3566 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 

1See generally Ganesh Sitaraman, Deplatforming, 

113 Yale L.J. 497 (2023). 

2See Tunku Varadarajan, The ‘Common Carrier’ 

Solution to Social-Media Censorship, Wall St. J. 

(Jan. 15, 2021), https://www.wsj.com/articles/thecommon-carrier-solution-to-social-mediacensorship-11610732343 (interviewing Richard 

Epstein); Biden v. Knight First Amend. Inst., 141 S. 

Ct. 1220, 1222–24 (2021) (Thomas, J., concurring) 

(raising concerns about the ability of companies to 

constrain free speech and recognizing that doctrines 

involving common carriers or public 

accommodation may be an appropriate solution). 

3Credit Practices Rule, 49 FR 7740 (Mar. 1, 1984). 

4See, e.g., 10 U.S.C. 987(e)(2) (expressly 

prohibiting waivers of right to recourse under any 

State or Federal law in contracts with covered 

servicemembers). 

5Public Law 114–258, codified at 15 U.S.C. 45b. 

6Consumer Fin. Prot. Bureau, CFPB Consumer 

Financial Protection Circular 2024–03, Unlawful 

and unenforceable contract terms and conditions, 

(June 4, 2024), https://www.consumerfinance.gov/ 

compliance/circulars/consumer-financialprotection-circular-2024-03/. 

7 12 U.S.C. 5511(a). 

CONSUMER FINANCIAL PROTECTION 

BUREAU 

12 CFR Part 1027 

[Docket No. CFPB–2025–0002] 

RIN 3170–AB23 

Prohibited Terms and Conditions in 

Agreements for Consumer Financial 

Products or Services (Regulation AA) 

AGENCY: Consumer Financial Protection 

Bureau. 

ACTION: Proposed rule; request for 

comment. 

SUMMARY: The Consumer Financial 

Protection Bureau (CFPB) is proposing 

to prohibit certain contractual 

provisions in agreements for consumer 

financial products or services. The 

proposal would prohibit covered 

persons from including in their 

contracts any provisions purporting to 

waive substantive consumer legal rights 

and protections (or their remedies) 

granted by State or Federal law. The 

proposal would also prohibit contract 

terms that limit free expression, 

including with threats of account 

closure, fines, or breach of contract 

claims, as well as other contract terms. 

The proposal would also codify certain 

longstanding prohibitions under the 

Federal Trade Commission’s (FTC) 

Credit Practices Rule. 

DATES: Comments must be received on 

or before April 1, 2025. 

ADDRESSES: You may submit comments, 

identified by Docket No. CFPB–2025– 

0002 or RIN 3170–AB23, by any of the 

following methods: 

• Federal eRulemaking Portal: 

https://www.regulations.gov. Follow the 

instructions for submitting comments. A 

brief summary of this document will be 

available at https://

www.regulations.gov/docket/CFPB2025-0002. 

• Email: 2025-NPRM-REGAA@

cfpb.gov. Include Docket No. CFPB– 

2025–0002 or RIN 3170–AB23 in the 

subject line of the message. 

• Mail/Hand Delivery/Courier: 

Comment Intake—Prohibited Terms and 

Conditions in Agreements for Consumer 

Financial Products or Services 

(Regulation AA), c/o Legal Division 

Docket Manager, Consumer Financial 

Protection Bureau, 1700 G Street NW, 

Washington, DC 20552. 

Instructions: The CFPB encourages 

the early submission of comments. All 

submissions should include the agency 

name and docket number or Regulatory 

Information Number (RIN) for this 

rulemaking. Commenters are 

encouraged to submit comments 

electronically. In general, all comments 

received will be posted without change 

to https://www.regulations.gov. 

All submissions, including 

attachments and other supporting 

materials, will become part of the public 

record and subject to public disclosure. 

Proprietary information or sensitive 

personal information, such as account 

numbers or Social Security numbers, or 

names of other individuals, should not 

be included. Submissions will not be 

edited to remove any identifying or 

contact information. 

FOR FURTHER INFORMATION CONTACT: 

George Karithanom, Regulatory 

Implementation and Guidance Program 

Analyst, Office of Regulations, at 202– 

435–7700. If you require this document 

in an alternative electronic format, 

please contact CFPB_Accessibility@

cfpb.gov. 

SUPPLEMENTARY INFORMATION: 

I. Summary of the Proposed Rule 

Consumer finance companies often 

limit or restrict individual freedoms and 

rights by including coercive terms and 

conditions in contracts of adhesion. 

These types of contracts—which are 

ubiquitous in transactions for consumer 

financial products or services—are 

drafted by the companies or their 

lawyers and presented to consumers on 

a ‘‘take it or leave it’’ basis. Form 

contracts can create operational 

efficiencies for large businesses, but in 

recent years they have been used to 

constrain fundamental freedoms and 

rights that are recognized and protected 

under the U.S. Constitution and 

statutory and common law. While the 

Bill of Rights, with limited exceptions, 

only protects people from government 

actions, jurists have long recognized 

affirmative obligations regarding certain 

private actors,1 and scholars and jurists 

are increasingly recognizing that 

corporate intrusion into historically 

recognized individual rights poses a 

similar threat as government intrusion.2

Clauses buried in the fine print of these 

contracts can have dramatic 

consequences for consumers—for 

instance, by waiving statutory 

protections passed by elected officials in 

Federal or State government, by 

surrendering due process rights upon 

default, by undermining consumers’ 

right to contract and giving companies 

the power to unilaterally amend 

material terms of the contract at any 

time, or by constraining consumers’ 

ability to exercise free speech. These 

clauses usually provide little or no 

benefit to consumers, but they can be 

valuable to companies by insulating 

them from accountability or advancing 

managers’ political interests. 

Federal and State legislatures and 

regulators have taken action against 

these kinds of one-sided terms in 

consumer contracts. For instance, the 

FTC issued in 1984 a rule commonly 

known as the ‘‘Credit Practices Rule,’’ 

which prohibited certain creditor 

remedies in consumer credit contracts.3

Congress has also enacted numerous 

statutes limiting companies’ ability to 

use certain one-sided contract terms, 

such as through inclusion of anti-waiver 

provisions in several consumer financial 

laws 4 and passage of the Consumer 

Review Fairness Act of 2016, which 

prohibits companies that use form 

contracts from restricting consumers’ 

right to provide negative reviews.5 The 

CFPB has also recently issued guidance 

warning companies that they could 

violate the law by using unenforceable 

terms and conditions in their consumer 

contracts, including terms and 

conditions in violation of the Consumer 

Review Fairness Act.6

While defenders of civil liberties 

rightly focus on the risk of government 

infringement on constitutional 

freedoms, the CFPB is also concerned 

about large consumer financial 

companies’ use of contracts of adhesion 

to curtail those same rights, especially 

due process, the freedom to benefit from 

a contract, the rule of law as established 

by democratically elected officials, and 

free expression. The CFPB is also 

concerned that certain terms used in 

these contracts deny consumers the 

benefits of a free market—one that is 

‘‘fair, transparent, and competitive.’’ 7

Under the CFPA, the CFPB may issue 

rules applicable to providers of 

consumer financial products or services 

(known as ‘‘covered persons’’ under the 

statute) to identify and prevent ‘‘unfair, 


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8 12 U.S.C. 5531(b). 

9These regulations were previously codified at: 

12 CFR 227.11 through 227.16 (part of Regulation 

AA) (banks); 12 CFR 535.1 through 535.5 (savings 

associations); 12 CFR 706.1 through 706.5 (Federal 

credit unions). 

10Board of Governors of the Federal Reserve, et 

al. Interagency Guidance Regarding Unfair or 

Deceptive Credit Practices (Aug. 22, 2014), https:// 

www.federalreserve.gov/newsevents/pressreleases/ 

files/bcreg20140822a2.pdf. The guidance 

highlighted that the repeal of the banking 

regulators’ credit practices rules ‘‘should not be 

construed as a determination by the Agencies that 

the credit practices described in [the] former 

regulations are permissible’’ and that ‘‘the Agencies 

may determine that statutory violations exist even 

in the absence of a specific regulation governing the 

conduct.’’ Id. at 2. 

11Todd D. Rakoff, Contracts of Adhesion: An 

Essay in Reconstruction, 96 Harv. L. Rev. 1173, 

1176–77 (1983) (defining a contract of adhesion). 

12H.B. Sales, Standard Form Contracts, 16 Mod. 

L. Rev. 318 (1953). 

13 49 FR 7745. 

14AT&T Mobility LLC v. Concepcion, 563 U.S. 

333, 346–47 (2011). 

15 49 FR 7746. 

16Recent research suggests the problem of onesided contracts is a growing phenomenon. See e.g., 

Tim R. Samples et al., TL;DR: The Law and 

Linguistics of Social Platform Terms-of-Use, 39 

Berkeley Tech. L.J. 47, 105 (2024). 

deceptive, or abusive acts or 

practices.’’ 8 The CFPB is relying on this 

authority in this proposed rule to 

protect consumers from harms that often 

arise from contracts of adhesion used to 

constrain fundamental rights and 

freedoms. 

First, the CFPB is proposing to codify 

the Credit Practices Rule as applied to 

covered persons subject to the CFPA. As 

noted above, the FTC first issued the 

Credit Practices Rule in 1984. Although 

that rule applied only to creditors 

within the FTC’s jurisdiction, banking 

regulators subsequently issued their 

own credit practices rules applicable to 

banks, Federal credit unions, and 

savings associations.9 The rules issued 

by the banking regulators were repealed 

upon enactment of the CFPA (which 

transferred those agencies’ consumer 

financial protection authorities to the 

CFPB). However, in 2014 the Federal 

financial regulators—including the 

CFPB—issued joint interagency 

guidance clarifying that financial 

institutions could violate the law by 

including in consumer credit contracts 

any provisions prohibited by the Credit 

Practices Rule.10 Thus, in this proposed 

rule, the CFPB is codifying the Credit 

Practices Rule with regard to all covered 

persons, and the CFPB does not 

anticipate that this provision of the rule 

will have a substantial material effect on 

the market as covered persons are 

already likely to be in compliance with 

these prohibitions. 

Second, the CFPB is proposing to 

forbid covered persons from including 

in their consumer contracts any terms or 

conditions that purport to waive 

substantive legal rights and protections, 

that reserve to the covered person the 

right to unilaterally amend a material 

term of the contract, or that restrain a 

consumer’s lawful free expression. The 

CFPB has preliminarily concluded that 

use of these clauses may constitute an 

unfair or deceptive act or practice. 

The CFPB requests comment on all 

aspects of the proposal. 

II. Background for Proposed Rule 

A. Contracts of Adhesion 

In today’s consumer economy, 

contracts of adhesion are inescapable. In 

banking, retail, insurance, health care, 

travel, or virtually any other sector, they 

are ubiquitous in everyday transactions. 

A contract of adhesion is a standardform contract for a product or service 

with a fixed set of terms or conditions. 

The contract—which is often lengthy, 

complex, and full of boilerplate 

language or fine print—will have been 

drafted by the company and is 

presented to the consumer on a ‘‘take it 

or leave it’’ basis. The consumer usually 

has little ability to read the contract and 

no opportunity to negotiate its terms.11

If the consumer wants the product or 

service offered by the company, they 

must accept the contract’s terms in 

totality. The company will use the same 

standard-form contract for every 

consumer with respect to the product or 

service at issue and will typically enter 

into thousands (or even millions) of 

versions of the same contract with its 

consumers. Altogether, the elements of 

a contract of adhesion create a deep 

imbalance of power between the 

contracting parties. ‘‘[O]n the one side 

there is the ordinary individual and on 

the other a monopoly or powerful 

organi[z]ation with desirable goods or 

services to supply. The choice between 

not making a contract or making it on 

the only terms available is no choice at 

all.’’ 12

In the experience of the CFPB, 

contracts of adhesion are widely used in 

the market for consumer financial 

products and services. When consumers 

want to take out a mortgage, apply for 

a new credit card, open a checking 

account, subscribe to a digital payment 

app, or engage in any type of routine 

consumer financial transaction, they are 

almost always presented with a 

standard-form contract. The FTC noted 

four decades ago that consumer finance 

companies ‘‘[u]niversally make use of 

standardized forms in extending credit 

to consumer[s]. These forms are 

prepared for creditors or obtained by 

them, and the completed contract is 

presented to the prospective borrower 

on a ‘take it or leave it basis.’ ’’ 13 More 

recently, the U.S. Supreme Court 

observed that ‘‘the times in which 

consumer contracts were anything other 

than adhesive are long past.’’ 14

Standard-form contracts have long 

been used in the consumer marketplace, 

and standardization does not 

necessarily undermine consumer 

welfare. Standard-form contracts can 

lower transaction costs by making 

transactions more uniform, efficient, 

and expedient. Indeed, given the size 

and transaction volume of the consumer 

economy, it would be impractical for 

consumer contracts to be drafted and 

negotiated on an individual basis. ‘‘The 

costs of negotiating with each customer 

would surely outweigh the benefits that 

would result from individually tailored 

contracts.’’ 15

But many standard-form contracts are 

used in consumer transactions today to 

do more than just establish the terms for 

the basic structure of a business 

relationship. They are also used to give 

large corporations undue economic 

advantage and constrain the personal 

autonomy and freedom of individual 

consumers. Because companies (and 

their lawyers) draft standard-form 

contracts, they have broad discretion in 

what terms and conditions to include. 

Contracts of adhesion will, of course, 

contain the ‘‘deal terms’’ of the 

transaction between the consumer and 

the company, which consumers are 

typically aware of in contrast to fine 

print clauses. For example, in a 

consumer credit transaction, the 

contract would include the amount 

borrowed, the repayment amount, the 

interest rate, and the repayment 

schedule. But over time, companies 

have realized that they could also 

include other ancillary terms and 

conditions that limit consumer rights 

and protections and shield the company 

from legal liability. These types of 

clauses have little to do with 

administering the transaction between 

the company and consumer, and they 

are almost always one-sided. They 

benefit or insulate the company but 

provide little, if any, added value to the 

consumer. 

In particular, with the advent of 

online contracting, companies are more 

readily able to use standard-form 

contracts to protect their own economic 

interests.16 Today, many transactions 

occur electronically, and online 

contracting with features such as ‘‘clickthrough’’ contracts are the norm, making 


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17Mark A. Lemley, The Benefit of the Bargain, 

2023 Wis. L. Rev. 237, 256 (2023). 

18See generally FTC Staff Report, Bringing Dark 

Patterns to Light, at 7 (Sept. 1, 2022). 

19 Yannis Bakos et al., Does Anyone Read the Fine 

Print?, Testing a Law and Economics Approach to 

Standard Form Contracts, 43 U. Chicago J. of Legal 

Studies 1, 3 (2014); see also, e.g., Carl Schneider & 

Omri Ben-Shahar, The Failure of Mandated 

Disclosure, 159 U. Penn. L. Rev. 647, 671 (2011) 

(reciting research that ‘‘suggests that almost no 

consumers read [contract] boilerplate, even when it 

is fully and conspicuously disclosed’’). 

20Uri Benoliel & Shmuel Becher, The Duty to 

Read the Unreadable, 60 B.C. L. Rev. 2255, 2277– 

78 (2019); Uri Benoliel & Shmuel Becher, Messy 

Contracts, 2024 U. of Ill. L. Rev. 893, 917–18 (2024). 

21See George L. Priest, A Theory of the Consumer 

Product Warranty, 90 Yale L.J. 1297, 1304–06 

(1981). 

22See generally Marcel Kahan & Michael 

Klausner, Standardization and Innovation in 

Corporate Contracting (or ‘‘The Economics of 

Boilerplate’’), 83 Va. L. Rev. 713 (1997) (discussing 

network effects which promote use of inefficient 

boilerplate); see also Benoliel and Becher, The Duty 

to Read the Unreadable, supra note 20, at 2291–94. 

23 49 FR 7746. 

24 Id. at 7746–47. 

25 Id. at 7747. 

26 350 F.2d 445 (D.C. Cir. 1965). 

27 Id. at 449–50. 

28Restatement of the Law, Consumer Contracts, 

Introduction (Am. L. Inst. 2024). 

29 Id. 

it easy for consumers to provide their 

electronic assent to contracts of 

adhesion. The electronic medium has 

encouraged many companies to add 

even more fine-print terms into those 

contracts. ‘‘Because it is now trivial to 

attach a complex, one-sided ‘contract’ to 

virtually any consumer transaction, 

more and more companies do so.’’ 17

Electronic contracting also makes it 

more difficult for consumers to 

understand these contracts. The terms 

and conditions in electronic form 

contracts may not be visible on the page 

where the consumer is asked to indicate 

their agreement; consumers may be 

required to do additional clicking or 

downloading to view the terms and 

conditions. Some terms or conditions 

may be de-emphasized. In some cases, 

companies may also engage in risky 

digital design practices—termed ‘‘dark 

patterns’’—that obscure certain terms 

and conditions in adhesion contracts or 

the adhesion contract itself.18

Given the complexity of fine print 

terms in contracts of adhesion, it should 

come as no surprise that consumers do 

not really provide meaningful assent to 

these terms. As many academic studies 

have shown, the vast majority of 

consumers pay little or no attention to 

such terms when reviewing or signing a 

standard-form contract. In one 

prominent study, the authors examined 

the extent to which potential buyers of 

software read End User License 

Agreements (EULAs), which are 

contracts that govern the use of software 

products. The study tracked nearly 

50,000 consumers across 90 software 

companies, and found that 0.2 percent 

of consumers access the EULA for at 

least one second.19 Two recent studies 

found that online contracts are often 

unreadable according to scientific 

readability standards and lack basic 

organizational features like a table of 

contents or useful headings to help 

consumers locate important information 

in the contract.20 To the extent 

consumers read a standard-form 

contract at all, they are likely to focus 

on salient terms such as price.21

Nor is it feasible for consumers to 

comparison-shop for fine print terms. 

As an initial matter, many providers in 

a market may use similar terms, making 

comparison-shopping a futile exercise.22

‘‘If 80 percent of creditors include a 

certain clause in their contracts, for 

example, even the consumer who 

examines contracts from three different 

sellers has a less than even chance of 

finding a contract without the 

clause.’’ 23 And even if consumers were 

to try to compare such terms, they 

would often find it difficult to do so 

because companies draft them using 

complex language and terminology.24

Moreover, many fine-print terms relate 

to consequences that would occur only 

if the consumer breaches the contract or 

a problem with the transaction 

otherwise surfaces. Consumers can find 

it difficult to predict or envision such 

scenarios ex ante, meaning that fineprint terms may not resonate with 

consumers when they initially enter 

into an agreement with a provider.25

For decades, courts, regulators, and 

scholars have warned about the risks 

and dangers associated with contracts of 

adhesion. Perhaps the most famous such 

pronouncement is the D.C. Circuit’s 

decision in Williams v. Walker-Thomas 

Furniture Co.26 In that case, the 

consumers had purchased items from a 

furniture store on a lease-to-own basis, 

and the agreement—which was a 

standard-form contract—provided that 

title to the items would remain with the 

store until monthly payments equaled 

the stated value of the items. When the 

consumers did not make all the 

payments, the store sued them to take 

repossession of the property. The 

consumers claimed the contract was 

unenforceable because it was 

unconscionable. Reversing the lower 

court, the D.C. Circuit explained that 

contracts of adhesion can be invalidated 

on grounds of unconscionability when 

they are ‘‘unfair’’: 

Unconscionability has generally been 

recognized to include an absence of 

meaningful choice on the part of one of the 

parties together with contract terms which 

are unreasonably favorable to the other party 

. . . . In many cases the meaningfulness of 

the choice is negated by a gross inequality of 

bargaining power. The manner in which the 

contract was entered is also relevant to this 

consideration. Did each party to the contract, 

considering his obvious education or lack of 

it, have a reasonable opportunity to 

understand the terms of the contract, or were 

the important terms hidden in a maze of fine 

print and minimized by deceptive sales 

practices? Ordinarily, one who signs an 

agreement without full knowledge of its 

terms might be held to assume the risk that 

he has entered a one-sided bargain. But when 

a party of little bargaining power, and hence 

little real choice, signs a commercially 

unreasonable contract with little or no 

knowledge of its terms, it is hardly likely that 

his consent, or even an objective 

manifestation of his consent, was ever given 

to all the terms. In such a case the usual rule 

that the terms of the agreement are not to be 

questioned should be abandoned and the 

court should consider whether the terms of 

the contract are so unfair that enforcement 

should be withheld.27

Unfair boilerplate terms in contracts 

of adhesion were also the basis for the 

FTC’s Credit Practices Rule. As 

discussed in additional detail below in 

section IV, the Credit Practices Rule 

prohibited lenders from using certain 

remedial provisions in consumer credit 

contracts, including confessions of 

judgment, waivers of exemption, wage 

assignments, and security interests in 

household goods. Based on an extensive 

evidentiary record, the FTC concluded 

that these clauses were unlawful 

because lenders’ uses of such clauses 

were unfair acts or practices. 

This view is also encapsulated in the 

recently adopted Restatement of 

Consumer Contracts, which warns that 

‘‘consumer contracts present a 

fundamental challenge to the law of 

contracts, arising from the asymmetry in 

information, sophistication, and stakes 

between the parties to these contracts— 

the business and the consumers.’’ 28 On 

one side of the transaction ‘‘stands a 

well-informed and counseled business 

party, entering numerous identical 

transactions, with the tools and 

sophistication to understand and draft 

detailed legal terms and design practices 

that serve its commercial goals,’’ while 

on the other ‘‘stand consumers who are 

informed only about some core aspects 

of the transaction, but rarely about the 

list of standard terms.’’ 29 The 

Restatement thus notes that ‘‘[b]ecause 

consumers rarely read or review the 

non-core standard contract terms, . . . 

the doctrine of unconscionability is a 

primary tool against the inclusion of 


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30 Id. section 6 cmt.1. 

