The CFPB issued a Circular warning that the use of “unlawful or unenforceable terms and conditions” may constitute a deceptive act or practice. It states:
The inclusion of certain terms in contracts for consumer financial products or services 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.
The Circular gives examples of various federal laws which prohibit the use of certain contract terms. For example, Regulation Z prohibits required arbitration or the use of other non-judicial procedure for credit secured by a principal dwelling. Similarly, the Electronic Funds Transfer Act prohibits any kind of agreement that results in rights being waived. State laws and court decisions obviously play a role a as well.
It goes on to explain that the use of such contract terms, even when those terms are unenforceable, mislead reasonable people into believing they are waiving certain rights. So, if an issue arises, consumers are …likely to conclude they lawfully agreed to waive their legal rights or protections after reviewing the contract on their own or when covered persons point out the existence of these contractual terms and conditions.
You’ve likely heard us say that you can’t take people’s rights away from them and it’s very important you know what your contracts/agreements state because YOU are responsible for the information you provide. If there’s a reference to a waiver of rights or anything similar, you may need to look into it further to determine whether it is something that could actually be enforced. Otherwise, the mere presence of language that appears to take someone’s rights away could lead to UDAAP issues.
Published
2024/06/28
