consumer credit contracts that require servicemembers and their dependents to waive their right to legal recourse," the bureau noted.
The CFPB recently filed a friend-of-the-court brief with the Department of Justice aimed at enforcing some borrowers rights under the Servicemembers Civil Relief Act in conflict with what the bureau alleged was "unenforceable fine print in contracts" related to credit cards.
In that case, Espin v. Citibank, the servicemembers are fighting what they alleged were excessive interest charges given the SCRA's prohibition on rates about 6% for those on active duty.
The bank argued that it did not raise rates until servicemembers' status changed and that the case was subject to arbitration under certain agreements under the Federal Arbitration Act. The Servicemembers argued that the MLA prohibits arbitration and overrides the FAA.
Trade groups like the American Bankers Association and American Financial Services Association have backed Citi in the case, which is pending in the 4th U.S. Circuit Court of Appeals.