31 12 U.S.C. 5531(b). 

32State attorneys general and regulators usually 

have authority to enforce the prohibition against 

unfair, deceptive, or abusive acts or practices in the 

CFPA. 12 U.S.C. 5552(a). However, State officials 

may not bring a civil action against a national bank 

or Federal savings association for violations of the 

CFPA, unless it is under a regulation prescribed by 

the CFPB. 12 U.S.C. 5552(a)(2)(A) and (B). Thus, 

while many of the practices in this rulemaking are 

already enforceable by the CFPB against national 

banks and other covered persons, State officials 

cannot bring an action under the CFPA to prevent 

these practices if used by national banks until the 

CFPB codifies the prohibitions by rule. 

33 12 U.S.C. 5565(c) (creating penalty authority of 

up to $5,000 per violation per day, $25,000 per 

violation per day if the violations are ‘‘recklessly’’ 

committed, and $1,000,000 per violation per day if 

the violations are ‘‘knowingly’’ committed). 

34 12 U.S.C. 5481(6). 

35See 12 U.S.C. 5481(15). 

36 5 U.S.C. 601(3). 

intolerable terms in a consumer 

contract.’’ 30

B. The Proposed Rule 

There are many types of fine print 

terms and conditions in contracts of 

adhesion. The CFPB’s proposal does not 

seek to prescribe all of these terms. 

Rather, the CFPB is proposing to recodify the Credit Practices Rule under 

Regulation AA to reinforce the 

prohibition of certain contract clauses 

that, for example, impede on 

consumers’ right to due process, and is 

adding to Regulation AA additional 

prohibited clauses that implicate other 

fundamental or constitutional rights. 

This includes: 

• Clauses that waive provisions of 

law designed by democratically elected 

officials to benefit or protect consumers. 

• Clauses that reserve a company’s 

discretion to amend a material term of 

the contract unilaterally. 

• Clauses that restrain a consumer’s 

free expression by, for example, limiting 

a consumer’s right to provide a negative 

review or even engage in certain 

disfavored political speech. 

While companies may view these 

clauses as a way to save money or limit 

liability, for consumers these clauses 

have significant impacts—they 

implicate fundamental principles of 

personal freedom and democratic 

governance. For example, clauses 

limiting free expression restrict citizens’ 

ability to exercise free speech that 

government agencies could not prohibit 

under the First Amendment. Clauses 

that permit lenders to take citizens’ 

unsecured property without any due 

process or just compensation amounts 

to a private taking—were the company 

a Federal government actor, it would 

potentially violate the Due Process and 

Takings Clauses of the Fifth 

Amendment. Citizens’ freedom to 

benefit from a contract is undermined 

when a counterparty can unilaterally 

change the core terms of a contract at 

any time without notice and consent. 

And the rule of law, as established by 

democratically elected State and Federal 

legislatures, is undermined if large 

companies can nullify those laws in 

consumer contracts. 

The CFPB has authority to issue rules 

to prevent unfair or deceptive acts or 

practices by providers of consumer 

financial products or services (known as 

‘‘covered persons’’).31 Under that 

authority, the CFPB proposes to prohibit 

covered persons from including, using, 

enforcing, or otherwise relying on these 

types of clauses in a contract for a 

consumer financial product or service. 

Lastly, one of the reasons for 

proposing this rule is to grant State law 

enforcement new authority to enforce 

the existing Credit Practices Rule and 

the additional prohibitions against 

national banks.32 State attorneys general 

cannot yet use the CFPA’s substantial 

remedies, including Civil Money 

Penalties,33 to stop some of the largest 

banks in the country (which are national 

banks) from, for example, using 

confessions of judgment or debanking a 

consumer for inappropriate reasons. 

This rule, if finalized, would grant State 

attorneys general that authority 

pursuant to section 1042(a) of the CFPA. 

III. Consultation With Other Agencies 

In developing this proposed rule, the 

CFPB has consulted with the Federal 

Trade Commission (FTC), as well as 

with the Board of Governors of the 

Federal Reserve System (Board), the 

Federal Deposit Insurance Corporation 

(FDIC), the National Credit Union 

Administration (NCUA), and the Office 

of the Comptroller of the Currency 

(OCC) on, among other things, 

consistency with any prudential, 

market, or systemic objectives 

administered by such agencies. 

IV. Scope of Proposed Rule 

The proposed rule would generally 

apply to ‘‘covered persons’’ under the 

CFPA (subject to certain exceptions 

discussed below). A covered person is 

‘‘(A) any person that engages in offering 

or providing a consumer financial 

product or service; and (B) any affiliate 

of a person described in subparagraph 

(A) if such affiliate acts as a service 

provider to such person.’’ 34 The CFPA 

covers a broad array of financial 

products or services offered or provided 

to consumers, including (but not limited 

to) credit, real or personal property 

leases, real estate settlement services, 

deposits, payment processing, and 

credit reporting.35 Subject to certain 

exceptions discussed below, any person 

offering or providing such a consumer 

financial product or service—or an 

affiliate of such a person acting as a 

service provider to the person—would 

thus be covered by the proposed rule. 

Such a person would be subject to the 

prohibition on certain credit practices 

discussed in section V and the 

prohibition on certain other terms and 

conditions in contracts for consumer 

financial services discussed in section 

VI. Notably, the practices re-codified 

from the existing Credit Practices Rule 

in subpart B only apply with regard to 

credit transactions, while the additional 

terms in subpart C apply to all 

consumer financial products or services 

including deposit accounts, payments, 

and other services. 

Section 1027.102 of the proposed rule 

would exempt two categories of covered 

persons from the rule: 

First, under § 1027.102(a) the rule 

would not apply to ‘‘any person to the 

extent that it is providing a product or 

service in circumstances excluded from 

the CFPB’s rulemaking authority 

pursuant to 12 U.S.C. 5517 or 5519.’’ 

Under those sections, the CFPB may not 

exercise its CFPA rulemaking authority 

over certain persons or activities (which 

includes rules issued under 12 U.S.C. 

5531). The CFPB preliminary concludes 

that this approach is appropriate 

because the CFPB lacks authority to 

apply this rulemaking to such persons 

or activities. However, this applies only 

‘‘to the extent’’ that a person is beyond 

the CFPB’s rulemaking authority. For 

example, if a covered person offers a 

consumer financial product or service 

that is excluded from the CFPB’s 

rulemaking authority under 12 U.S.C. 

5517 and another consumer financial 

product or service that is not excluded, 

the proposed rule would apply to the 

covered person’s offering or provision of 

the latter product or service (even 

though it would not apply to the 

former). 

Second, under § 1027.102(b), subpart 

C of the rulemaking (i.e., the 

prohibitions on clauses related to 

waivers of law, unilateral amendments, 

and free expression) would not apply to 

a ‘‘small business,’’ ‘‘small 

organization,’’ or ‘‘small governmental 

jurisdiction’’ as those terms are defined 

in 5 U.S.C. 601. A ‘‘small business’’ has 

‘‘the same meaning as the term ‘small 

business concern’ under section 3 of the 

Small Business Act.’’ 36 A ‘‘small 

business concern’’ is ‘‘one which is 

independently owned and operated and 


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37 15 U.S.C. 632(a). 

38 5 U.S.C. 601(4). 

39 Id. sec. 601(5). 

40See e.g., Samples et. al., TL;DR: The Law and 

Linguistics of Social Platform Terms-of-Use, supra 

note 16, at 105; Andrea J. Boyack, Abuse of 

Contract: Boilerplate Erasure of Consumer 

Counterparty Rights at 51, https://papers.ssrn.com/ 

sol3/papers.cfm?abstract_id=4756735 (Mar. 12, 

2024) (forthcoming in the. Iowa L. Rev.). 

41 49 FR 7740. 

42See 50 FR 16695 (Apr. 29, 1985) (Federal 

Reserve Board); 50 FR 19325 (May 8, 1985) 

(FHLBB); 52 FR 35060 (Sept. 17, 1987) (NCUA). 

43 Interagency Guidance Regarding Unfair or 

Deceptive Credit Practices, supra note 10. 

44 49 FR 7741. 

45 Id. at 7745. 46 15 U.S.C. 45(a)(2). 47See formerly 15 U.S.C. 57a(f)(1). 48See 50 FR 16696 (Apr. 29, 1985) (Federal 

Reserve Board); 50 FR 19325 (May 8, 1985) 

(FHLBB); 52 FR 35060 (Sept. 17, 1987) (NCUA). 49 12 U.S.C. 5581. 

which is not dominant in its field of 

operation,’’ 37 or which (along with its 

affiliates) is at or below the Small 

Business Administration (SBA) standard 

listed in 13 CFR part 121 for its primary 

industry as described in 13 CFR 

121.107. A ‘‘small organization’’ is ‘‘any 

not-for-profit enterprise which is 

independently owned and operated and 

is not dominant in its field.’’ 38 A ‘‘small 

governmental jurisdiction’’ means 

‘‘governments of cities, counties, towns, 

townships, villages, school districts, or 

special districts, with a population of 

less than fifty thousand.’’ 39

The CFPB preliminary concludes that 

applying subpart C of the proposed rule 

to large entities would be appropriate 

because they are capable of imposing 

their terms on consumers and have 

more resources to enforce them. Studies 

have shown that large companies 

routinely use such terms,40 often 

applying to thousands or millions of 

consumers. Furthermore, the threat of 

the use of private contracting to oppress 

by constraining fundamental freedoms 

is greater when a consumer is dealing 

with a company with more market 

power and more resources. Large 

companies are more likely than small 

companies to have superior bargaining 

power over consumers, giving them 

more opportunity to impose one-sided 

terms in contracts of adhesion. The 

CFPB intends to monitor the market and 

determine whether an expansion of 

coverage to smaller entities may be 

necessary and appropriate at a later 

time. 

The CFPB also considered—but is not 

proposing—an exception for State or 

Federal entities. The CFPB is unaware 

of any government entities that provide 

consumer financial products or services 

with contracts that include the terms at 

issue in this proposal. That is likely the 

case because doing so could violate 

various constitutional constraints on 

government actors, including the First 

Amendment right to free speech, the 

right to Due Process, the Takings Clause, 

and the substantive rights being waived 

in legal waivers. 

The CFPB generally seeks comment 

on the coverage of the proposed rule, 

including whether the scope should be 

narrowed or expanded and whether 

additional exclusions would be 

appropriate. 

V. Prohibited Credit Practices 

Overview 

Subpart B of the proposed rule would 

codify for covered persons the already 

existing FTC Credit Practices Rule, 

which renders unlawful certain 

remedial provisions in consumer credit 

contracts. 

The FTC first issued the Credit 

Practices Rule in 1984 pursuant to its 

authority to prohibit unfair or deceptive 

acts or practices.41 The banking 

regulators subsequently issued their 

own companion credit practices rules 

applicable to banks, Federal credit 

unions, and savings associations.42 The 

CFPA repealed the rulemaking authority 

of the banking regulators under the FTC 

Act, and the regulators consequently 

repealed their rules. However, the 

banking regulators and the CFPB issued 

a joint interagency guidance in 2014 

clarifying their understanding that those 

credit practices may continue to violate 

the prohibition against unfair or 

deceptive practices in section 5 of the 

FTC Act and sections 1031 and 1036 of 

the CFPA.43

The CFPB now proposes to re-codify 

the Credit Practices Rule for all covered 

persons, including those currently 

subject to the FTC’s Credit Practices 

Rule and other entities formerly subject 

to the companion rules issued by the 

banking regulators. This proposal is not 

expected to change existing business 

conduct in light of the existing FTC rule 

and the fact that financial institutions 

generally continue to treat these 

contract terms as unlawful. 

Discussion 

The FTC’s Credit Practices Rule was 

based on an extensive evidentiary 

record. Over a two-year period, the FTC 

took testimony from more than 300 

witnesses and subpoenaed the credit 

files of 12 large finance companies.44

The FTC explained that ‘‘consumers’ 

ability to avoid certain remedies 

depends on their ability to shop and 

compare the language of different credit 

contracts.’’ However, the FTC also 

found that—given the prevalence of 

standard-form contracts in the consumer 

credit industry—‘‘although consumers 

may be able to bargain over terms such 

as the price of credit and the number or 

size of payments, there is no bargaining 

over the boilerplate contract terms that 

define creditor remedies.’’ 45 The FTC 

concluded that these remedies and 

practices were unfair because they 

caused substantial injuries to consumers 

that were not reasonably avoidable, and 

offered no countervailing benefits to 

consumers or competition. 

Specifically (and as discussed in more 

detail below), the FTC’s Credit Practices 

Rule prohibits lenders from using any of 

the following provisions: a confession of 

judgment, a waiver of exemption, an 

assignment of wages, or a security 

interest in household goods. The rule 

also prohibits lenders from 

misrepresenting the nature or extent of 

cosigner liability to any person or 

obligating a cosigner unless the cosigner 

is informed prior to becoming obligated 

of the nature of the cosigner’s liability. 

Finally, the rule prohibits lenders from 

levying or collecting any delinquency 

charge on a payment, when the only 

delinquency is attributable to late fees 

or delinquency charges assessed on 

earlier installments, and the payment is 

otherwise a full payment for the 

applicable period and is paid on its due 

date or within an applicable grace 

period. 

The Credit Practices Rule does not 

apply to banks, savings associations, or 

Federal credit unions.46 However, the 

FTC Act (at the time) also required the 

Federal Reserve Board, the National 

Credit Union Administration, and the 

Federal Home Loan Bank Board 

(FHLBB) (later superseded by the Office 

of Thrift Supervision (OTS)) to issue, 

within 60 days after the FTC issued a 

rule under its authority to prohibit 

unfair or deceptive acts or practices, 

‘‘substantially similar regulations 

prohibiting acts or practices of banks or 

savings and loan institutions . . . or 

Federal credit unions . . ., which are 

substantially similar to those prohibited 

by rules of the [FTC].’’ 47 The Board, 

NCUA, and FHLBB adopted such 

regulations in 1985,48 and those rules 

were codified at 12 CFR parts 227, 706, 

and 535. In issuing those rules, the 

agencies did not make new findings, 

evidence, or conclusions. They relied on 

the extensive findings by the FTC. 

In 2010, the CFPA transferred Federal 

consumer protection functions from the 

Board, OTS, NCUA, and other Federal 

agencies to the CFPB.49 The CFPA also 

repealed the requirement in the FTC Act 


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50See 81 FR 8133 (Feb. 18, 2016) (Board’s repeal 

of Reg AA); 79 FR 59627 (Oct. 3, 2014) (NCUA’s 

repeal of credit practices rule). Under the DoddFrank Act, the rulemaking authority of the OTS 

relating to all Federal savings associations was 

transferred to the OCC on July 21, 2011. The OCC 

did not have authority at any time to promulgate 

regulations under section 5 of the FTC Act, either 

before or after enactment of the Dodd-Frank Act. 

For that reason, the OCC omitted the OTS version 

of the credit practices rule when it republished the 

regulations applicable to Federal savings 

associations. 76 FR 48950. (Aug. 9, 2011). Thus, the 

OTS’s credit practices rule was effectively repealed 

as of July 21, 2011. 

51 Interagency Guidance Regarding Unfair or 

Deceptive Credit Practices, supra note 10. 

52 12 U.S.C. 5511(b)(4). 

53Section 1027.201 of the proposed rule includes 

certain definitions applicable to subpart B, 

including cosigner, earnings, household goods, and 

obligation. Additionally, under proposed 

§ 1027.205, ‘‘[a]n appropriate State agency may 

apply to the CFPB for a determination that (i) There 

is a State requirement or prohibition in effect that 

applies to any transaction to which a provision of 

this subpart applies; and (ii) The State requirement 

or prohibition affords a level of protection to 

consumers that is substantially equivalent to, or 

greater than, the protection afforded by this 

subpart.’’ If the CFPB ‘‘makes such a determination, 

the provision of this subpart will not be in effect 

in that State to the extent specified by the CFPB in 

its determination, for as long as the State 

administers and enforces the State requirement or 

prohibition effectively.’’ A State agency may apply 

for an exemption under the same procedures as 

those set forth in appendix B to Regulation Z (12 

CFR part 1026). 

54 49 FR 7748–49. 

55 Id. at 7768–7769. 

56Proposed § 1027.201(b) would define 

‘‘earnings’’ as ‘‘compensation paid or payable to an 

individual or for the individual’s account for 

personal services rendered or to be rendered by the 

individual, whether denominated as wages, salary, 

commission, bonus, or otherwise, including 

periodic payments pursuant to a pension, 

retirement, or disability program.’’ 

for those agencies to issue companion 

rules applicable to banks, Federal credit 

unions, and thrifts. Those agencies duly 

repealed their versions of the Credit 

Practices Rule.50

However, the Federal financial 

regulators—including the CFPB—also 

issued a joint interagency guidance in 

2014 clarifying that the repeal of the 

credit practices rule for banking 

institutions did not condone those 

credit practices, and that the agencies 

would remain vigilant about policing 

banks for use of the credit practices 

under their general authority to prohibit 

unfair or deceptive acts or practices: 

The Agencies are issuing this statement to 

clarify that the repeal of credit practices rules 

applicable to banks, savings associations, and 

Federal credit unions should not be 

construed as a determination by the Agencies 

that the credit practices described in these 

former regulations are permissible. The 

regulations were issued on the basis of 

extensive findings that identified the unfair 

or deceptive practices prohibited in the rules. 

The Agencies believe that, depending on the 

facts and circumstances, if banks, savings 

associations, and Federal credit unions 

engage in the unfair or deceptive practices 

described in these former credit practices 

rules, such conduct may violate the 

prohibition against unfair or deceptive 

practices in Section 5 of the FTC Act and 

Sections 1031 and 1036 of the Dodd-Frank 

Act. The Agencies may determine that 

statutory violations exist even in the absence 

of a specific regulation governing the 

conduct.51

The CFPB has preliminarily 

concluded that it would be appropriate 

to codify the Credit Practices Rule with 

respect to covered persons within its 

jurisdiction. Many nonbank covered 

persons are already subject to the FTC’s 

Credit Practices Rule, and the CFPB has 

authority to enforce the Credit Practices 

Rule against them. Although banks, 

Federal credit unions, and savings 

associations within the CFPB’s 

jurisdiction are technically not subject 

to the Credit Practices Rule, they have 

been on notice under the 2014 

interagency guidance that they could 

violate the CFPA’s prohibition on unfair 

or deceptive practices if they engaged in 

the practices prohibited by the Credit 

Practices Rule, and any private or public 

enforcer enforcing a State or Federal law 

that parallels the FTC Act may have a 

cause of action under the same logic as 

the Credit Practices Rule. Thus, in order 

to avoid any confusion or uncertainty 

about whether covered persons within 

the CFPB’s jurisdiction may use these 

credit practices, this proposed rule 

would clarify that these credit practices 

are unlawful for all covered persons. 

The CFPB notes that codifying the 

Credit Practices Rules for all covered 

persons would be consistent with one of 

the CFPB’s primary objectives under the 

CFPA—to ensure that ‘‘Federal 

consumer financial law is enforced 

consistently, without regard to the 

status of a person as a depository 

institution, in order to promote fair 

competition.’’ 52 Presently, nonbank 

entities remain subject to the Credit 

Practices Rule while banks, Federal 

credit unions, and savings associations 

are technically not (although they are of 

course subject to the 2014 interagency 

statement). The CFPB preliminarily 

concludes that any differential 

treatment for banks and nonbanks 

regarding the practices covered by the 

rule would serve no regulatory objective 

and provide no added benefit for 

consumers. Since engaging in these 

practices may nonetheless violate 

Federal law (and harm consumers) 

regardless of the type of entity, and the 

banking regulators have made entities 

under their supervision aware of that 

possibility for more than a decade, the 

CFPB does not expect that codification 

of the proposed rule will place 

significant additional burdens on 

entities based on their type of business. 

Moreover, the CFPB anticipates that the 

proposal will clarify regulatory 

requirements for all market participants 

and ensure that compliance burdens do 

not vary arbitrarily, which will promote 

fair competition. 

Description of Prohibited Credit 

Practices 

The credit practices that would be 

prohibited under this proposed rule are 

the same as those described in the FTC’s 

Credit Practices Rule.53

Confessions of judgment. Proposed 

§ 1027.202(a) would prohibit a 

‘‘cognovit or confession of judgment (for 

purposes other than executory process 

in the State of Louisiana), warrant of 

attorney, or other waiver of the right of 

notice and the opportunity to be heard 

in the event of suit or process thereon.’’ 

The cognovit is a legal device whereby 

the consumer, as part of the credit 

contract, consents in advance to the 

creditor obtaining a judgment without 

prior notice or hearing. The consumer 

either confesses judgment in advance of 

default or authorizes the creditor or an 

attorney designated by the creditor to 

appear and confess judgment against the 

consumer.54

Waivers of exemption. Proposed 

§ 1027.202(b) would prohibit an 

‘‘executory waiver or a limitation of 

exemption from attachment, execution, 

or other process on real or personal 

property held, owned by, or due to the 

consumer, unless the waiver applies 

solely to property subject to a security 

interest executed in connection with the 

obligation.’’ Many State laws provide 

exemptions for certain property of a 

debtor from being seized or sold to 

satisfy the debt. A waiver of exemption 

in a credit contract requires a consumer 

to forfeit or limit such an exemption and 

allows such property to be seized and 

sold to satisfy the debt.55

Wage assignments. Proposed 

§ 1027.202(c) would prohibit an 

‘‘assignment of wages or other earnings 

unless: (1) The assignment by its terms 

is revocable at the will of the debtor; (2) 

The assignment is a payroll deduction 

plan or preauthorized payment plan, 

commencing at the time of the 

transaction, in which the consumer 

authorizes a series of wage deductions 

as a method of making each payment; or 

(3) The assignment applies only to 

wages or other earnings already earned 

at the time of the assignment.’’ 56 A 

wage assignment is a contractual 

transfer by a debtor to a creditor of the 


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57 Id. at 7755. 

58The term would not include: (1) Works of art; 

(2) Electronic entertainment equipment (except one 

television and one radio); (3) Items acquired as 

antiques; that is, items over one hundred years of 

age, including such items that have been repaired 

or renovated without changing their original form 

or character; and (4) Jewelry (other than wedding 

rings). 

59 49 FR at 7773. The proposed rule (section 

1027.201(a)) would define a ‘‘cosigner’’ as ‘‘a 

natural person who renders themself liable for the 

obligation of another person without 

compensation,’’ including ‘‘any person whose 

signature is requested as a condition to granting 

credit to another person, or as a condition for 

forbearance on collection of another person’s 

obligation that is in default.’’ But the term ‘‘shall 

not include a spouse whose signature is required on 

a credit obligation to perfect a security interest 

pursuant to State law.’’ Furthermore, ‘‘[a] person 

who does not receive goods, services, or money in 

return for a credit obligation does not receive 

compensation within the meaning of this 

definition.’’ The rulemaking would also state that 

a person is a cosigner ‘‘whether or not they are 

designated as such on a credit obligation.’’ 

60Under proposed § 1027.203(c), a covered 

person that provides the disclosure required by 

proposed § 1027.203(b) ‘‘may not be held in 

violation of paragraph (a) of this section.’’ 

61For purposes of this section, proposed 

§ 1027.204(b) states that ‘‘collecting a debt means 

any activity, other than the use of judicial process, 

that is intended to bring about or does bring about 

repayment of all or part of money due (or alleged 

to be due) from a consumer.’’ 

62 49 FR 7771. 

63 12 U.S.C. 5531(b). 

64 Id. 

65 49 FR 7743. 

66 Id. at 7753–54. 

67 Id. at 7743–44, see also id. at 7769–70. 

right to receive wages directly from the 

debtor’s employer. To activate the 

assignment, the creditor simply submits 

it to the debtor’s employer, who then 

pays all or a percentage of the debtor’s 

wages to the creditor. The debtor 

releases the employer from any liability 

arising out of the employer’s 

compliance with the wage assignment, 

and may waive any requirement that the 

creditor first establish or allege a 

default.57

Security interests in household goods. 

Proposed § 1027.202(d) would prohibit 

a ‘‘nonpossessory security interest in 

household goods other than a purchase 

money security interest.’’ A security 

interest in household goods grants a 

creditor the right to seize personal items 

from a consumer. The rule (proposed 

§ 1027.201(c)) would define ‘‘household 

goods’’ as ‘‘clothing, furniture, 

appliances, one television and one 

radio, linens, china, crockery, 

kitchenware, and personal effects 

(including wedding rings) of a consumer 

and a consumer’s dependents.’’ 58

Cosigners. Consumers who do not 

meet a creditor’s standards for 

creditworthiness may be required to 

obtain one or more ‘‘cosigners’’ who 

agree to be liable for the debt. A 

cosigner is required to pay if the debtor 

defaults, but the cosigner receives no 

monetary consideration for undertaking 

the obligation.59 Proposed § 1027.203(a) 

would make it unlawful for a covered 

person ‘‘directly or indirectly, to 

misrepresent the nature or extent of 

cosigner liability to any person,’’ or 

‘‘directly or indirectly, to obligate a 

cosigner unless the cosigner is informed 

prior to becoming obligated, which in 

the case of open end credit shall mean 

prior to the time that the agreement 

creating the cosigner’s liability for 

future charges is executed, of the nature 

of the cosigner’s liability.’’ Proposed 

§ 1027.203(b) would further require a 

covered person to provide a cosigner 

with a disclosure, consisting of a 

separate document that shall contain the 

following statement and no other prior 

to the cosigner being obligated (which 

in the case of open end credit shall 

mean prior to the time that the 

agreement creating the cosigner’s 

liability for future charges is 

executed):60

NOTICE TO COSIGNER 

You are being asked to guarantee this debt. 

Think carefully before you do. If the 

borrower doesn’t pay the debt, you will have 

to. Be sure you can afford to pay if you have 

to, and that you want to accept this 

responsibility. 

You may have to pay up to the full amount 

of the debt if the borrower does not pay. You 

may also have to pay late fees or collection 

costs, which increase this amount. 

The creditor can collect this debt from you 

without first trying to collect from the 

borrower. The creditor can use the same 

collection methods against you that can be 

used against the borrower, such as suing you, 

garnishing your wages, etc. If this debt is ever 

in default, that fact may become a part of 

your credit record. 

This notice is not the contract that makes 

you liable for the debt. 

Pyramiding late charges. Proposed 

§ 1027.204(a) would make it unlawful, 

‘‘[i]n connection with collecting a debt 

arising out of an extension of credit to 

a consumer,’’ for a covered person 

‘‘directly or indirectly, to levy or collect 

any delinquency charge on a payment, 

which payment is otherwise a full 

payment for the applicable period and 

is paid on its due date or within an 

applicable grace period, when the only 

delinquency is attributable to late fees 

or delinquency charges assessed on 

earlier installments.’’ 61 This practice is 

called ‘‘pyramiding’’ late charges and 

occurs when a creditor assesses 

multiple delinquency charges due to a 

single late payment because any 

subsequent payments are first applied to 

the outstanding late charge and only 

then to interest and principal. ‘‘In 

‘pyramiding’ the accounting method 

works in this fashion: If a consumer’s 

payment is due on the first day of 

January, for example, and the payment 

is not made until the 20th day of that 

month, the creditor assesses a late 

charge, for example, $5. The February 

payment and all subsequent payments 

are made on time. However, by 

allocating $5 of the February payment to 

the January late charge and only the 

remainder to the February payment, the 

creditor causes the February payment to 

be $5 ‘short’, hence delinquent. Timely 

payments in succeeding months are 

given the same treatment, so that there 

is a delinquency or late charge for each 

month.’’ 62

D. Legal Authority 

Section 1031(b) of the CFPA provides 

the CFPB with authority to prescribe 

rules to identify and prevent unfair, 

deceptive, or abusive acts or practices 

(UDAAPs). Specifically, section 1031(b) 

authorizes the CFPB to prescribe rules 

‘‘applicable to a covered person or 

service provider identifying as unlawful 

unfair, deceptive, or abusive acts or 

practices in connection with any 

transaction with a consumer for a 

consumer financial product or service, 

or the offering of a consumer financial 

product or service.’’ 63 Section 1031(b) 

of the Act further provides that ‘‘[r]ules 

under this section may include 

requirements for the purpose of 

preventing such acts or practices.’’ 64

The CFPB may declare an act or practice 

to be unfair if it ‘‘causes or is likely to 

cause substantial injury to consumers 

which is not reasonably avoidable by 

consumers; and such substantial injury 

is not outweighed by countervailing 

benefits to consumers or to 

competition.’’ The CFPB preliminary 

concludes that the credit practices it 

proposes to prohibit are unfair for the 

same reasons as the FTC in the Credit 

Practices Rule. 

First, the FTC found ‘‘substantial 

consumer economic or monetary 

injuries from the use of these creditor 

remedies’’ 65: 

• Confessions of judgment deprive 

consumers of a notice of suit or hearing 

and opportunity to present claims and 

defenses. And once obtained, the 

confessed judgment can be turned into 

a lien on the consumer’s property.66

• A waiver of exemption clause or a 

security interest in household goods can 

lead to the consumer losing the basic 

necessities of life and requiring the 

consumer to replace these items or face 

destitution.67

• Wage assignment can occur without 

the due process safeguards of a hearing 


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68 Id. at 7757–59. 

69 Id. at 7762–7765. 

70 Id. at 7772. 

71 Id. at 7774. The FTC also noted that where a 

creditor affirmatively misrepresents a cosigner’s 

obligations—for example, by telling the cosigner 

that they are merely a reference for the primary 

debtor—such a statement would be a deceptive act 

or practice because it would be misleading and 

material to a reasonable consumer. Id. at 7776. The 

FTC also has taken action against a for-profit 

medical school for failing to provide the cosigner 

notice as required by the Credit Practices Rule. See 

FTC v. Human Res. Dev. Servs. Inc. dba Saint James 

School of Medicine (St. James Medical School), No. 

22–cv–1919 (N.D. Ill. filed Apr. 14, 2022), https:// 

www.ftc.gov/legal-library/browse/casesproceedings/2123034-human-resourcedevelopment-services-inc-dba-saint-james-schoolmedicine-ftc-v. Instead, defendants included a 

notice that failed to include the specific language 

required by the Credit Practices Rule and that 

appeared in the middle of the contract. See id. 

72 49 FR 7744. 

73 Id. 

74 Id. 

75 Id. 

76 Id. 

77 Id. 

78 Id. 

79Am. Fin. Servs. Ass’n v. FTC., 767 F.2d 957, 

963 (D.C. Cir. 1985). 

80CFPB, Supervisory Highlights: Special Edition 

Auto Finance, Fall Issue 35, 7–8 (Oct. 2024) https:// 

files.consumerfinance.gov/f/documents/cfpb_

supervisory-highlights-special-ed-auto-finance_

2024-10.pdf. 

81Under proposed § 1027.301(b), a covered 

person would not be permitted to ‘‘use, enforce, or 

otherwise rely on’’ these terms or conditions ‘‘in an 

agreement between a consumer and any person for 

a consumer financial product or service.’’ This 

provision would ensure, for example, that a covered 

person could not rely on a prohibited term or 

condition in an agreement they purchased from 

another person. 

and an opportunity to present defenses 

and counterclaims. This can lead to job 

loss or severely reduced income, either 

one of which could prevent the 

consumer from providing for his or her 

family or cause default on other 

obligations.68

• When a creditor seizes household 

goods pursuant to a non-purchase 

money security interest in such goods, 

debtors lose property which is of great 

value to them and little value to the 

creditor. A non-purchase money 

security interest in household goods 

also enables a creditor to threaten the 

loss of all personal property located in 

the home, which may lead a debtor to 

make repayment arrangements that they 

would not willingly take but for the 

security interest.69

• Pyramiding of late charges results 

in the consumer being unknowingly 

assessed multiple late charges for a 

single late payment, even though 

subsequent payments are timely 

made.70

• When creditors fail to inform 

potential cosigners of their obligations 

and liability, the cosigners may 

unexpectedly be subject to collection 

tactics when the principal debtor 

defaults (including the remedies 

described above). The sudden liability 

that can result from cosigner status can 

cause over-extension when a consumer 

is confronted with a debt, the timing of 

which cannot be controlled by the 

cosigner because it is due to 

nonpayment by the principal debtor. 

Because of the range of potential 

liabilities, many consumers might not 

have become cosigners had they known 

the likely costs of doing so. Cosigners 

thus undertake obligations which they 

might not have undertaken had they 

understood them and suffer economic 

and other hardship as a result when 

called upon to repay.71

Second, the FTC concluded that these 

injuries were not reasonably avoidable, 

principally because these credit 

practices were typically incorporated 

into standard form contracts ‘‘over most 

of which there is no bargaining.’’ 72 The 

FTC noted that consumers have 

‘‘limited incentives to search out better 

remedial provisions in credit 

contracts.’’ 73 For one thing, the 

‘‘substantive similarities of contracts 

from different creditors mean that 

search is less likely to reveal a different 

alternative.’’ 74 The FTC also noted that 

because these credit remedies are 

relevant only once a consumer defaults, 

and default is relatively infrequent, 

‘‘consumers reasonably concentrate 

their search on such factors as interest 

rates and payment terms.’’ 75 The FTC 

also explained that comparisonshopping for credit contracts is difficult 

‘‘because contracts are written in 

obscure technical language, do not use 

standardized terminology, and may not 

be provided before the transaction is 

consummated.’’ 76 Nor could consumers 

avoid these credit remedies by avoiding 

default. ‘‘When default occurs, it is most 

often a response to events such as 

unemployment or illness that are not 

within the borrower’s control. Thus, 

consumers cannot reasonably avoid the 

substantial injury these creditor 

remedies may inflict.’’ 77

Third, the FTC concluded that any 

countervailing benefits from these 

practices did not outweigh the 

substantial injuries. The FTC explained 

that even if restrictions on these 

contract clauses would result in costs to 

creditors—for example, increased 

collection costs, increased screening 

costs, larger legal costs, or increases in 

bad debt losses—the ‘‘possible 

magnitude of these costs is diminished 

by the fact that the rule leaves 

untouched a wide variety of more 

valuable creditor remedies,’’ such as 

repossession, suit, garnishment, or 

acceleration.78

The D.C. Circuit subsequently upheld 

the Credit Practices Rule against legal 

challenge, noting that the rule ‘‘was 

painstakingly considered and 

significantly modified in response to the 

extensive comments and 

recommendations received during this 

long rulemaking proceeding.’’ 79

Like the prudential regulators in their 

rules implementing the Credit Practices 

Rule, the CFPB preliminarily concludes 

that these credit practices are unfair for 

the same reasons as provided by the 

FTC. The FTC relied on an extensive 

evidentiary basis for its conclusions, 

and there is no reason to believe the 

core findings have changed since the 

FTC issued the original rule. Similarly, 

the findings were not specific to any 

given creditor type, and therefore, the 

CFPB preliminarily concludes that the 

FTC’s findings apply equally to entities 

under the CFPB’s jurisdiction carved 

out of the FTC rule. Indeed, as described 

above, many of the principal 

conclusions by the FTC—for example, 

the prevalence of standard-form 

contracts and the lack of comparisonshopping—remain true today. At any 

rate, in the CFPB’s experience, these 

practices are uncommon (thanks in large 

part to the Credit Practices Rule and the 

interagency guidance). However, when 

the CFPB has encountered these 

practices during exams of supervised 

entities, it has cited them as violations 

of the CFPA. For example, the CFPB 

cited as unfair a servicer’s practice of 

applying borrowers’ post-maturity autoloan payments in a manner that resulted 

in the principal balance not being paid 

off and triggered late fees.80

The CFPB seeks comment on all 

aspects of the proposed codification of 

the Credit Practices Rule applicable to 

covered persons within the CFPB’s 

jurisdiction. 

VI. Other Prohibited Provisions 

Subpart C of the proposed rule would 

prohibit covered persons from including 

three other types of terms and 

conditions in contracts for consumer 

financial products or services: clauses 

requiring the consumer to waive 

substantive consumer legal rights or 

protections that were designed to 

benefit consumers, and their remedies; 

clauses allowing a covered person to 

unilaterally amend a material term of 

the contract; and clauses restraining a 

consumer’s lawful free expression.81

The CFPB is proposing to ban these 


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82 12 U.S.C. 5531. 

83 15 U.S.C. 1640(a). 

84 15 U.S.C. 16931. 

85 10 U.S.C. 987(e)(2). 

86See 16 CFR 444.2(a)(2) (FTC’s 1984 Credit 

Practices Rule, prohibiting the use of contract terms 

purporting to waive a consumer’s State law right to 

block creditors from seizing personal or real 

property of the consumer in which they do not hold 

security interests). The FTC also has interpreted 

section 604(b)(2)(A) of the Fair Credit Reporting Act 

(FCRA) to prohibit the inclusion of a waiver of 

consumer rights in a disclosure form required under 

that section, observing that ‘‘it is a general principle 

of law that benefits provided to citizens by federal 

statute generally may not be waived by private 

agreement unless Congress intended such a result.’’ 

FTC, Division of Credit Practices, Staff Opinion 

Letter (June 12, 1998), 1998 WL 34323756, at *1 

(citing Brooklyn Savings Bank v. O’Neill, 324 U.S. 

697 (1945)). In addition, while not an express 

prohibition on waivers, the FTC’s Preservation of 

Consumers’ Claims and Defenses rule, commonly 

known as the ‘‘Holder Rule’’ and also enforced by 

the CFPB, requires sellers of goods or services to 

consumers to include a provision in their finance 

contracts that ensures that if another person holds 

the loan or lease a consumer uses to finance 

acquisition of a good or service from a seller or 

lessor, then the holder is subject to the same 

consumer rights and defenses that the consumer 

had with respect to the seller or lessor, thereby 

emphasizing the importance of preserving 

consumer rights. 16 CFR part 433. 

87For instance, the California Consumer Privacy 

Act affords consumers certain rights to know how 

their information will be used, instructs businesses 

not to sell consumers’ personal information, and 

deems ‘‘void and unenforceable’’ any contractual 

provision ‘‘that purports to waive or limit in any 

way rights under this title, including, but not 

limited to, any right to a remedy or means of 

enforcement.’’ See generally Cal. Civ. Code sec. 

1798.100 et seq. described at https://oag.ca.gov/ 

privacy/ccpa ; Cal. Civ. Code sec. 1798.192. Further, 

certain State laws, including those of California, 

Illinois, Kansas, and Tennessee, contain outright 

prohibitions of waivers of legal protections in 

general consumer protection laws. See Cal. Civ. 

Code. sec. 1751 (barring waivers of protections 

under California Consumers Legal Remedies Act); 

Ill. St. Ch. 815 sec. 505(10c), Waiver or modification 

(barring waiver or modification of protections under 

consumer fraud and deceptive practices statute); 

Kan. Stat. 50–625(a), Waiver (generally prohibiting 

waivers of rights or benefits under the Kansas 

Consumer Protection Act, unless otherwise 

specified in the statute); Tenn. Stat. 47–18–113(a) 

(generally prohibiting waivers ‘‘by contract, 

agreement, or otherwise’’ of provisions of the 

Tennessee Consumer Protection Act of 1977). 

88CFPB, Supervisory Highlights: Winter 2013, at 

6–7 (Jan. 2014), https://files.consumerfinance.gov/f/ 

201401_cfpb_supervisory-highlights-winter2013.pdf. 

89CFPB, Supervisory Highlights: Issue 24, 

Summer 2021, at 28 (June 2021), https://

files.consumerfinance.gov/f/documents/cfpb_

supervisory-highlights_issue-24_2021-06.pdf. 

90See Consent Order, In re Bank of America, 

N.A., No. 2022–CFPB–0002 (May 4, 2022). 

91See St. James Medical School, supra note 71. 

According to the FTC’s complaint, among 

numerous other things, defendants failed to include 

the notice required by the FTC’s Holder Rule in 

their credit agreements, and also included language 

attempting to waive those rights. 

clauses under its authority to prohibit 

unfair or deceptive acts or practices. 

A. Clauses Waiving Consumers’ 

Substantive Legal Rights or Protections 

Proposed § 1027.301(a)(1) would 

prohibit covered persons from including 

in agreements for consumer financial 

products or services ‘‘[a]ny term or 

condition that disclaims or waives, or 

purports to disclaim or waive, any 

substantive State or Federal law 

designed to protect or benefit 

consumers, or their remedies, unless an 

applicable statute explicitly deems it 

waivable.’’ The waivers of law covered 

by the proposed rule ‘‘include, but are 

not limited to: (i) waivers of remedies to 

consumers for violations of State or 

Federal laws; and (ii) waivers of a cause 

of action to enforce State or Federal 

laws.’’ The proposed rule would not, 

however, prohibit clauses with regard to 

procedural rights, like venue clauses, 

arbitration clauses prohibiting court 

adjudication, or class action waivers. 

There is a large body of substantive 

Federal and State law—including 

statutes designed by legislators and the 

common law process developed by 

courts—to protect or benefit consumers. 

Congress has enacted numerous 

consumer protection laws, including the 

Federal consumer financial laws 

administered by the CFPB (such as the 

CFPA, the Truth in Lending Act (TILA), 

the Fair Credit Reporting Act (FCRA), 

the Fair Debt Collection Practices Act 

(FDCPA), and the Electronic Fund 

Transfers Act (EFTA)), the Bankruptcy 

Code, antitrust laws, and laws 

protecting servicemembers (such as the 

Military Lending Act and the 

Servicemembers Civil Relief Act). Many 

States have also passed analogous 

consumer protection or antitrust laws, 

and in some cases the protections 

afforded by State laws exceed those of 

Federal law. Consumers also have 

common law rights to bring claims, 

including, for example, for a breach of 

contract or a tort. 

These laws provide substantive 

protections for consumers. For instance, 

the CFPA (among other things) generally 

prohibits covered persons from engaging 

in unfair, deceptive, or abusive acts or 

practices in connection with 

transactions for consumer financial 

products or services,82 while the 

enumerated consumer laws codify 

specific consumer protections. Many of 

these laws also expressly grant 

consumers the right to privately enforce 

violations and to seek remedies, 

including monetary or injunctive relief. 

For instance, TILA provides consumers 

with a cause of action against ‘‘any 

creditor who fails to comply with any 

requirement imposed under [TILA],’’ 

and makes such a creditor liable to the 

consumer for actual damages and 

certain statutory damages.83

Many Federal laws—including 

statutes enforced by the CFPB—also 

render consumer-protection provisions 

unwaivable. For instance, EFTA 

prohibits contract terms that contain a 

‘‘waiver of any right conferred’’ by 

EFTA and prohibits waivers of any 

‘‘cause of action’’ under EFTA.84 The 

Military Lending Act and its 

implementing regulations generally 

prohibit terms in certain consumer 

credit contracts that require 

servicemembers and their dependents to 

‘‘waive the borrower’s right to legal 

recourse under any otherwise applicable 

provision of State or Federal law.’’ 85

The FTC also administers laws that 

forbid certain contractual waivers.86

And certain State laws similarly 

prohibit or restrict the use of waivers in 

consumer contracts.87

In the CFPB’s experience, however, 

covered persons sometimes include 

waivers of consumer protection laws in 

contracts for consumer financial 

products or services (including when 

those laws forbid such waivers). The 

CFPB has taken both supervisory and 

enforcement action against such 

practices as both unfair and deceptive. 

For example, in 2013, the CFPB cited 

two mortgage servicers for the unfair 

practice of requiring all borrowers, 

regardless of their individual 

circumstances, to enter into across-theboard waivers of existing claims in 

order to obtain a forbearance or loan 

modification agreement.88 In 2021, the 

CFPB cited entities for the deceptive 

practice of requiring borrowers to agree 

to a waiver of any equity or right of 

redemption in the loan security 

agreement for cooperative units. 

Specifically, the waiver stated that in 

the event of default, lenders may sell the 

security at public or private sale and 

thereafter hold the security free from 

any claim or right whatsoever of the 

borrower, who waives all rights of 

redemption, stay or appraisal which the 

borrower has or may have under any 

rule or statute.89 In 2022, the CFPB 

entered into a consent order with Bank 

of America for, among other practices, 

unfairly requiring consumers to waive 

its liability as to consumers’ 

garnishment-related protections in its 

deposit agreement and misrepresented 

to consumers that they could not go to 

court to attempt to prevent wrongful 

garnishments.90 The FTC has also taken 

action against a for-profit medical 

school that attempted to waive 

consumers’ rights under Federal law.91

These waiver clauses in contracts of 

adhesion undermine our system of 

constitutional democracy. Our 


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92U.S. Const. art. 1, section 1. 

93U.S. Const. amend. X. 

94See, e.g., David Horton, The Shadow Terms: 

Contract Procedure and Unilateral Amendments, 57 

UCLA L. Rev. 605, 630–636 (2010); Shmuel I. 

Becher & Uri Benoliel, Sneak In Contracts, 55 Ga. 

L. Rev. 657, 660 (2020). 

95Becher & Benoliel, supra n. 94 at 661. 

96Adam Levitin, Venmo’s Unfair and Abusive 

Arbitration Opt-Out Provision, Credit Slips (Apr. 

26, 2022), https://www.creditslips.org/creditslips/ 

2022/04/-venmos-unfair-and-abusive-arbitrationopt-out-provision.html. 

97Shmuel I. Becher & Uri Benoliel, Dark 

Contracts, 64 B.C. L. Rev. 55, 68 (2023). 

98Restatement of the Law, Consumer Contracts, 

supra note 28, at section 3 cmt. 1. 

99Boyack, Abuse of Contract: Boilerplate Erasure 

of Consumer Counterparty Rights, supra note 40, at 

6. 

100 Id. at 7 

101 Id. 

102 Id. at 18. 

103 Id. at 19. 

104 Id. at 20. 

105Becher & Benoliel, Sneak In Contracts, supra 

note 94, at 681–682 (finding that more than 95 

percent of companies with the 500 top websites 

used unilateral amendment clauses); Samples et al., 

TL;DR: The Law and Linguistics of Social Platform 

Terms-of-use, supra note 16 at 103. 

government is—as President Abraham 

Lincoln said—a ‘‘government of the 

people, by the people, for the people.’’ 

The United States Constitution 

implements that principle by vesting 

Federal lawmaking powers in the 

United States Congress 92 and reserving 

other lawmaking powers (unless 

prohibited by the Constitution) ‘‘to the 

States respectively, or to the people.’’ 93

At both the Federal and State levels, 

legislatures are elected by citizens and 

are empowered to pass laws that benefit 

their wellbeing. In enacting such laws, 

legislatures necessarily balance 

competing interests among citizens, and 

their legislative judgments and policy 

choices must be respected unless 

constitutionally invalid. Against this 

system of democratic governance, 

waiver-of-law clauses in form contracts 

of adhesion are distinctly antidemocratic. They allow companies to 

use contracts of adhesion to override 

laws that have been designed to protect 

consumers without meaningful consent 

by the consumer. 

This proposed rule would forbid a 

covered person from using any clause in 

a contract for a consumer financial 

product or service that requires a 

consumer to waive substantive 

consumer rights and legal protections 

conferred by State or Federal laws 

designed to protect or benefit consumers 

(unless the law is expressly waivable), 

or their remedies. This prohibition 

would cover waivers of substantive legal 

rights as well as waivers of a consumer’s 

right to enforce those laws (such as a 

waiver of a cause of action, a cap on 

statutory damages, or a time limitation 

on consumer enforcement of the law). 

For example, a contractual clause 

requiring a consumer to waive certain 

provisions of TILA (or to waive the 

consumer’s right to enforce TILA) 

would be prohibited under the proposed 

rule. However, the prohibition would 

not apply to waivers of procedural 

rights (e.g., venue clauses, arbitration 

clauses prohibiting court adjudication, 

or class action waivers). Although the 

CFPB also has concerns about such 

waivers, the CFPB is focusing on 

waivers of substantive rights in this 

proposed rule because contractual 

waivers of substantive rights allow 

companies to invalidate legislative 

judgments that certain business 

practices are unlawful. 

The CFPB seeks comment on this 

proposed prohibition of waiver clauses. 

B. Unilateral Amendment Clauses 

Proposed § 1027.301(a)(2) would 

prohibit covered persons from including 

in agreements for consumer financial 

products or services ‘‘[a]ny term or 

condition that expressly reserves the 

covered person’s right to unilaterally 

change, modify, revise, or add a material 

term of a contract for a consumer 

financial product or service.’’ 

Companies often include contractual 

clauses that grant them unfettered 

discretion to change or add to the terms 

of their agreement with the consumer 

without adequate notice to or assent 

from the consumer before the change 

becomes effective. Unilateral contract 

amendments can harm consumers since 

any modifications are likely to mainly 

benefit the company and the consumer 

has no option to reject the change. The 

CFPB proposes to ban these clauses 

because they allow covered persons to 

circumvent consumers’ freedom to 

benefit from a contract by changing 

material terms of an agreement. 

The proposal would prohibit any 

amendment clause in a contract 

between a covered person and a 

consumer for a consumer financial 

product or service that grants the 

covered person the exclusive right to 

modify a material term of the contract 

in the future. By definition, these 

unilateral amendment clauses provide 

no meaningful opportunity for the 

consumer to affirmatively accept, 

negotiate, or reject any modifications by 

the company. 

Unilateral amendment clauses are 

typically drafted to provide a company 

with discretion to change a term of the 

contract or to add terms to the contract. 

Companies can thus use these clauses to 

change fees, dispute resolution 

procedures, terms of service, or privacy 

policies.94 ‘‘In fact, unilateral 

modifications can change any aspect of 

a contract.’’ 95 For instance, in recent 

years, unilateral amendment clauses 

have become a popular way for 

companies to add arbitration clauses to 

consumer contracts or to change the 

rules of the arbitration process.96 And 

unilateral amendment clauses typically 

do not impose limits on when these 

changes can be made, meaning that a 

company may rely on such a clause to 

modify a contract months or even years 

after the agreement was consummated. 

In short, when a contract includes a 

unilateral amendment clause, ‘‘[f]irms 

can virtually make any change they 

wish to their contracts, for whatever 

reason and at any time, without 

properly communicating this 

change.’’ 97 And changes implemented 

unilaterally will typically benefit the 

company, not the consumer. ‘‘There is 

a concern . . . that businesses will 

initiate self-serving, opportunistic 

modifications in standard contract terms 

once consumers are already locked into 

the service.’’ 98

Unilateral amendment clauses are 

commonly included by companies in 

consumer contracts or terms of use. For 

example, a recent study examined 100 

companies’ online terms and conditions 

for contracts and relationships with 

consumers.99 The sample set included 

companies in retail, computer and 

browsing services, streaming and 

entertainment, financial services, social 

media, and transportation.100 The study 

considered both private and public 

companies.101 The study found that all 

of the companies’ terms and conditions 

included a unilateral modification 

clause.102 Only 15 of the companies’ 

terms and conditions provided for 

notice to the consumer when the 

company made a unilateral change to a 

material term.103 The study also found 

that under these clauses, the consumer 

had no real opportunity to reject the 

modifications, short of terminating the 

transactional relationship with the 

company.104 Other studies have reached 

similar conclusions.105

In the CFPB’s experience, unilateral 

amendment clauses are used by 

companies in the consumer finance 

market, and companies rely on such 

clauses to modify agreements in ways 

that are harmful to consumers. 

Unilateral amendments can be 

especially prejudicial when they thwart 

a consumer’s expectations about the 

terms of or performance under a 


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106Public Law 111–24, 123 Stat. 1734 (2009). 

107See, e.g., Modernizing Consumer Protection in 

the Financial Regulatory System: Strengthening 

Credit Card Protections: Hearing Before the S. 

Comm. on Banking, Housing, and Urban Affairs, 

111th Cong. 199 (2009) (statement of Travis B. 

Plunkett). 

108See 155 Cong. Rec. S2150 (daily ed. Feb. 11, 

2009) (statement of Sen. Dodd); see also 15 U.S.C. 

1637(i). 

109 12 CFR 1026.9(c)(2)(iv). 

110Consumer Fin. Prot. Bureau, Issue Spotlight: 

Credit Card Rewards, 11 (May 9, 2024) (citing 

agreements from American Express, Citi, Chase, and 

Wells Fargo). 

111 Id. 

112Restatement (Second) of Contracts section 

17(1) (1981); see also, e.g., Specht v. Netscape 

Commc’ns Corp., 150 F. Supp. 2d 585, 587 

(S.D.N.Y. 2001), aff’d, 306 F.3d 17 (2d Cir. 2002) 

(‘‘Promises become binding when there is a meeting 

of the minds and consideration is exchanged. So it 

was at King’s Bench in common law England; so it 

was under the common law in the American 

colonies; so it was through more than two centuries 

of jurisprudence in this country; and so it is today.) 

113See, e.g., Dallas Aerospace, Inc. v. CIS Air 

Corp., 352 F.3d 775, 783 (2d Cir. 2003) 

(‘‘[f]undamental to the establishment of a contract 

modification is proof of each element requisite to 

the formulation of a contract, including mutual 

assent to its terms’’). 

114 Douglas v. U.S. Dist. Ct. for Cent. Dist. of 

California, 495 F.3d 1062, 1066 (9th Cir. 2007); see 

also, e.g., In re Zappos.com, Inc., Customer Data 

Sec. Breach Litig., 893 F. Supp. 2d 1058, 1066 (D. 

Nev. 2012); Lovinfosse v. Lowe’s Home Centers, 

LLP, 2024 WL 3732436 (E.D. Va. Aug. 8, 2024). 

115Restatement of the Law, Consumer Contracts, 

supra note 28, section 5, reporters’ notes a. 

116 Id. section 3, reporters’ notes f. 

117 Id. section 3(a). Under the Restatement, ‘‘[a] 

consumer contract governing an ongoing 

relationship may provide for a reasonable 

procedure for adoption of modified terms under 

which the business may propose a modification of 

the standard contract terms but may not, to the 

detriment of the consumer, exclude the application 

of subsection (a), except that the established 

procedure may replace the reasonable opportunity 

to reject the proposed modified term with a 

reasonable opportunity to terminate the transaction 

without unreasonable cost, loss of value, or 

personal burden.’’ Id. section 3(b). 

118 Id. section 5 illus. 5. 

119The CFPB recognizes that there are State or 

Federal statutes or regulations setting forth 

processes for companies to implement 

modifications for certain contract terms. For 

example and as noted above, the CARD Act and its 

implementing regulations create procedures for 

credit card issuers to implement modifications to a 

consumer’s account agreement. For certain changes, 

the CARD Act and its implementing regulations 

require a company to provide consumers with 

notice and an opportunity to reject a modification. 

For other changes, the CARD Act and its 

implementing regulations affirmatively state that no 

advance notice of a modification is required. And 

contract (including when such a change 

conflicts with advertising or marketing 

about the contract on which the 

consumer relied in the first place). 

For instance, such clauses are 

commonly included in credit card 

agreements, and the harm arising from 

unilateral amendments to credit card 

agreements was one of the main reasons 

for congressional enactment of the 

Credit Card Accountability, 

Responsibility, and Disclosure Act 

(CARD Act) of 2009.106 Prior to the 

CARD Act’s passage, credit card issuers 

routinely relied on unilateral 

amendment clauses to change fees, 

interest rates, and payment amounts 

after a consumer had taken out a credit 

card.107 The CARD Act was intended to 

curb the abuses wrought by these ‘‘[a]ny 

time any reason’’ changes to credit card 

agreements.108 As implemented by 

Regulation Z, the CARD Act requires 

that when a credit card issuer seeks to 

make ‘‘a significant change in account 

terms,’’ it must provide 45 days advance 

notice of the change and include in the 

notice a statement that the consumer 

‘‘has the right to reject the change or 

changes prior to the effective date of the 

changes’’ and ‘‘[i]nstructions for 

rejecting the change or changes, and a 

toll-free telephone number that the 

consumer may use to notify the creditor 

of the rejection.’’ 109

However, abuses arising from 

unilateral amendments remain a 

problem in consumer financial services. 

For example, the CARD Act does not 

require a change-in-terms notice for all 

modifications to a credit card 

agreement, and the CFPB recently 

warned that ‘‘many of the largest credit 

card issuers reserved the right to change 

their rewards program at any time, for 

any reason, and in many cases without 

notice in terms and conditions typically 

separate from the cardholder 

agreements, in which changes to some 

terms are restricted and/or require prior 

communication.’’ 110 The CFPB noted 

that such clauses can allow issuers ‘‘to 

alter rewards programs or devalue 

rewards as a safety valve [for the 

company], putting consumers at a 

fundamental disadvantage.’’ 111

The CFPB is concerned about 

unilateral amendment clauses because 

they undermine the consumer’s freedom 

to benefit from the contract. A contract 

is based on the voluntary exchange of 

promises between the contracting 

parties that establish a ‘‘meeting of the 

minds.’’ Thus, as the Restatement 

(Second) of Contracts notes, ‘‘the 

formation of a contract requires a 

bargain in which there is a 

manifestation of mutual assent to the 

exchange and a consideration.’’ 112

These same principles apply not only 

for the initial contract but any 

subsequent modifications.113

For that reason, courts have generally 

refused to enforce unilateral amendment 

clauses that do not allow for mutual 

assent. ‘‘Indeed, a party can’t 

unilaterally change the terms of a 

contract; it must obtain the other party’s 

consent before doing so. This is because 

a revised contract is merely an offer and 

does not bind the parties until it is 

accepted. And generally an offeree 

cannot actually assent to an offer unless 

he knows of its existence.’’ 114 Thus, as 

noted by the Restatement of Consumer 

Contracts, if a company ‘‘can derogate, 

without any limitation, from rights and 

obligations that were stated when the 

original assent was manifested, or if the 

business awards itself unfettered 

discretion to specify its obligations 

under the original contract, such that 

the promise the business made to 

consumers is lacking sufficient 

meaningful commitment, the business’s 

promise is illusory and the contract fails 

for lack of consideration.’’ 115

As the Restatement of Consumer 

Contracts further explains, ‘‘courts have 

developed a fairly consistent approach 

to determining the enforceability of 

modifications. In particular, the 

requirements of notice and opportunity 

to reject or terminate figure prominently 

in courts’ reasoning. In almost all cases 

in which modifications were enforced 

and that involve the questions of notice 

as well as opportunity to reject or 

terminate, courts made explicit 

determinations that both the 

requirements of sufficient notice and 

opportunity to reject or terminate were 

satisfied.’’ 116 Thus, under the 

Restatement of Consumer Contracts, a 

modification of a standard-contract term 

is binding on a consumer only if the 

consumer received notice of the 

proposed modification and was 

provided a reasonable opportunity to 

reject the change.117 For example, the 

Restatement provides an example of a 

‘‘contract between an airline and a 

consumer allow[ing] the airline to 

modify the frequent-flyer program at its 

discretion,’’ explaining that such a 

provision would be unenforceable ‘‘if 

the airline does not afford the consumer 

a meaningful opportunity to reject 

it.’’ 118

Consistent with these principles, the 

proposed rule would prohibit any 

clause in a contract for a consumer 

financial product or service that 

provides the company the sole right to 

modify the contract. The CFPB 

recognizes that consumer contracts may 

need to be modified to account for 

changed circumstances after the 

contract is signed, and this proposed 

rule would not prohibit all such 

modifications. Nothing in the proposed 

rule would prohibit companies from 

implementing modifications that are 

consistent with applicable State or 

Federal law.119 Whether a particular 


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the CARD Act and its implementing regulations are 

silent on changes for other terms. Nothing in this 

proposed rule would displace or affect those 

procedures for amending a contract. This 

rulemaking only prohibits the use of a contract term 

to reserve a unilateral right to amend that the 

company would not otherwise have by virtue of 

State or Federal law or regulation. 

120Snyder v. Phelps, 562 U.S. 443, 452 (2011). 

121Cohen v. California, 403 U.S. 15, 24 (1971). 

122 Fulton v. City of Philadelphia, 593 U.S. 522, 

615 (2021). 

123Alan E. Garfield, Promises of Silence: Contract 

Law and Freedom of Speech, 83 Cornell L. Rev. 261, 

268 (1998). 

124Eric Goldman, Understanding the Consumer 

Review Fairness Act of 2016, 24 Mich. Telecomm. 

& Tech. L. Rev. 1, 2 (2017). 

125 FTC v. Grand Teton Professionals, LLC, et al., 

Case No. 19–cv–933 (D. Conn) (Complaint filed 

June 17, 2019). 

126Peter Rudegeair, Michelle Conlin, Exclusive: 

Ocwen Financial to stop gagging homeowners in 

mortgage deals, Reuters.com (June 3, 2014), https:// 

www.reuters.com/article/us-banks-mortgages/ 

exclusive-ocwen-financial-to-stop-gagginghomeowners-in-mortgage-deals-idUSKBN0EE1XG

20140603 (last visited Dec. 2, 2022); Brena 

Swanson, Ocwen will stop using mortgage gag 

orders, Housingwire.com (June 3, 2014), https://

www.housingwire.com/articles/30196-ocwen-willstop-using-mortgage-gag-orders/. 

127Michael Luca, Reviews, Reputation, and 

Revenue: The Case of Yelp.com, Harv. Bus. Sch. 

Working Paper No. 12–016, 14 (2016). 

128Chris Anderson, The Impact of Social Media 

on Lodging Performance, 12(15) Cornell Hospitality 

Report 6, 11 (2012). 

129 15 U.S.C. 45b. 

130 Id. 

modification is consistent with 

applicable law will depend on the facts 

and circumstances and the applicable 

jurisdiction’s common law, and is 

beyond the scope of this rulemaking. 

But the proposed rule would prohibit 

companies from relying on a unilateral 

amendment clause to make 

modifications. 

The CFPB seeks comment on this 

proposed prohibition of unilateral 

amendment clauses. 

C. Clauses Restraining Consumers’ Free 

Expression 

Proposed § 1027.301(a)(3) would 

prohibit covered persons from including 

in contracts for consumer financial 

products or services ‘‘[a]ny term or 

condition that limits or restrains, or 

purports to limit or restrain, the free and 

lawful expression of a consumer,’’ 

except that this prohibition would not 

‘‘affect[] a covered person’s ability to 

close an account that is being used to 

commit fraud or other illegal activity.’’ 

This prohibition would apply to, for 

example, contractual clauses that limit a 

consumer’s ability to make negative 

comments about a company or to freely 

express their political and religious 

views. And it would include any 

contractual mechanism for enforcing 

those limits, including fees, reserving 

rights to close accounts on that basis 

(e.g., ‘‘debanking’’), or terms that do not 

describe a particular remedial 

consequence but could give rise to a 

breach of contract claim. The proposed 

rule would not, however, prohibit 

contract clauses giving covered persons 

a right to close accounts based on the 

use of an account to commit fraud or 

illegal activity, because that would not 

constitute ‘‘lawful expression.’’ 

The First Amendment of the 

Constitution protects people from, 

among other things, laws abridging free 

speech or prohibiting the free exercise 

of religion. The First Amendment 

‘‘reflects a profound national 

commitment to the principle that debate 

on public issues should be uninhibited, 

robust, and wide-open’’ because 

‘‘speech concerning public affairs is 

more than self-expression; it is the 

essence of self-government.’’ 120 Free 

expression ‘‘is powerful medicine’’ 

because it ‘‘put[s] the decision as to 

what views shall be voiced largely into 

the hands of each of us, in the hope that 

use of such freedom will ultimately 

produce a more capable citizenry and 

more perfect polity and in the belief that 

no other approach would comport with 

the premise of individual dignity and 

choice upon which our political system 

rests.’’ 121 The First Amendment applies 

even when speech is disagreeable or 

offensive. ‘‘In an open, pluralistic, selfgoverning society, the expression of an 

idea cannot be suppressed simply 

because some find it offensive, 

insulting, or even wounding.’’ 122

While government restraints on 

speech carry obvious risks due to the 

coercive power of government, 

infringement of speech by large private 

corporations can be similarly harmful, 

with the added concern that these 

entities are not subject to democratic 

accountability or transparency 

obligations. And in recent decades, 

many companies have begun to use 

contractual terms to prevent individuals 

from expressing themselves freely.123 In 

the market for consumer financial 

products and services, two such types of 

clauses are of particular concern to the 

CFPB, both of which would be 

prohibited under the proposed rule. 

First, some companies have begun 

including non-disparagement clauses— 

also colloquially known as ‘‘gag’’ 

clauses—that restrict consumers from 

providing negative reviews of the 

company’s product or service. 

Originating in the health care sector, 

these types of clauses have migrated to 

many parts of the economy.124 The 

CFPB is aware of such abuses in the 

consumer finance market. For instance, 

the FTC has taken action against a credit 

repair firm for its use of nondisparagement clauses in violation of 

the Consumer Review Fairness Act.125

The CFPB is also aware of reports that 

a nonbank mortgage lender had imposed 

certain non-disparagement provisions in 

certain loan modification agreements 

associated with settlement of pending 

legal claims, until committing to the 

New York State financial regulator to 

stop doing so.126

Numerous studies and surveys have 

confirmed the importance of online 

reviews across the economy. For 

example, one prominent study 

estimated that a one-star rating increase 

on Yelp.com translated to an increase of 

five to nine percent in revenues for a 

restaurant.127 Another study found that 

a one-point boost in a hotel’s online 

ratings on travel sites is tied to an 11 

percent jump in room rates, on 

average.128 To date, academic research 

has not focused specifically on markets 

for consumer financial products and 

services. But the CFPB expects 

consumer reviews to play an increasing 

role in helping consumers choose 

between financial providers given that 

many consumers now seek financial 

products online, including on shopping 

platforms that can simultaneously 

provide reviews. This can create an 

incentive for dishonest market 

participants to attempt to manipulate 

the review process, rather than compete 

based on the value of their services, 

which can frustrate a competitive 

marketplace. 

In 2016, Congress unanimously 

enacted the Consumer Review Fairness 

Act,129 in response to abuses by 

companies that restricted consumer 

reviews. The Consumer Review Fairness 

Act generally prohibits nondisparagement clauses in standard-form 

consumer contracts. Specifically (and 

with certain exceptions), it voids from 

inception any such contractual 

provision that prohibits, restricts, or 

penalizes ‘‘an individual who is a party 

to the form contract’’ to engage in a 

‘‘written, oral, or pictorial review, 

performance assessment of, or other 

similar analysis of . . . the goods, 

services, or conduct of a person.’’ 130 As 

the legislative history of the statute 

explains, the ‘‘wide availability’’ of 

consumer reviews ‘‘has caused 

consumers to rely on them more heavily 

as credible indicators of product or 

service quality. In turn, businesses have 

sought to avoid negative reviews . . . 

through provisions of form contracts 

with consumers restricting such 


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131H. Rept. 114–731, at 5 (2016). The legislative 

history also indicates that Congress was concerned 

that these clauses would diminish the overall value 

of consumer reviews, including by chilling 

‘‘negative yet truthful’’ reviews. ‘‘Nondisparagement clauses interfere with the benefits 

consumers derive from ready access to ‘crowdsourced’ reviews of products and services. If such 

clauses become widely adopted, negative yet 

ruthful reviews may be chilled, undermining the 

overall credibility of consumer reviews. The 

newfound utility of consumer reviews would then 

be reduced as trust in their veracity diminishes. 

H.R. 5111 seeks to curtail non-disparagement 

clauses in order to preserve the credibility and 

value of online consumer reviews.’’ Id. at 5–6. 

132Cal. Civil Code sec. 1670.8 (‘‘A contract or 

proposed contract for the sale or lease of consumer 

goods or services may not include a provision 

waiving the consumer’s right to make any statement 

regarding the seller or lessor or its employees or 

agents, or concerning the goods or services.’’); 815 

Ill. Comp. Stat. Ann. 505/2UUU (West) (same); Md. 

Code, Com. L. sec. 14–1325 (making it an unfair and 

deceptive trade practice to include a provision 

‘‘waiving the consumer’s right to make any 

statement concerning [ ] The seller or lessor; [ ] 

Employees or agents of the seller or lessor; or [ ] The 

consumer goods or services.’’). 

133See Emily Manson, After PayPal Revokes 

Controversial Misinformation Policy, Major 

Concerns Remain Over $2,500 Fine (Oct. 27, 2022), 

https://www.forbes.com/sites/emilymason/2022/10/ 

27/after-paypal-revokes-controversialmisinformation-policy-major-concerns-remain-over2500-fine/. 

134Letter from Andre Sorrell et al. to Brian 

Moynihan, https://treasurer.utah.gov/wp-content/ 

uploads/04-18-2024-Letter-to-BoA-RegardingDebanking.pdf (Apr. 18, 2024). 

135Letter from Kris W. Kobach et al. to Brian T. 

Moynihan, (Apr. 15, 2024) https://dojmt.gov/ 

attorney-general-knudsen-demands-action-frombank-of-america-to-correct-debanking-practices/. 

136See, e.g., Tenn. Code Ann. sec. 45–1–128. 

137Although the CFPA does not define 

‘‘deceptive,’’ the CFPB has adopted the definition 

set forth by the FTC in its 1983 Policy Statement 

on Deception. See FTC Policy Statement on 

Deception (Oct. 14, 1983), https://www.ftc.gov/bcp/ 

policystmt/ad-decept.htm. 

138Novartis Corp. v. FTC, 223 F.3d 783, 786 (D.C. 

Cir. 2000) (quoting In re Cliffdale Assocs., Inc., 103 

F.T.C. 110, 165 (1984)). 

139See, e.g., FTC v. World Media Brokers, 415 

F.3d 758, 763 (7th Cir. 2005). 

140Consumer Financial Protection Circular 2024– 

03, supra note 6. 

141See, e.g., Meirav Furth-Matzkin & Roseanna 

Sommers, Consumer Psychology and the Problem of 

Fine Print Fraud, 72 Stan. L. Rev. 503, 508–09 

(2020). 

142Consumer Fin. Prot. Bureau, CFPB Bulletin 

2022–05: Unfair and Deceptive Acts or Practices 

That Impede Consumer Reviews, (Mar. 22, 2022), 

https://www.consumerfinance.gov/compliance/ 

supervisory-guidance/cfpb-bulletin-2022-05-unfairdeceptive-acts-or-practices-that-impede-consumerreviews/. 

143 12 U.S.C. 5531(c). 

reviews.’’ 131 Some States have also 

enacted prohibitions against nondisparagement or ‘‘gag’’ clauses.132

Second, some companies have also 

used contractual terms to prevent 

consumers from engaging in political or 

religious expression or to penalize them 

for doing so. For example, in 2022 

PayPal amended its user agreement to 

levy a fine or close accounts based on 

consumers’ exercise of free expression, 

even if it was unrelated to fraud or other 

illegal activity.133 In a similar vein, 

some consumer financial companies 

have been accused of ‘‘de-banking’’ 

persons or organizations based on their 

political or religious beliefs. For 

example, several State regulators 

recently accused a major bank of 

‘‘discriminating against religious 

ministries,’’ including the bank’s 

closure of the accounts of a Christian 

ministry because the bank did not want 

to serve the organization’s ‘‘business 

type.’’ 134 State attorneys general also 

sent a letter to the same bank about the 

bank’s practice of ‘‘conditioning access 

to its services on customers having the 

bank’s preferred religious or political 

views.’’ 135 Some State legislatures have 

also introduced or enacted laws that 

would prohibit such ‘‘de-banking.’’ 136

The CFPB seeks comment on this 

proposed prohibition of clauses 

restraining consumers’ lawful free 

expression. 

Legal Authority 

The CFPB proposes to prohibit these 

three types of terms and conditions in 

consumer financial products or services 

because their use constitutes unfair or 

deceptive acts or practices. 

i. Deceptive Acts or Practices 

Under the CFPA, a representation or 

omission is deceptive if it is likely to 

mislead a reasonable consumer and is 

material.137 A representation is 

‘‘material’’ if it ‘‘involves information 

that is important to consumers and, 

hence, likely to affect their choice of, or 

conduct regarding, a product.’’ 138 It is 

well-established that material 

misrepresentations to consumers that 

are unsupported under applicable law 

can be deceptive.139 In particular, 

including an unenforceable material 

term in a consumer contract is 

deceptive, because it misleads 

consumers into believing the contract 

term is enforceable. 

As the CFPB recently explained, 

waiver-of-law provisions in contracts for 

consumer financial products or services 

are often deceptive when the waivers 

are unlawful or unenforceable under 

Federal or State law.140 The inclusion of 

unlawful or unenforceable terms and 

conditions in consumer contracts is 

likely to mislead a reasonable consumer 

into believing that the terms are lawful 

and/or enforceable, when in fact they 

are not. Further, the representations 

made by the presence of such terms are 

often material, presumptively so when 

they are made expressly. In particular, 

consumers are unlikely to be aware of 

the existence of laws that render the 

terms or conditions at issue unlawful or 

unenforceable, so in the event of a 

dispute, they 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. 

Research indicates providers are 

incentivized to include unenforceable 

terms because consumers tend to 

assume the terms in their contracts are 

enforceable (even if they harm the 

consumer’s interests or deprive them of 

legal rights).141 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. Deceptive acts and practices 

such as these pose risks to consumers, 

whose rights are undermined as a result, 

and distort markets to the disadvantage 

of covered persons who abide by the 

law by including only lawful terms and 

conditions in their consumer contracts. 

For similar reasons, a contractual 

provision that restrains a consumer’s 

free expression in violation of the 

Consumer Review Fairness Act would 

be deceptive. As the CFPB noted in a 

recent compliance bulletin, it would 

generally be deceptive to include a 

restriction on consumer reviews in a 

form contract, given that the restriction 

would be void from the inception under 

the Consumer Review Fairness Act.142

Consumers can be expected to read such 

language to mean what it says: that they 

are restricted in their ability to provide 

consumer reviews. But that is not the 

case, since the provision is void under 

applicable law. And the option to post 

candid reviews about products or 

services would be material to the many 

American consumers who do so. 

Moreover, enforcing the deception 

prohibition is particularly important in 

this context, given that consumer 

reviews are a significant driver of 

competition in the modern economy. 

ii. Unfair Acts or Practices 

The CFPB may declare an act or 

practice to be ‘‘unlawful on the grounds 

that [it] is unfair’’ if the CFPB ‘‘has a 

reasonable basis to conclude that (A) the 

act or practice causes or is likely to 

cause substantial injury to consumers 

which is not reasonably avoidable by 

consumers; and (B) such substantial 

injury is not outweighed by 

countervailing benefits to consumers or 

to competition.’’ 143 The use of each of 

the clauses that would be prohibited 


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144FTC, Preservation of Consumers’ Claims and 

Defenses, 40 FR 53506, 53523 (Nov. 18, 1975). 

145See Consent Order, In re Bank of America, 

N.A., No. 2022–CFPB–0002 (May 4, 2022). 

146See FTC Guides Against Bait Advertising, 16 

CFR part 238 et seq.; cf. Rossman v. Fleet Bank 

(R.I.) Nat. Ass’n, 280 F.3d 384, 396–400 (3d Cir. 

2002) (credit card issuer soliciting business with 

no-annual-fee offer while intending to later impose 

fee constitutes a bait-and-switch scheme). 

147See Consumer Fin. Prot. Bureau, Consumer 

Financial Protection Circular 2024–07: Design, 

Marketing, and Administration of Credit Card 

Rewards Programs, (Dec. 18, 2024), https://

www.consumerfinance.gov/compliance/circulars/ 

consumer-financial-protection-circular-2024-07- 

design-marketing-and-administration-of-creditcard-rewards-programs/. 

148See, e.g., FTC v. Roca Labs, Inc., 345 F. Supp. 

3d 1375, 1393 (M.D. Fla. 2018) (agreeing with the 

FTC that ‘‘restricting the flow of information to 

consumers and the marketplace causes or is likely 

to cause substantial injury’’). 149FTC Policy Statement on Unfairness 

(December 17, 1980), https://www.ftc.gov/legallibrary/browse/ftc-policy-statement-unfairness. 150 49 FR 7744. 151See e.g., Samples et al., supra note 16 at 105. 152Restatement of the law, Consumer Contracts, 

supra note 28, at introduction. 

under the proposed rule in contracts for 

consumer financial products or services 

would be an unfair act or practice. 

Substantial injury. Each of the three 

types of clauses causes or would likely 

cause substantial injury to consumers. 

A contractual clause requiring a 

consumer to waive the protections of 

Federal or State law causes the 

consumer to forfeit legal rights designed 

for their benefit. These laws reflect a 

legislative judgment that it is in the 

public interest for consumers to be 

protected from certain business 

practices. Eliminating these protections 

through a consumer contract deprives 

the consumer of those legal rights. 

Consumers can also suffer concrete 

monetary injury from the inclusion of 

waiver-of-law clauses when, as a result 

of the waiver, they are exposed to 

business practices that would have been 

otherwise illegal, or, when the waiver 

reduces the monetary remedy that 

consumers can seek. These waivers shift 

the risk of such business practices from 

the company to the consumer. 

‘‘Consumers are clearly injured by a 

system which forces them to bear the 

full risk and burden of sales related 

abuses.’’ 144 This is particularly the case 

when a consumer cannot fully enforce 

a law because of a waiver-of-law 

provision. As noted above, many 

consumer protection laws grant 

consumers a statutory cause of action to 

enforce the law, enjoin the unlawful 

practice, and recover actual and/or 

statutory damages. When a consumer is 

contractually restricted from relying on 

such a cause of action—or when a 

waiver provision limits a company’s 

legal liability or limits the time in which 

a consumer can bring a legal action 

against the company—consumers are 

unable to stop the illegal practice and 

recover damages from the company. For 

example, in a 2022 case the CFPB 

alleged that Bank of America engaged in 

unfair acts and practices by using a 

deposit agreement that required 

consumers not to contest legal process 

and waive the bank’s liability for 

unlawfully garnishing funds from a 

consumer’s deposit account. According 

to the consent decree, in at least 3,700 

instances, the bank’s conduct resulted 

in substantial injury to affected 

consumers in the form of garnishmentrelated fees, frozen or held funds, and 

funds turned over to judgment 

creditors.145

Unilateral amendment clauses injure 

consumers by facilitating involuntary 

changes that are a detriment to the 

consumer (including monetary 

detriment), and depriving consumers of 

the opportunity to provide meaningful 

consent to amended terms that may 

adversely affect them. As noted above, 

when a company can derogate from the 

material terms of an agreement with a 

consumer at its own discretion, a 

contract becomes illusory and the 

consumer does not obtain the benefit of 

the bargain in the contract they signed 

initially. They also deprive consumers 

of the ability to make a free and 

informed choice of whether to contract 

in the first place because the material 

terms of the agreement might change 

later in unpredictable ways. 

Furthermore, the changes effected 

through such clauses (e.g., diminution 

of credit-card rewards) typically inure to 

the detriment of consumers. In 

particular, when a modification 

undermines a consumer’s expectations 

about the scope of contract, it resembles 

a traditional ‘‘bait-and-switch’’ scheme 

that has long been found to be unfair by 

the FTC.146

In particular, in the credit card 

market, consumers experience 

substantial injury when credit card 

companies use unilateral amendment 

clauses to amend the terms of a reward 

program without adequate notice or 

opportunity to provide meaningful 

consent. Consumers make decisions 

based on expectations about the value of 

credit card reward programs,147 and so 

they incur concrete and monetary harm 

associated with the use of unilateral 

amendment clauses to unilaterally 

decrease the accrual rates or otherwise 

downgrade those programs. 

Contractual restraints on free 

expression deprive consumers of their 

ability to express themselves freely. 

This can cause harm when, for example, 

a consumer is prohibited from providing 

a negative review on or complaining 

about a faulty product or service. In 

such cases, the consumer is deprived of 

the ability to freely voice themselves 

about the quality of a product or service, 

which in turn deprives other consumers 

of the benefit of the negative review or 

complaint.148 When a contract limits the 

consumer’s ability to speak or act freely 

on political or religious matters, it 

deprives consumers of a fundamental 

right to express themselves. It also 

leaves consumers with the untenable 

choice between maintaining access to 

the financial service in question or 

maintaining the right to free speech. 

While most unfairness matters involve 

‘‘monetary harm,’’ the substantial injury 

prong is met for any form of injury that 

is not ‘‘trivial or merely speculative.’’ 149

The CFPB preliminarily concludes that, 

based on the historical importance of 

free speech in the United States, 

limiting religious, political, or other 

forms of free speech is not a trivial 

consumer harm. 

Not reasonably avoidable. The 

injuries caused by these terms and 

conditions in form contracts are not 

reasonably avoidable by consumers 

because consumers are typically 

unaware they are agreeing to these terms 

and conditions, and even if they were, 

are unable to negotiate the terms out of 

the agreement. These clauses are almost 

always presented to consumers as 

‘‘boilerplate’’ or ‘‘fine print’’ language in 

contracts of adhesion on a ‘‘take it or 

leave it’’ basis. These terms are drafted 

by companies (or their lawyers), and 

consumers are allowed no opportunity 

to negotiate or reject them. Nor can 

consumers realistically comparison 

shop for any of these clauses among 

different providers, since these contracts 

typically ‘‘are written in obscure 

technical language, do not use 

standardized terminology, and may not 

be provided before the transaction is 

consummated.’’ 150 Indeed, with the 

increasing popularity of digital 

transactions, standard contract terms 

have become more and more 

complex.151 ‘‘The proliferation of 

lengthy standard-term contracts, mostly 

in digital form, makes it practically 

impossible for consumers to scrutinize 

the terms and evaluate them prior to 

manifesting assent.’’ 152 There are also 

limited incentives for consumers to seek 

out better terms because these terms 

relate to future events that a consumer 

may not be able to properly assess at the 

time they are initially shopping for the 

product or service. For example, a 


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153See, e.g., Bakos et al., supra note 19 at 1. 

154Margaret Jane Radin, Boilerplate: The Fine 

Print, Vanishing Rights, and the Rule of Law 108 

(2013) (‘‘competition forces firms to offer 

progressively worse and more onerous terms’’). 

155See FTC Policy Statement on Unfairness, 

supra note 149. 

156 Minnesota v. Clover Leaf Creamery Co., 449 

U.S. 456, 461–63 (1981). 

consumer reviewing a unilateral 

amendment clause would be unlikely to 

predict what kinds of modifications a 

company might implement under such 

a clause. Under these circumstances, it 

should be unsurprising that many 

research studies have confirmed that 

consumers almost never read non-core 

terms in standard-form contracts. As 

noted above, for example, one 

prominent study found that far less than 

one percent of consumers can be 

expected to read such terms.153 At any 

rate, even if consumers were to review 

these terms before signing the 

agreement, their only opportunity to 

avoid the terms would be to decline the 

agreement in totality. And once the 

agreement is entered into, these clauses 

are implemented by the companies 

without any involvement by the 

consumer. 

Consideration of countervailing 

benefits. The CFPB is not aware of any 

meaningful countervailing benefits to 

consumers or competition created by 

these clauses that would outweigh the 

associated harms, and invites 

commenters to raise any countervailing 

benefits that the agency will consider 

before finalizing any rule. These clauses 

will typically not be essential to the 

transaction and will serve no purpose in 

the deal between the company and the 

consumer. To the contrary, these types 

of clauses strip important rights or 

protections from consumers, including 

the right to be aware of and provide 

meaningful consent to contract 

amendments, the right to benefit from 

legal protections, and the right to free 

expression. The CFPB is also not aware 

of any research or findings 

demonstrating that consumers enjoy 

lower costs or prices in exchange for 

these clauses. Nor is the CFPB aware of 

any benefits these clauses provide to 

competition. Indeed, the CFPB 

preliminary concludes that these 

clauses dilute competition by insulating 

companies from the rule of law, legal 

liability, and negative feedback (or even 

being compared unfavorably to one’s 

competitors), and also by allowing 

companies broad discretion to fashion 

rules and procedures to their own 

liking. And once one firm adds one of 

these non-salient fine print terms, other 

firms in the market may be incentivized 

to match, creating a race to the 

bottom.154

As noted in the section 1022(b) 

Analysis below, the CFPB acknowledges 

that companies may incur costs 

associated with the increased incentive 

to comply with existing laws if they 

cannot waive those laws or sidestep 

public accountability by blocking 

criticism. For purposes of determining 

legally recognizable countervailing 

benefits, it would generally be 

inappropriate to consider companies’ 

lawbreaking to be a benefit to 

consumers or competition. However, 

even were the CFPB to consider that 

foregone cost to companies a 

countervailing benefit, those costs are 

likely to be low, and the CFPB would 

only credit those costs to the extent they 

pass through to consumer prices. That is 

because the CFPB considers 

countervailing benefits to ‘‘consumers 

or competition,’’ not companies, and the 

analysis is used to determine whether a 

practice is ‘‘injurious in its net 

effects.’’ 155 As noted in the section 

1022(b) Analysis, the CFPB does not 

anticipate a 100 percent pass-through 

rate. 

Taking each of these clauses in turn, 

with respect to waiver of law clauses, 

the CFPB preliminarily concludes that 

that the harms are not outweighed by 

countervailing benefits associated with 

allowing companies to include clauses 

that nullify State and Federal 

legislatures’ judgment on addressing a 

consumer harm and tools they have 

chosen to enable consumers to vindicate 

their legal rights. A consumer protection 

enacted by a legislature pursuant to a 

constitutionally valid process will 

generally have a legitimate purpose and 

a rational basis,156 and legislatures 

generally balance the benefits and costs 

and conclude that the legislation is net 

beneficial when a law is passed. It 

would be inappropriate for the CFPB to 

second-guess that legislative judgment 

and conclude that a democratically 

passed consumer protection’s benefits 

are outweighed by its costs. 

Regarding unilateral amendment 

clauses, the CFPB preliminarily 

concludes that the countervailing 

benefits do not outweigh the harms. To 

be sure, companies may need to 

implement modifications during the 

course of an agreement, but consumers 

do not benefit from having such changes 

imposed on them without their 

awareness and consent. Nor do such 

changes benefit competition, since 

competition is benefited by consumers 

being able to consider concrete deals 

with terms they can rely on. If firms can 

change contractual terms at their 

discretion, consumers can have no 

confidence in the scope of consumer 

contracts and cannot properly 

comparison-shop among various 

providers. 

As noted below in the section 1022(b) 

Analysis, in theory some firms may be 

discouraged from offering certain 

consumer-beneficial terms if they are 

not free to change them at a later date 

(without providing appropriate notice 

and obtaining consent). The CFPB 

generally does not grant this theoretical 

countervailing benefit much weight 

because the likelihood that unilateral 

amendment clauses impact the terms a 

firm offers is quite small. Firms will still 

be able to amend contracts—the only 

change is they will need to go through 

an appropriate process under common 

law to do so. Moreover, to consider such 

a benefit would be to argue that the 

CFPB should not prohibit a bait-andswitch scheme because it would deter 

companies from offering the ‘‘bait.’’ If 

firms are unwilling to offer terms unless 

they have full flexibility to change them, 

these terms are likely ephemeral 

promises anyway. 

With respect to restraints on free 

expression, the CFPB is unaware of any 

countervailing benefit to allowing 

companies to include clauses that 

restrict consumers’ ability to provide 

negative feedback or reviews on the 

companies, since distorting public 

reviews of a good or service does not 

help consumers and moreover such 

restrictions are already illegal in form 

contracts under the Consumer Review 

Fairness Act. Nor do there appear to be 

benefits to restricting a consumer’s right 

to engage in constitutionally protected 

religious or political activity. While a 

company’s management may disfavor 

certain speech or activities, it is not 

their purview to restrict such activities 

by private citizens and it is unclear 

what pecuniary gain the company itself 

would gain by constraining customers’ 

speech involving topics having nothing 

to do with the company. 

Having said that, there are two 

theoretical countervailing benefits to 

consumers that the CFPB has 

considered in issuing this proposal. 

First, a scammer or fraudster who is a 

customer of a financial institution may 

communicate with other consumers in 

furtherance of an illegal scheme to 

defraud those consumers and induce 

payment to their account. In recognition 

of this potential countervailing benefit, 

the unfair practice identified by the 

CFPB only includes contract terms that 

limit ‘‘lawful expression,’’ which would 

not include contract terms giving 

covered persons a right to close an 

account that is being used to commit 


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157 Moody v. NetChoice, LLC, 603 U.S. 707, 728 

(2024) (‘‘We have repeatedly faced the question 

whether ordering a party to provide a forum for 

someone else’s views implicates the First 

Amendment. And we have repeatedly held that it 

does so if, though only if, the regulated party is 

engaged in its own expressive activity, which the 

mandated access would alter or disrupt. So too we 

have held, when applying that principle, that 

expressive activity includes presenting a curated 

compilation of speech originally created by 

others.’’). 

158 12 U.S.C. 5531(c)(2). ‘‘Such public policy 

considerations may not serve as a primary basis for 

such determination.’’ Id. 

159Restatement of the Law, Consumer Contracts, 

supra note 28, sections 3, 5. 

160Lev Menand and Morgan Ricks, Rebuilding 

Banking Law: Banks as Public Utilities (Sept 2023), 

https://cdn.vanderbilt.edu/vu-URL/wp-content/ 

uploads/sites/412/2023/09/14140935/Banking-FullReport-Final.pdf; cf. Biden v. Knight First Amend. 

Inst., 141 S. Ct. 1220, 1222–24 (2021) (Thomas, J., 

concurring) (raising concerns about the ability of 

companies to constrain free speech and recognizing 

that doctrines involving common carriers or public 

accommodation may be an appropriate solution). 161 12 U.S.C. 5512(b)(2)(A). 

fraud or other illegal activity. Second, a 

common argument raised in debates 

about platforms and free speech is that 

a company should not have to carry the 

message of its customers if they disagree 

with the message.157 Putting aside the 

question of whether companies’ and 

natural persons’ free speech rights 

should be given equal weight, or the 

other merits of such arguments, this 

rulemaking implicates only agreements 

for consumer financial products or 

services, not terms of service for social 

media services or other businesses that 

provide a forum for someone else’s 

views. 

Public policy. ‘‘In determining 

whether an act or practice is unfair, the 

Bureau may consider established public 

policies as evidence to be considered 

with all other evidence.’’ 158 Public 

policy corroborates that the use of these 

three contractual clauses would be an 

unfair act or practice. As discussed 

above, evidence suggests that these 

clauses undermine principles of 

democratic governance, freedom of 

contract, and freedom of expression. In 

particular, a prohibition on unilateral 

amendment clauses is consistent with 

the recent Restatement of Consumer 

Contracts.159 A prohibition on waivers 

of substantive rights is consistent with 

the public policy as determined by State 

and Federal legislatures across the 

country when determining to pass each 

individual law. And a prohibition on 

restraints on free expression supports a 

broad conception of the freedom of 

speech and recognizes that banking and 

consumer finance should be treated as 

public utilities with a duty to serve.160

The CFPB seeks comment on all 

aspects of the proposed prohibition of 

these clauses. 

VII. Proposed Effective Date and 

Compliance Date 

If finalized, the proposed rule would 

go into effect 30 days after publication 

in the Federal Register. Under proposed 

§ 1027.104, covered persons subject to 

the rule would also be required to 

comply with the rule by 30 days after 

publication in the Federal Register. 

However, ‘‘if an agreement for a 

consumer financial product or service 

between a covered person and a 

consumer was executed before [30 days 

after publication of the final rule in the 

Federal Register],’’ compliance with the 

rule would be required by 180 days after 

publication of the final rule in the 

Federal Register.’’ An extended 

compliance date for pre-existing 

agreements would be appropriate 

because companies may need additional 

time to review and conform any preexisting agreements to the proposed 

rule. The CFPB is not proposing to 

prescribe any particular manner in 

which a covered person should conform 

a pre-existing agreement to this 

proposed rule. For instance, a covered 

person may (subject to applicable law) 

amend such an agreement to remove 

any terms or conditions prohibited by 

the proposed rule. Or a covered person 

may provide adequate notice to a 

consumer that it will not enforce a term 

or condition prohibited by the proposed 

rule. 

VIII. Severability 

Under proposed § 1027.103, the CFPB 

preliminarily intends that, if any 

provision of the proposed rule, if 

adopted as final, or any application of 

a provision, is stayed or determined to 

be invalid, the remaining provisions or 

applications are severable and shall 

continue in effect. 

IX. Dodd-Frank Act Section 1022(b)(2) 

Analysis 

A. Introduction 

Overview 

In developing this proposed rule, the 

CFPB considered the potential benefits, 

costs, and impacts required by section 

1022(b)(2) of the Dodd-Frank Act. 

Specifically, section 1022(b)(2) calls for 

the CFPB to consider the potential 

benefits and costs of a regulation to 

consumers and covered persons, 

including the potential reduction of 

access by consumers to consumer 

financial products or services, the 

impact on depository institutions and 

credit unions with $10 billion or less in 

total assets as described in section 1026 

of the Dodd-Frank Act, and the impact 

on consumers in rural areas.161

The CFPB requests comment on the 

preliminary analysis presented below, 

as well as submissions of additional 

data that could inform the CFPB’s 

analysis of the benefits, costs, and 

impacts of the proposed rule. 

The CFPB considers the benefits, 

costs, and impacts of the proposed 

provisions as compared to the status 

quo that existed prior to the issuance of 

this proposed rule. In formulating this 

baseline, the CFPB considers economic 

attributes of the relevant markets and 

the existing legal and regulatory 

structures applicable to covered 

persons. In subpart B, the proposed rule 

would codify the prohibition of certain 

credit practices. Bank and nonbank 

covered persons have generally been 

aware that these credit practices are or 

are likely unlawful in light of the FTC 

Credit Practices Rule and joint guidance 

from the CFPB and the prudential 

regulators warning that such practices 

may violate the CFPA and FTC Act even 

in the absence of an express regulatory 

prohibition if engaged in by banks, 

savings associations, and Federal credit 

unions. The CFPB therefore anticipates 

few impacts resulting from this 

provision, relative to the baseline for 

these types of covered persons and 

seeks comment regarding the impacts on 

covered persons who were not already 

subject to these laws. subpart C of the 

proposed rule would create new 

restrictions on the terms of covered 

persons’ contracts for a consumer 

financial product or service, though in 

many cases these terms are also already 

prohibited, such as non-disparagement 

clauses that violate the Consumer 

Review Fairness Act or waivers that 

violate the Military Lending Act. 

Therefore, subpart C may result in some 

substantive changes relative to the 

baseline. The estimated costs and 

benefits of both subparts are considered 

below. The CFPB seeks comment on this 

baseline. 

Data 

The CFPB notes that in some 

instances, the data needed to analyze 

the potential benefits, costs, and 

impacts of the proposed rule are not 

available or are limited. In particular, 

data with which to quantify impacts of 

the proposed rule are especially limited; 

for example, data with which to 

quantify the incidence of prohibited 

clauses, incidence of the use of 


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162That is, how often covered persons rely on a 

prohibited term in consumer relations under the 

baseline. 

163Although section 1022(b)(2) does not require 

the CFPB to provide this background, the CFPB 

does so as a matter of discretion to more fully 

inform the rulemaking. 

prohibited clauses under baseline,162

estimates of investments into 

compliance with consumer protection 

laws that will be induced by the 

rulemaking, and estimates of the effect 

on consumer behavior induced by the 

inclusion of prohibited clauses in 

contract language under baseline. As a 

result, portions of this analysis rely in 

part on general economic principles and 

the CFPB’s expertise in consumer 

financial markets to provide a 

qualitative discussion of the benefits, 

costs, and impacts of the proposed rule. 

The CFPB seeks comment, data, or 

analysis that would improve this 

analysis. 

Statement of Need 

Before considering the benefits, costs, 

and impacts of the proposed provisions 

on consumers and covered persons, as 

required by section 1022(b)(2), the CFPB 

believes it may be useful to provide the 

economic framework through which it 

is considering those factors in order to 

more fully inform the rulemaking, and 

in particular to describe the market 

failures that are the basis for the 

proposed rule.163

In a perfectly competitive market, 

where consumers were able to fully 

understand and appropriately value 

each term or condition of their 

contracts, firms would have strong 

incentives to offer contracts that include 

only terms and conditions that, in 

expectation, generate net value that is 

shared between the firm and their 

customers. However, there is strong 

evidence that consumers rarely read the 

terms and conditions and are often 

unaware of the full implications of the 

contracts they sign. Form contracts are 

often long and complex, and require 

sophisticated legal knowledge to 

understand. Further, consumers have no 

meaningful opportunity to negotiate the 

contracts’ terms and conditions, and 

therefore have little incentive to spend 

their limited time on understanding and 

valuing the contracts’ terms and 

conditions. Even if consumers do fully 

understand the terms and conditions, 

the risks and benefits of each clause are 

often distant in time and probability and 

therefore extremely difficult for 

consumers to accurately assess. Finally, 

although the competitiveness of markets 

for consumer financial products and 

services varies from product to product, 

the search costs involved in reading, 

understanding, and valuing the terms 

and conditions offered for each product 

or service a consumer is considering 

likely creates sufficient market power 

for firms to impose contract terms and 

conditions that are less favorable to 

consumers than would be efficient. That 

is, the terms and conditions are likely 

to, on average, impose costs on 

consumers that exceed the benefits to 

the firms that impose them. 

Certain types of terms and conditions 

also impose negative externalities on the 

market as a whole by weakening 

incentives to comply with applicable 

consumer protection laws. For example, 

firms sometimes include clauses in their 

terms and conditions that purport to 

waive protections passed by elected 

officials in Federal or State government, 

surrender due process rights upon 

default, or allow firms to unilaterally 

amend the contract at any time. Some 

firms also seek to weaken reputational 

incentives by including clauses that 

restrict consumers’ free speech. 

The proposed rule has two parts. 

First, it codifies practices on the use of 

certain remedies in credit contracts that 

have long been understood to be 

prohibited. Second, it forbids covered 

persons from including in their 

contracts any clause that waives legal 

rights designed to protect consumers, 

any clause that reserves to the covered 

person the right to unilaterally amend a 

material term of the contract, and any 

clause that restrains the consumer’s free 

expression. 

The first part of the proposed rule– 

subpart B–would codify the already 

existing FTC Credit Practices Rule and 

is unlikely to have significant costs for 

covered persons because the credit 

practices it prohibits are generally 

understood to be prohibited at baseline. 

Under this baseline, many covered 

persons are already subject to the FTC 

Credit Practices Rule, and the 

prohibitions in subpart B would not 

result in any change for them, while 

banks and other prudentially supervised 

institutions that have not been covered 

by the Credit Practices Rule or its 

prudential regulator equivalents, 

repealed following the enactment of the 

CFPA, generally understand from the 

2014 guidance that the practices that 

subpart B would codify are likely to be 

prohibited. At baseline, some covered 

persons may face costs related to 

residual uncertainty about whether 

covered persons within the CFPB’s 

jurisdiction may engage in the 

prohibited credit practices. For 

example, some covered persons may 

choose to consult legal counsel to 

determine whether a certain business 

practice is permissible. By reducing 

confusion or uncertainty about what is 

prohibited, the proposed rule may 

reduce these costs for covered persons. 

The second part of the proposed 

rule—subpart C—addresses the 

incentives for covered persons to 

comply with applicable consumer 

financial protection laws. Some 

consumer finance companies may alter 

private enforcement through the terms 

and conditions included in contracts of 

adhesion. The CFPB’s economic 

framework assumes that when Congress 

and States have promulgated consumer 

protection laws that are applicable to 

consumer financial products and 

services (the underlying laws) they have 

done so to address a range of market 

failures. The underlying laws need 

enforcement mechanisms to ensure that 

firms providing financial products and 

services conform to these laws. Along 

with supervisory or public enforcement 

by Federal and State regulatory bodies 

and commercial incentives to maintain 

a good reputation, private enforcement 

mechanisms play a critical role in 

ensuring compliance with the 

underlying laws. While the CFPB 

assumes that the underlying laws 

address a range of market failures, it 

also recognizes that compliance with 

these underlying laws requires firms to 

incur costs. For example, there are costs 

required to distribute required 

disclosures, resolve disputes, or train 

and monitor employees for compliance 

with underlying laws. 

The CFPB has preliminarily 

determined, based on its experience and 

expertise in overseeing consumer 

finance markets, that weakening 

consumers’ rights, as defined by elected 

legislatures and courts, is likely to lead 

to weaker compliance incentives. The 

economic costs of increased compliance 

would generally be less than the 

economic benefits of increased 

compliance. Thus, the terms and 

conditions that would be prohibited by 

subpart C of the proposed rule are likely 

to lower economic welfare by 

undermining compliance incentives. 

The provisions that would be 

prohibited by subpart C of the proposed 

rule generally undermine compliance 

incentives without offering any rights or 

benefits to consumers. Indeed, they 

generally constitute unfair or deceptive 

acts or practices. Many of the provisions 

prohibited by subpart C persist in the 

marketplace due to the market failures 

described above. Consumers are 

generally unaware of these provisions, 

cannot understand them, and have no 

meaningful opportunity to avoid them. 

However, even in an idealized 

marketplace where consumers were 

fully informed and firms did not have 


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164See 49 FR 7740 (Mar. 1, 1984); 50 FR 16696 

(Apr. 29, 1985); 50 FR 19325 (May 8, 1985); and 52 

FR 35060 (Sept. 17, 1987). 

165 49 FR 7779. The FTC’s post-hoc review on 

access to credit came to the same conclusion. 60 FR 

24805, 24808 (May 10, 1995). 

166Note that these covered persons would be 

limited to those that are not subject to the current 

interagency guidance—which covers banks, savings 

associations, and Federal credit unions—as well as 

those not subject to FTC jurisdiction. 

market power, terms and conditions that 

weaken incentives to comply with the 

underlying laws would likely be 

economically inefficient because they 

impose costs on other consumers and 

firms that are not parties to the 

transaction. For example, consumers 

might sign a contract of adhesion 

agreeing to forfeit their right to provide 

negative reviews of a firm’s product or 

service either because they have no 

meaningful choice or because the 

product is priced lower than competing 

products (and at the time of contracting, 

the consumer might focus only on the 

price, not the right they are giving up), 

and the firm might be willing to provide 

a discount in return for this agreement 

to ensure that any deficiencies in their 

product or service would not affect their 

reputation or ability to attract future 

customers. However, this restraint on 

free expression deprives the rest of the 

market of valuable information 

regarding the conduct of the firm or the 

quality of its product. This type of 

clause creates an additional market 

failure—insufficient provision of public 

information—that cannot be resolved 

through informed consent or 

negotiation. 

B. Overview of Economic Effects 

This section provides an overview of 

the economic effects of subparts B and 

C of the proposed rule. 

Overview of Economic Effects of 

Subpart B 

This subpart would codify the already 

existing FTC Credit Practices Rule, 

which was first issued in 1984 and 

applies to entities in the FTC’s 

jurisdiction, and apply it additionally to 

banks, savings associations, Federal 

credit unions, and other covered 

persons under the CFPB’s jurisdiction. 

Following the issuance of the FTC’s 

rule, other prudential regulators issued 

companion credit practices rules 

applicable to banks, savings 

associations, and Federal credit unions; 

the Federal Reserve Board’s rule 

applicable to banks was codified in 

Regulation AA. The Dodd-Frank Act 

repealed the rulemaking authority of the 

prudential regulators under the FTC Act 

and transferred that authority to the 

CFPB. The CFPB did not re-codify these 

rules when it was created, but issued 

joint guidance with the prudential 

regulators to make clear that the 

conduct that these rules covered still 

could violate the prohibitions against 

unfair and deceptive acts and practices 

under the FTC Act and the Dodd-Frank 

Act. This subpart explicitly re-codifies 

these credit practices rules. Because the 

conduct covered under this subpart is 

already generally understood by market 

participants to be unfair and deceptive, 

the CFPB does not anticipate that there 

will be any meaningful economic effects 

in response to the re-codification of 

these rules. 

Insofar as there are covered persons 

who are not currently subject to the 

FTC’s Credit Practices Rule or within 

the scope of the interagency guidance 

on prohibited credit practices for banks, 

savings associations, and Federal credit 

unions, and therefore do not understand 

that the practices are currently 

prohibited, the implementation of this 

proposed rule would standardize credit 

practices across lenders of different 

types. This would require covered 

persons not currently in compliance 

with the requirements of the FTC’s 

Credit Practices Rule and the former 

rules promulgated by the prudential 

regulators to invest in compliance with 

the proposed rule, for example, by 

removing any clauses with prohibited 

terms in existing contracts and 

including cosigner disclosure forms. For 

covered persons currently subject to the 

FTC’s Credit Practices Rule or within 

the scope of the interagency guidance— 

that is, banks, savings associations, 

Federal credit unions, and any covered 

person under FTC jurisdiction—this 

would require potential competitors to 

also comply with the requirements of 

the existing and former rules, 

eliminating any undue competitive 

advantage those potential competitors 

currently hold and benefiting the 

covered persons currently refraining 

from the practices covered by those 

rules. From the perspective of the 

consumer, the standardization of credit 

practices across lenders of different 

types would reduce search costs. 

Moreover, as noted in the interagency 

guidance, the basis of the prohibited 

credit practices was their unfair or 

deceptive nature; 164 hence their 

prohibition across a broader group of 

covered persons would benefit 

consumers by further shielding them 

from these practices. On the other hand, 

it is theoretically possible that some 

covered persons would reduce the 

provision of certain credit products due 

to the expanded scope of the proposed 

rule. However, even if there are entities 

that are not covered by the FTC’s rule 

or the interagency guidance and use 

these prohibited terms, the rule is 

unlikely to affect credit access from 

those entities given the FTC’s original 

conclusion that the Credit Practices 

Rule would ‘‘not have a major impact on 

either the price or availability of 

credit.’’ 165 The magnitude of these 

effects depends on how many covered 

persons would be newly subjected to 

these requirements. The CFPB requests 

any data or comments that would help 

quantify how many covered entities 

would be newly subjected to the 

requirements of the credit practices 

rules as a result of this proposed rule 

and how many use any prohibited credit 

practices under the baseline.166

Additionally, it is possible that 

certain providers would attempt to 

engage in prohibited credit practices or 

may be uncertain as to whether certain 

business practices are permissible, 

despite current guidance from the CFPB 

and other prudential regulators. This 

subpart would reduce any residual 

confusion or uncertainty about what is 

prohibited, which may benefit covered 

persons. In the event that covered 

persons may incorrectly attempt to use 

these prohibited practices against 

consumers, it is possible that this recodification incentivizes providers to 

reduce their use of these prohibited 

credit practices and thus reduces any 

costs incurred by consumers in 

defending themselves from these 

prohibited credit practices. 

Overview of Economic Effects of 

Subpart C 

This subpart would prohibit covered 

persons from including in their 

contracts with consumers for consumer 

financial products or services (1) clauses 

that require consumers to waive legal 

rights designed to protect consumers, 

other than rights explicitly made 

waivable by relevant consumer laws; (2) 

clauses that allow a covered person to 

unilaterally amend a material term of 

the contract; and (3) clauses that restrict 

consumers’ free expression. 

Collectively, these are referred to as 

prohibited terms and conditions. The 

CFPB considers these terms and 

conditions to be (1) deceptive insofar as 

clauses that purport to waive legal rights 

expressly granted by relevant consumer 

financial laws, or restrain speech 

protected by the Consumer Review 

Fairness Act are unenforceable but may 

be presented as if they are binding; and 

(2) unfair, as these terms and conditions 

cause injury that is not reasonably 

avoidable by consumers and not 


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167The CFPB has explained that the use of 

contract terms that are unenforceable often amounts 

to a deceptive act or practice, see CFPB Circular 

2024–03, https://www.consumerfinance.gov/ 

compliance/circulars/consumer-financialprotection-circular-2024-03/. In that sense, portions 

of this subpart codify existing interpretation of the 

CFPA. Under the Restatement (Second) of 

Contracts, revised contract terms are adopted only 

insofar as consumers receive notice of material 

changes, have opportunity to consider changes, and 

assent to changes. Unilateral changes to contract 

terms that lack notice and meaningful consent by 

the consumer violate this principle and are 

generally found to be unenforceable by courts, as 

noted above. Similarly, form contract prohibitions 

on consumers’ free expression run afoul of the 

Consumer Review Fairness Act and are thus 

unenforceable. Finally, as noted above, the CFPB 

has taken enforcement action against covered 

persons who include in contract language waivers 

of consumer rights that are expressly waivable by 

statute. 

168See, e.g., Tess Wilkinson-Ryan, The Perverse 

Consequences of Disclosing Standard Terms, 103 

Cornell L. Rev., 117–175 (2017). 

169For example, any covered persons that rely on 

waivers of consumer protection law, including both 

cause of action and remedies, under the baseline 

would be incentivized to increase their compliance 

with these laws given the prohibition of these 

waivers of law. Note that this incentive effect is not 

independent of the incidence of disputes effect 

described above. Specifically, covered persons are 

likely to recognize that the removal of any chilling 

effect the prohibited terms may have on consumer 

behavior would likely increase dispute incidence, 

all else equal. To lessen the probability of a dispute 

arising, covered persons would be incentivized to 

increase compliance with consumer protection 

laws. Even with this increased compliance, it is 

likely that the removal of the chilling effect would 

still lead to increased incidence of disputes. 

170The specific process the covered person would 

have to follow depends on prevailing State and 

common law. 171This would have an ambiguous effect on 

consumers. On one hand, if as a result of increased 

costs of changing contracts, covered persons decide 

to change or remove terms that consumers value, 

this is costly to consumers. On the other hand, 

consumers being made aware of changes in contract 

terms and being offered the opportunity to consider 

these changes allows them to better respond to 

changes, which benefits them. For example, a 

covered person that rewards points on a credit card 

may lower the value of these points in the initially 

offered contract in anticipation of higher costs of 

changing the terms at a later date, which is costly 

for consumers. However, if the covered person 

decides to lower the value of these points after the 

contract is in force, they would not be able to do 

so unilaterally and must notify the consumer in 

advance, at a minimum giving the consumer 

opportunity to consider and respond to these 

changes. In response, the consumer may decide to 

redeem the points in advance of any devaluation or 

end the financial relationship and move to a 

different provider that offers more favorable terms. 

This would benefit the consumer insofar as they 

would not necessarily have this opportunity under 

the baseline. 

172 Given that the rule prohibits waivers of 

consumer rights under Federal or State consumer 

financial protection laws, it is possible that future 

changes in consumer financial protection laws may 

require review and editing of contracts. In that 

sense, this final effect may also lead to some 

variable costs for covered persons in the form of 

monitoring relevant consumer protection laws and 

ensuring that terms and conditions of relevant 

contracts comply with these laws. However, it 

should also be noted that, at baseline, covered 

persons must monitor and comply with relevant 

consumer protection laws, including any potential 

changes to relevant laws. In that sense, the 

additional cost here would be limited to reviewing 

and editing contracts to ensure compliance. 

173Some of these increased costs—e.g., the cost 

of changing contract language to remove prohibited 

terms—can be considered fixed costs of business. 

Economic theory suggests that the profitmaximizing response of an increase in fixed costs 

is not to pass that increase through to consumers. 

174See Lawrence Ausubel, The Failure of 

Competition in the Credit Card Market, 81 a.m. 

Econ. Rev. 50 (1991); but see Todd Zywicki, The 

Economics of Credit Cards, 3 Chap. L. Rev. 79 

(2000); Daniel Grodzicki, Competition and 

Customer Acquisition in the U.S. Credit Card 

Market (Working Paper, 2015): https://

editorialexpress.com/cgi-bin/conference/download.

cgi?db_name=IIOC2015&paper_id=308. 

outweighed by countervailing benefits 

to consumers or competition.167

There are four main effects the 

adoption of subpart C of this proposed 

rule would cause. First, the inclusion of 

prohibited terms and conditions at 

baseline may have an effect on 

consumer behavior, even when such 

terms are unenforceable.168 Hence, the 

implementation of this rulemaking 

would likely ease this effect, which in 

turn would likely increase the incidence 

of consumer disputes. This would apply 

to formal disputes, where consumers 

exercise legal rights afforded to them 

under consumer financial laws, or to 

informal disputes, for example, in 

situations where a consumer exercises 

their free expression to lodge 

complaints against the covered person 

in public forums. In either case, the 

covered person would generally incur 

additional costs in countering such 

disputes through customer service, in 

formal legal or arbitration settings, or in 

informal settings such as response to 

consumer complaints in public forums. 

Consumers who may have been 

discouraged from pursuing valid 

disputes by the inclusion of prohibited 

terms in contracts would benefit from 

the increased incidence of disputes and 

associated relief. Second, insofar as 

covered persons may rely on prohibited 

terms in the event that a dispute 

arises—including reliance on 

unenforceable terms due to any residual 

uncertainty about the applicability of 

such terms—the prohibition of these 

terms and conditions in contracts 

incentivizes covered persons to comply 

with existing consumer financial laws. 

Covered persons would respond to this 

incentive by increasing investments in 

compliance, which in turn benefits 

consumers due to the lower likelihood 

that consumers would experience a 

violation of their rights under applicable 

consumer financial laws.169 Third, the 

prohibition of unilateral changes in 

contract terms would increase the costs 

of contract changes, which in turn may 

change the terms that the covered 

person would initially offer beyond the 

elimination of any prohibited terms. 

That is, a covered person who relies on 

a contract term allowing for unilateral 

changes under the baseline would be 

required to remove this term and 

instead comply with applicable Federal 

or State law in order to implement 

modifications.170 Insofar as this process 

is more costly than the process to 

change terms under the baseline, the 

covered person may opt to change the 

terms—beyond any prohibited terms— 

in the initially offered contract in 

anticipation of these increased costs.171

However, as noted above, unilateral 

changes may be found to be 

unenforceable by courts, absent 

evidence of sufficient notice and 

consumer consent. Hence, this effect 

will be limited by the enforceability of 

such terms under baseline. Finally, 

there would be administrative costs 

associated with identifying and 

removing any prohibited terms and 

conditions from contracts, though this 

cost is expected to be a fixed, one-time 

cost, in general.172 The CFPB does not 

have systematic data that would allow 

for the quantification of the incidence of 

these terms in consumer contracts nor 

their actual use in financial 

relationships. The CFPB requests any 

commentary or data that would help 

quantify the baseline as well as any 

costs or benefits associated with the 

aforementioned economic effects of the 

rulemaking. 

Insofar as some of these effects 

increase the marginal costs to covered 

persons—e.g., increased costs of 

compliance with consumer finance laws 

or increased costs associated with 

dispute resolution which would be 

ongoing costs, in general, as opposed to 

being incurred one-time only—the CFPB 

believes that most providers would pass 

through some portion of these marginal 

cost increases to consumers.173 The rate 

at which firms pass through changes in 

their marginal costs to consumers 

through prices charged is called the 

pass-through rate—e.g., a pass-through 

rate of 100 percent means that the 

increase in marginal costs would not be 

absorbed by providers but rather fully 

passed through to consumers through 

increased prices, while a pass-through 

rate of 0 percent means that consumers 

would not see a price increase. The 

pass-through rate depends on many 

factors, including the elasticities of 

demand and supply, the market 

structure, and the model of competition. 

Existing estimates of pass-through rates 

in the credit card market are close to 

zero.174 Similarly, research on the 

effects of regulation on late payment 


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175See Sumit Agarwal, Souphala 

Chomsisengphet, Neale Mahoney & Johannes 

Stroebel, Regulating Consumer Financial Products: 

Evidence from Credit Cards, 130 Q. J. of Econ. 1 

(2015); Benjamin Kay, Mark Manuszak & Cindy 

Vojtech, Bank Profitability and Debit Card 

Interchange Regulation: Bank Responses to the 

Durbin Amendment (Fed. Reserve Board, Working 

Paper No. 2014–77, 2014), https://

www.federalreserve.gov/econresdata/feds/2014/ 

files/201477pap.pdf. But see Todd Zywicki, 

Geoffrey Manne & Julian Morris, Price Controls on 

Payment Card Interchange Fees: The U.S. 

Experience, (Geo. Mason L. & Econ., Research Paper 

No. 14–18, 2014), http://papers.ssrn.com/sol3/ 

Papers.cfm?abstract_id=2446080. 

176 12 U.S.C. 5481. 

177The Economic Census provides entity counts 

by revenue bins that generally do not correspond 

to the SBA revenue thresholds. Therefore, the CFPB 

estimates the number of entities that are above the 

small entity thresholds. In particular, for each 

NAICS code, the CFPB fits a generalized Pareto 

distribution to the share of firms in four revenue 

bins, as reported in the Economic Census: Under 

$1MM, $1–10MM, $10–25MM, and $25MM+. SBA 

regularly updates its size thresholds to account for 

inflation and other factors. The SBA Size Standards 

described here reflect the thresholds in effect at the 

publication date of this proposed rule. The 2017 

Economic Census data are the most recently 

available data with entity counts by annual 

revenue. See Small Bus. Admin., SBA Size 

Standards (effective Mar. 17, 2023), https://

www.sba.gov/document/support-table-sizestandards. 

178 49 FR 7740 (Mar. 1, 1984). 

fees and overlimit fees on credit card 

and interchange fees on debit cards 

generally found low to non-existent 

pass-through rates.175 Beyond credit 

cards and debit cards, there is relatively 

limited evidence estimating the passthrough rate on all the relevant 

consumer finance markets covered by 

this rulemaking. The CFPB requests any 

comments or data that may aid the 

evaluation of relevant pass-through 

rates. 

C. Potential Costs and Benefits to 

Covered Persons 

This section describes the benefits 

and costs to covered persons that the 

CFPB expects to occur under the 

proposed rule. Each of the two subparts 

of the proposed rule is analyzed in 

detail separately. The proposed rule 

would generally apply to ‘‘covered 

persons’’ under the CFPA, subject to 

certain exceptions. A covered person is 

‘‘(A) any person that engages in offering 

or providing a consumer financial 

product or service; and (B) any affiliate 

of a person described in subparagraph 

(A) if such affiliate acts as a service 

provider to such person.’’ 176 Section 

1027.102 of the proposed rule would 

exempt two categories of covered 

persons from the rule. First, the rule 

would not apply to any person that is 

a ‘small entity’ as that term is defined 

in 5 U.S.C. 601, including any firm that 

is at or below the SBA standard for its 

primary industry. Second, the rule 

would not apply to ‘‘any person to the 

extent that it is providing a product or 

service in circumstances excluded from 

the CFPB’s rulemaking authority 

pursuant to 12 U.S.C. 5517 or 5519.’’ 

To derive an estimate of the number 

of affected entities under the proposed 

rule using publicly available data, the 

CFPB used data from the December 

2023 NCUA and FFIEC Call Report Data 

and the 2017 Economic Census from the 

U.S. Census Bureau. Table 1 below 

presents entity counts for the North 

American Industry Classification 

System (NAICS) codes that generally 

align with consumer financial products 

or services. The markets defined by 

NAICS codes may include some entities 

that would not qualify as covered 

persons under the CFPA. It is also likely 

that some covered persons may not be 

counted in table 1. For example, the 

financial services they provide may not 

be their primary line of business. The 

CFPB seeks comment on the NAICS 

codes included in table 1, and, in 

particular, on whether there are any 

industries not included that contain a 

significant number of entities that will 

be affected by the final rule. 

TABLE 1—ENTITY COUNTS FOR NAICS CODES

NAICS name(s) NAICS code(s) 

Number of 

entities 

operating all 

year 

Estimated 

number of 

non-SBA 

entities 177

Credit Unions ............................................................................................. 522110, ............................................

522120, ............................................

522210 .............................................

4702 500 

Commercial Banking, Savings Institutions, and Credit Card Issuing ........ 522130 ............................................. 4587 1165 

Nondepository Credit Intermediation ......................................................... 522220, ............................................

522291, ............................................

522292, ............................................

522299 .............................................

7403 438 

Activities Related to Credit Intermediation ................................................ 522310, ............................................

522320, ............................................

522390 .............................................

11252 212 

Activities Related to Real Estate ............................................................... 531311, ............................................

531312, ............................................

531320, ............................................

531390 .............................................

63564 709 

Portfolio Management & Investment Advice ............................................. 523920, ............................................

523930 .............................................

34695 542 

Passenger Car Leasing ............................................................................. 532112 ............................................. 199 0 

Truck, Utility Trailer, and Recreational Vehicle Rental and Leasing ........ 532120 ............................................. 920 0 

Consumer Reporting .................................................................................. 561450 ............................................. 284 17 

Debt Collection .......................................................................................... 561440 ............................................. 2750 116 

Total .................................................................................................... .......................................................... 130,356 3,699 

Subpart B of the proposed rule would 

codify the already existing FTC Credit 

Practices Rule, which was first issued in 

1984,178 and apply it additionally to 

banks, savings associations, Federal 

credit unions, and other covered 

persons under the CFPB’s jurisdiction. 

Because the conduct covered under this 

subpart is already generally understood 

to be unfair and deceptive, the CFPB 

does not anticipate that there would be 


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3586 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 

179See CFPB Consumer Financial Protection 

Circular 2024–03 ‘‘Unlawful and unenforceable 

contract terms and conditions’’ at https://

www.consumerfinance.gov/compliance/circulars/ 

consumer-financial-protection-circular-2024-03/. 

any significant economic effects in 

response to the proposed codification. 

However, it is possible that, at baseline, 

some covered persons attempt to engage 

in prohibited credit practices or incur 

costs related to determining whether a 

practice is prohibited. The proposed 

rule may therefore modestly benefit 

covered persons by emphasizing that 

these credit practices are prohibited. 

Subpart C of the proposed rule would 

prohibit covered persons from including 

in their contracts with consumers for 

consumer financial products or services 

(i) clauses that require consumers to 

waive legal rights designed to protect 

consumers; (ii) clauses that allow the 

covered person to unilaterally amend 

the contract; and (iii) clauses that 

restrict consumers’ free expression. This 

provision would impose one-time 

administrative costs associated with 

reviewing and revising contracts to 

identify and remove any prohibited 

terms and conditions. Covered persons 

currently using prohibited terms and 

conditions would likely face increased 

exposure to consumer disputes, 

including litigation. In response, 

covered persons currently using 

prohibited terms and conditions would 

incur costs related to lowering their 

exposure to disputes, for example by 

allocating more resources to training 

staff to comply with underlying laws, as 

well as increased costs related to 

countering disputes, either in formal 

litigation or arbitration or in informal 

settings. 

Subpart C likely would benefit some 

covered persons by reducing 

uncertainty about the legality of 

prohibited terms and conditions, as well 

as unintentional exposure to 

enforcement action by the CFPB or other 

State and Federal regulators. Covered 

persons not currently using terms and 

conditions that would be prohibited 

under subpart C may also benefit from 

this provision of the proposed rule. In 

general, firms that intentionally violate 

consumer protection laws or underinvest in compliance obtain a 

competitive advantage over their more 

compliant competitors. For example, 

firms that successfully deceive 

consumers about the true cost or quality 

of the products or services they offer by 

restricting the right of consumers to 

freely express their experiences with the 

provider may gain market share at the 

expense of firms that more accurately 

disclose costs or quality. In some cases, 

firms that unlawfully use terms and 

conditions to limit consumers’ ability to 

resolve disputes may be able to offer 

lower prices to consumers up front, 

even if the prohibited terms and 

conditions leave consumers worse off 

on average. To the extent that the 

proposed rule incentivizes firms using 

prohibited terms and conditions to 

increase their compliance, firms which 

were previously compliant will benefit. 

Clauses that restrict free expression 

prevent consumers from obtaining 

information that would be relevant to 

their adoption or purchasing decisions 

and make it more difficult for highquality firms to gain market share. 

Therefore, the prohibition on clauses 

restricting free expression will benefit 

firms that would gain market share if 

more information about consumers’ 

experiences with their competitors was 

publicly available. 

Potential Costs and Benefits to Covered 

Persons of Subpart B 

Subpart B of the proposed rule would 

codify the already existing FTC Credit 

Practices Rule, which was first issued in 

1984, and apply it additionally to banks, 

savings associations, Federal credit 

unions, and other covered persons 

under the CFPB’s jurisdiction. Because 

the conduct covered under this subpart 

is already generally understood to be 

unfair and deceptive and is, in the 

CFPB’s experience, exceedingly 

uncommon, the CFPB does not 

anticipate that there will be any 

significant economic effects in response 

to the proposed codification. The CFPB 

seeks comment on whether any covered 

persons are not prohibited or 

discouraged from using these practices 

at baseline, for example because they 

are exempt from FTC authority and 

outside the scope of applicable 

interagency guidance. The CFPB also 

seeks comment on the incidence of 

these practices at baseline, including for 

any covered persons not currently 

prohibited or discouraged from using 

them. 

Despite the longstanding prohibition 

on and discouragement of these 

practices, it is possible that some 

covered persons attempt to engage in 

such practices or incur costs related to 

determining whether a practice is 

prohibited. The proposed rule may 

therefore modestly benefit covered 

persons by clarifying that these credit 

practices are prohibited. For example, it 

is possible that some covered persons 

that would consult outside legal counsel 

to assess the risks of engaging in a 

prohibited credit practice at baseline 

would no longer do so under the 

proposed rule. 

The CFPB does not have any data 

with which to quantify the extent of 

uncertainty regarding the credit 

practices subpart B would prohibit or 

the costs, if any, that firms bear as a 

result of such uncertainty. Therefore, 

the CFPB cannot quantify the benefits 

associated with reducing uncertainty 

about the legality of these practices. The 

CFPB requests comment or data on 

cases where covered persons may lack 

clarity about the applicability of current 

rules and guidance on credit practices, 

or where such lack of clarity may be 

resolved by the proposed rule’s 

codification. 

Potential Costs and Benefits to Covered 

Persons of Subpart C 

Subpart C of the proposed rule 

prohibits covered persons from 

including in their contracts with 

consumers for consumer financial 

products or services (i) clauses that 

require consumers to waive legal rights 

designed to protect consumers; (ii) 

clauses that allow the covered person to 

unilaterally amend the contract; and (iii) 

clauses that restrict consumers’ free 

expression. The CFPB has preliminarily 

determined that these prohibited terms 

and conditions constitute unfair or 

deceptive acts or practices. Based on 

previous guidance 179 and enforcement 

actions by the CFPB and other State and 

Federal regulators, the CFPB believes 

that some covered persons may already 

not use the terms and conditions 

covered by subpart C because their use 

may constitute prohibited UDAAPs or 

otherwise be unenforceable under 

common law or other statutory law. 

Costs of Reviewing and Revising 

Contracts 

This provision would impose onetime administrative costs associated 

with reviewing and revising contracts to 

identify and remove any prohibited 

terms and conditions. To precisely 

quantify the costs to covered persons, 

the CFPB would need representative 

data on the operational costs that 

covered persons would incur to read 

and understand the rule, identify any 

prohibited terms and conditions in their 

contracts, revise any non-compliant 

contracts, and fully implement use of 

the revised contracts. Given that the 

CFPB is unaware of the existence of 

representative data of this kind, the 

CFPB has made reasonable efforts to 

gather information on the one-time costs 

of reviewing contracts for compliance 

with the proposed rule and revising 

them if necessary. The following 

discussion combines available data with 

assumptions informed by the CFPB’s 

experience to produce estimated costs 

for covered persons of three 


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180For example, the proposed rule would 

generally require that unilateral amendment clauses 

explicitly describe the conditions under which 

contracts can be unilaterally amended, such as 

notification and options for opting out of the 

amendment. In the CFPB’s experience, these 

clauses are common but often do not adequately 

inform consumers of their rights. Under the 

proposed rule, any contract containing a unilateral 

amendment clause would need to be revised. 

181For example, the CFPB is aware that some 

firms have established policies to notify consumers 

of changes to their contracts, despite having clauses 

which reserve the right to unilaterally amend the 

contract without notification. These firms would 

generally be able to comply with the proposed rule 

by describing this existing policy in the contract. 

Although this would require additional 

commitment to notify consumers of changes, it 

would not require the firm to develop or establish 

a new notification policy. 

representative sizes. Given the potential 

for wide variation in use of terms and 

conditions covered by proposed subpart 

C at baseline and the limited data 

available, these calculations may not 

fully quantify the costs to an individual 

covered person. That is, the CFPB 

expects that some firms would have 

higher or lower costs than the average 

costs described here. The CFPB requests 

comment on this approach, as well as 

any data or analysis that would inform 

its cost estimates. 

In general, the one-time costs of 

bringing contracts into compliance with 

the proposed rule would require four 

distinct tasks: (1) understanding the 

rule; (2) reviewing all contract types to 

identify any prohibited terms and 

conditions; (3) revising any contract 

containing a prohibited term and 

condition; and (4) implementing use of 

the revised contracts. As discussed 

above, the CFPB does not have 

representative data on the prevalence of 

terms and conditions that would be 

prohibited under the proposed rule. In 

order to avoid underestimating the costs 

of the proposed rule, the CFPB assumes 

that nearly all covered persons not 

exempt from the proposed rule would 

need to review every contract type they 

use for compliance with the proposed 

rule. Further, the CFPB assumes that 

nearly all contract types would need to 

be revised to comply with the proposed 

rule.180 The CFPB seeks comment or 

data on the accuracy of these 

assumptions. 

The first task would require firms to 

read the proposed rule and understand 

its definitions and requirements. Based 

on the CFPB’s experience, this would 

take roughly two hours for the typical 

firm. Some firms may have higher costs. 

For example, some firms may need to 

take time to analyze whether they are 

covered persons subject to the proposed 

rule. The CFPB seeks information or 

analysis on the typical time burden that 

would be required to read and 

understand the proposed rule. 

The second task would require firms 

to review their contracts for the 

presence of terms and conditions that 

would be prohibited by the proposed 

rule. The CFPB understands that the 

types of terms and conditions 

prohibited by the proposed rule are not 

uncommon and expects that many 

covered persons would review their 

existing contracts for compliance with 

the proposed rule. The CFPB expects 

that firms would generally be able to 

complete this task by searching the text 

of the contract for a limited set of key 

words that signify waivers, amendments 

to the contract, or restrictions on 

expression and then evaluating the 

relevant clause for compliance. The 

CFPB expects that this would take 

between 60 and 90 minutes per contract, 

depending on the number of contracts to 

review and the sophistication of the 

firm. The CFPB seeks comment on the 

typical time burden that would be 

involved in reviewing existing contracts 

for compliance with the proposed rule. 

The CFPB also requests comment on 

whether any common terms or 

conditions that would be prohibited by 

the proposed rule would be difficult to 

identify. 

The third task would require firms to 

revise any existing contracts containing 

terms or conditions that would be 

prohibited by the proposed rule. Based 

on academic research and its 

experience, the CFPB expects that most 

contracts contain at least one term or 

condition that would need to be revised. 

The CFPB also expects that many 

prohibited terms and conditions would 

need relatively minor revisions that 

would not significantly change the legal 

risks or business practices of the firm.181

In other cases, firms may need to make 

complex decisions about how to revise 

their contracts. However, the CFPB also 

expects that many firms use similar 

terms and conditions across their 

contracts, and that even firms using 

relatively few contracts would not need 

to consider each term in each contract 

individually. Considering these factors, 

the CFPB expects that, on average, 

revising contracts for compliance would 

take between six and eight hours per 

type of contract. The CFPB requests 

comment on the appropriateness of this 

estimated burden, especially any data or 

analysis that would inform an 

alternative estimate. 

The final task involves implementing 

the revised consumer contracts. This is 

likely to involve updating consumerfacing websites, notifying existing 

customers of the changes, collecting and 

destroying outdated contracts, and 

printing out new paper copies of the 

revised contract for use in offices. Given 

the diverse set of industries and 

business models covered by the 

proposed rule, implementation costs are 

likely to vary significantly between 

firms. In addition, these kinds of 

printing and updating tasks will likely 

be incorporated into ongoing processes 

and reviews. However, based on its 

experience the CFPB expects this task to 

take approximately two to four hours 

per contract on average, depending on 

the number of contracts and the 

sophistication of the firm. The CFPB 

requests comment on the 

appropriateness of this estimated 

burden, as well as any data or analysis 

that would inform an alternative 

estimate. 

The CFPB assesses the average hourly 

base wage rate for each of these tasks at 

$51.21 per hour. This is the mean 

hourly wage for employees in four major 

occupational groups assessed to be most 

likely responsible for the compliance 

process: Management ($59.31/hr); 

Lawyers ($84.84/hr); Business and 

Financial Operations ($39.82/hr); and 

Office and Administrative Support 

($20.88/hr). The average hourly wage of 

$51.21 is multiplied by the private 

industry benefits factor of 1.42 to get a 

fully loaded wage rate of $72.72/hr. The 

CFPB includes these four occupational 

groups in order to account for the mix 

of specialized employees that are likely 

to participate in the identification, 

revision, and implementation of terms 

and conditions due to requirements 

imposed by the proposed rule. The 

CFPB assesses that Office and 

Administrative Support staff are likely 

to be responsible for gathering existing 

contracts and implementing use of any 

revised contracts, potentially including 

destruction of existing noncompliant 

contracts. Employees specialized in 

business and financial operations or in 

legal occupations are likely to be 

responsible for making decisions about 

how noncompliant contracts should be 

revised. Senior officers and other 

managers are likely to review the 

revised contracts and may provide 

additional information. The CFPB seeks 

comment on the occupations of staff 

that would be required to ensure 

compliance with proposed subpart C as 

well as any other information that 

would inform its estimate of the average 

hourly compensation of the necessary 

employees. 

The direct compliance costs for a 

given covered person will depend on its 

complexity in general, and, most 

importantly, on the number of different 

types of contracts it uses. Table 2 

presents the estimated direct cost for 


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3588 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 

182This is the mean hourly wage for employees 

in four major occupational groups assessed to be 

most likely responsible for the compliance process: 

Management ($59.31/hr); Lawyer ($84.84/hr); 

Business and Financial Operations ($39.82/hr); and 

Office and Administrative Support ($20.88/hr). The 

average hourly wage of $51.21 is multiplied by the 

private industry benefits factor of 1.42 to get a fully 

loaded wage rate of $72.72/hr. [CITE BLS https:// 

www.bls.gov/oes/current/oes231011.htm]. 

183The 2017 Economic Census provides firms 

counts for revenue ranges. Here, firms with $1– 

25MM in revenue are assumed to be in the 

‘‘simple’’ tier, with 10 different contracts on 

average. Firms with $25–100MM in revenue are 

assumed to be in the ‘‘intermediate’’ tier, with 25 

different contracts on average. Firms with over 

$100MM in revenue are assumed to be in the 

‘‘complex’’ tier, with 250 different contracts on 

average. The CFPB assumes that Credit Unions, 

Commercial Banks, Savings Institutions, and Credit 

Card Issuers are complex. Firms below the SBA 

threshold for their industry are excluded from these 

counts. 

covered persons at three different levels 

of complexity, based on the 

assumptions described above. The total 

cost depends on the number of covered 

persons in each of the three 

representative categories of complexity. 

Table 2 also reports estimates of how 

many of the estimated number of nonexempt covered persons reported in 

table 1 may fall into each category, 

based on their total revenue as reported 

in the Economic Census. Specifically, 

the CFPB assumes that covered persons 

with under $25 million in annual 

receipts fall within the ‘‘simple’’ tier 

with ten covered contracts. Covered 

persons with annual receipts between 

$25 million and $100 million are 

assumed to be in the ‘‘intermediate’’ 

complexity tier, with 25 contracts. 

Covered persons with annual receipts 

greater than $100 million are assumed 

to be in the ‘‘complex’’ tier, with 250 

contracts. The CFPB believes that 

revenue is a reasonable and transparent 

indicator of the number of contracts 

used by covered persons, and is 

therefore appropriate for estimating the 

average time burden and cost to covered 

entities. The CFPB seeks information or 

analysis that could improve its 

estimates of the number of contracts 

used by different types of firms. 

The estimates detailed in table 2 are 

based on the assumption that most 

covered persons write their contracts inhouse. Covered persons are likely to 

obtain compliant contracts from 

external contract providers if the 

benefits of doing so outweigh the costs. 

External contract providers, such as law 

firms or contract vendors, would likely 

be able to reduce duplication of time 

and effort by reviewing and revising 

contract terms that are used by many 

covered persons. If many covered 

persons rely on external contract 

providers to bring their contracts into 

compliance with the proposed rule, the 

total cost may be significantly lower 

than the estimate detailed in table 2. 

The CFPB requests comment on how 

covered persons may use external 

contract providers to comply with the 

proposed rule, as well as any data or 

analysis that would inform the cost 

estimates in table 2. 

TABLE 2—BURDEN AND COST OF REVIEWING AND REVISING CONTRACTS

Description of task Simple 

(10 contracts) 

Intermediate 

(25 contracts) 

Complex 

(250 contracts) 

1. Read rule, understand requirement, and analyze 

definitions.

2 hours .............................. 2 hours .............................. 2 hours. 

2. Identify prohibited terms and conditions ..................... 15 hours ............................ 25 hours ............................ 250 hours. 

3. Revise contract to eliminate prohibited terms and 

conditions.

80 hours ............................ 200 hours .......................... 1,500 hours. 

4. Update contracts usage .............................................. 40 hours ............................ 100 hours .......................... 500 hours. 

Total time burden per entity: .................................... 137 hours .......................... 327 hours .......................... 2,252 hours. 

Avg. wage rate 182 ........................................................... $72.72 ................................ $72.72 ................................ $72.72. 

Total cost per entity ......................................................... $10,000 .............................. $23,800 .............................. $163,800. 

Estimated number of entities 183 ..................................... 391 ..................................... 900 ..................................... 2,408. 

Total estimated time burden: ........................................... 53,567 hours ..................... 294,300 hours ................... 5,422,816 hours. 

Total Estimated cost: ....................................................... $3,895,400 ......................... $21,401,500 ....................... $394,430,400. 

Covered persons may also need to 

periodically review their contracts for 

compliance with the proposed rule as 

applicable State and Federal laws 

change. The CFPB understands that 

most firms review their contracts 

periodically at baseline and expects that 

the proposed rule would only 

minimally increase the cost of these 

periodic reviews above baseline levels. 

The CFPB requests comment on how the 

proposed rule would change firms’ 

processes for reviewing and updating 

their form contracts as well as any data 

or analysis that would inform estimates 

of the cost of those changes. 

The CFPB has considered the 

possibility that covered persons may 

pass through some of the costs related 

to reviewing and revising contracts to 

consumers as higher prices. In general, 

standard microeconomic theory suggests 

that increases in firms’ fixed costs (i.e. 

costs that do not vary with sales 

volume) are unlikely to be passed 

through to consumers. For a given 

product or service, firms use the same 

form contract for every customer. 

Therefore, the costs of reviewing and 

revising contracts for compliance with 

the proposed rule are fixed at the 

product level and are unlikely to be 

passed through to consumers. The CFPB 

requests any comments or data that may 

aid the evaluation of relevant passthrough rates. 

Costs of Increased Exposure to 

Consumer Disputes 

Covered persons currently using 

terms and conditions that would be 

prohibited under subpart C would likely 

face increased exposure to consumer 

disputes. This increased exposure may 

occur both through increased incidence 

of consumer disputes and through 

increased costs of countering disputes 

that do occur. Covered persons may also 

take costly actions to reduce their 

exposure to consumer disputes, but are 

likely to do so only when those actions 

reduce the net costs of the proposed 

rule. The CFPB is unaware of any 

comprehensive data quantifying the 

number of disputes that are deterred by 

the terms and conditions that would be 

prohibited at baseline or the extent to 

which the terms and conditions that 

would be prohibited reduce dispute 

resolution costs at baseline. Therefore, 

the CFPB is unable to quantify these 

costs and instead provides a qualitative 

discussion. The CFPB seeks any data or 

analysis that would aid in quantifying 

these costs. Similarly, covered persons 

have a wide variety of means with 


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184That is, such terms and conditions may lead 

consumers to believe that the expected value of 

pursuing a dispute is negative, and therefore not 

worth pursuing. In cases where the terms and 

conditions that would be prohibited are 

enforceable, this belief may be correct if such a term 

or condition would reduce the probability that the 

consumer prevails in the dispute or the 

compensation the consumer would receive if they 

prevailed. If the terms or conditions that would be 

prohibited are not enforceable, they may still chill 

disputes by deceiving the consumer about their 

probability of prevailing or their potential 

compensation. 

185As discussed in Part C: Benefits to Consumers, 

these voluntary actions to reduce exposure to 

consumer disputes may have significant benefits to 

consumers. 

186CFPB, Issue Spotlight: Credit Card Rewards at 

11 (May 2024). 

which to reduce their exposure to 

consumer disputes and it is therefore 

difficult to anticipate which actions 

firms will take in response to increased 

exposure or the cost of such actions. 

Therefore, the CFPB provides a 

qualitative discussion of those costs and 

seeks comment on the actions covered 

persons may take to reduce their 

exposure to consumer disputes as well 

as the potential costs of such actions. 

At baseline, terms and conditions that 

would be prohibited under subpart C 

may also have an effect on consumer 

behavior, even when such terms are 

unenforceable.184 The proposed rule 

would ease this effect, which in turn 

would likely increase the incidence of 

consumer disputes. Consumer disputes 

may be formal, where customers 

exercise the legal rights afforded them 

under consumer financial laws, or 

informal, where consumers interact 

with firms’ customer service or exercise 

their right to free expression by lodging 

complaints against the firm in public 

forums. Covered persons would likely 

incur increased costs related to 

responding to additional disputes. For 

example, some covered persons may 

hire additional customer service 

representatives to handle increased call 

volume or pay additional fees to resolve 

disputes in arbitration or in court. The 

CFPB does not have sufficient data to 

estimate the effect of these terms and 

conditions on consumer disputes at 

baseline and therefore cannot quantify 

this cost. The CFPB seeks comment on 

the extent to which consumer disputes 

would become more frequent as a result 

of the proposed rule. The CFPB also 

requests any data or analysis that would 

allow it to quantify marginal cost to 

covered persons of responding to 

additional consumer disputes. 

To the extent that covered persons use 

terms and conditions that would be 

prohibited under subpart C that are 

enforceable at baseline, the proposed 

rule may increase the cost of resolving 

disputes. Waivers of consumer 

protection law are often intended to 

reduce consumers’ likelihood of 

prevailing in a formal dispute or to limit 

the remedies available to consumers 

who do prevail. By prohibiting these 

waivers, the proposed rule would 

increase the likelihood that disputes are 

resolved in consumers’ favor and 

increase the cost of associated remedies 

for some disputes. The magnitude of the 

increases would depend on the specific 

fact pattern of individual disputes, 

because not all terms and conditions 

that would be prohibited would be 

relevant in all disputes. The CFPB is 

unaware of any comprehensive data on 

the number of court and arbitration 

decisions in which these types of terms 

and conditions are decisive, or the effect 

that they have on the final remedy. 

Further, the CFPB is unaware of any 

data or analysis sufficient to quantify 

the effects that terms and conditions 

that would be prohibited have on 

settlements of disputes that do not reach 

a final court or arbitrator decision. 

Therefore, the CFPB is unable to 

quantify this effect. The CFPB requests 

comment on the effects that these terms 

and conditions have on dispute 

outcomes. The CFPB seeks any data or 

analysis that would help quantify these 

costs. 

Covered persons currently using 

terms and conditions that would be 

prohibited under subpart C may 

mitigate the costs described above by 

taking actions to lower their exposure to 

disputes, for example by allocating more 

resources to training staff to comply 

with underlying laws. Standard 

microeconomic theory suggests that 

covered persons will take such costly 

actions only if the benefits they receive 

outweigh the costs. Therefore, the CFPB 

expects that covered persons would 

incur costs related to voluntary changes 

in their business practices if and only if 

those changes reduce the net costs of the 

proposed rule. Due to the wide variety 

of potential actions covered persons 

could take to reduce their exposure to 

consumer disputes and the lack of 

comprehensive data on the costs and 

benefits of those potential actions for 

individual firms, the CFPB is unable to 

quantify the impact of voluntary 

changes in business practices on the 

cost of the proposed rule.185

Costs From Reduced Flexibility in 

Amending Contracts 

As discussed in section VI.B. of the 

preamble, many covered persons use 

contracts containing clauses that 

provide covered persons with discretion 

to change a term of the contract or add 

terms to the contract without 

notification or meaningful consent from 

consumers. The proposed rule requires 

covered persons to clarify their 

notification and consent requirements 

in their contracts. At baseline, unilateral 

amendments are generally 

unenforceable in court unless 

requirements of sufficient notice and 

opportunity to reject or terminate are 

satisfied. The proposed rule would not 

prescribe new requirements for 

sufficient notice or opportunity to reject 

an amendment and would therefore not 

change the enforceability of unilateral 

amendments relative to baseline. The 

CFPB assumes that some covered 

persons implement contract 

amendments at baseline. However, the 

CFPB assumes that, at baseline, these 

contract amendments are not prevalent 

and are rarely challenged in court. The 

CFPB expects that this provision of the 

proposed rule will not require 

significant changes to current business 

practices or impose significant costs on 

covered persons relative to baseline. 

However, by requiring covered 

persons to commit to notification and 

consent requirements and describe 

those requirements in their contracts, 

the proposed rule would reduce some 

covered persons’ discretion to 

unilaterally amend their contracts. This 

may make it more costly for some firms 

to amend their contracts. The CFPB is 

aware that discretion to unilaterally 

amend contracts may be particularly 

valuable to firms with specific business 

models or in certain industries. For 

example, some credit card issuers 

reserve the right to change their rewards 

programs at any time, which can 

potentially provide a valuable option to 

the company to devalue rewards in 

response to changing market 

conditions.186 The option to alter 

rewards programs might become less 

valuable to credit card issuers if they 

were required to notify consumers 

sufficiently in advance of any change in 

the redemption value of rewards points. 

The CFPB is unaware of any data or 

analysis sufficient to quantify the cost of 

marginally reducing discretion to 

amend contracts, such as by requiring 

additional time for notification. The 

CFPB requests any data or analysis that 

would inform estimates of the costs 

related to this provision for credit card 

issuers, as well as comments regarding 

any other industry or business model 

that would be affected by this provision. 


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3590 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 

187 15 U.S.C. 45b. 

Costs From the Prohibition on 

Contractual Restraints on Free 

Expression 

Section 1027.301(a)(3) of the 

proposed rule would prohibit covered 

persons from including in their 

contracts with consumers for consumer 

financial products or services any clause 

that limits or restrains, or purports to 

limit or restrain, the lawful free 

expression of the user of a consumer 

financial product or service. This 

prohibition would prohibit contractual 

clauses that limit a consumer’s ability to 

make negative comments about a 

company or to freely express their 

political or religious views. 

At baseline, non-disparagement 

clauses are generally prohibited in 

standard-form consumer contracts 

under the Consumer Review Fairness 

Act of 2016.187 As noted in section VI.C. 

of the preamble, some States have also 

enacted prohibitions against nondisparagement clauses. Although the 

CFPB is aware of some violations of 

these prohibitions in the consumer 

finance market, the CFPB assumes that 

nearly all covered persons are aware 

that non-disparagement clauses are 

prohibited and in compliance with 

applicable law. Therefore, the CFPB 

expects that restating the existing 

prohibition in the proposed rule will 

not impose any significant costs on 

covered persons. 

The proposed rule also prohibits 

contractual terms that prevent 

consumers from engaging in political or 

religious expression or penalize them 

for doing so. Such terms purport to limit 

consumers’ free expression on issues 

disfavored by the company’s 

management, and such limitations 

generally are not within the purview of 

companies engaged in consumer finance 

markets. Furthermore, while a 

company’s management might obtain a 

benefit in the form of advancing their 

own political or religious views or 

restraining views contrary to their own 

in the marketplace of ideas, consumer 

financial companies obtain no concrete 

financial benefit from limiting the free 

expression of consumers. The CFPB is 

unaware of any comprehensive data on 

the prevalence of such contractual terms 

and therefore cannot quantify the costs 

to covered persons of prohibiting them. 

The CFPB seeks comments regarding 

any covered persons or business models 

that would be impacted by this 

provision, as well as any data or 

analysis that would inform estimates of 

its cost. 

Benefits to Covered Persons 

Subpart C is likely to benefit some 

covered persons by reducing 

uncertainty about the legality of 

prohibited terms and conditions, as well 

as unintentional exposure to 

enforcement action by the CFPB or other 

State and Federal regulators. Some 

covered persons currently using terms 

and conditions that would be prohibited 

may be doing so unintentionally, for 

example because they have purchased a 

contract from a vendor. Because such 

firms did not choose to include these 

terms and conditions in their contracts, 

the legal risks associated with using 

them may exceed the benefits. The 

CFPB does not have systematic data on 

the prevalence of these terms and 

conditions in contracts used by covered 

persons, or the extent to which covered 

persons are unaware of the presence of 

these terms and conditions in their 

contracts. Therefore, the CFPB cannot 

quantify the extent to which clarifying 

that these terms and conditions 

constitute unfair and deceptive acts or 

practices would reduce the costs of 

future enforcement actions related to 

use of terms and conditions that would 

be prohibited. The CFPB requests any 

additional information that would 

improve its understanding of this 

benefit. 

The CFPB anticipates that this 

provision of the proposed rule would 

cause most covered persons currently 

using the terms and conditions that it 

would prohibit to remove them from 

their contracts. This is likely to 

incentivize these firms to increase their 

compliance with underlying consumer 

protection laws. Firms that are 

complying with the law or following 

existing guidance by not using 

prohibited terms and conditions are 

often at a competitive disadvantage 

relative to firms that do not comply with 

the law. To the extent that this 

provision would induce more firms to 

comply with applicable consumer 

protections, firms that were previously 

compliant will benefit. As noted above, 

the CFPB does not have systematic data 

on the use of terms and conditions that 

would be prohibited, the number of 

firms currently not complying with 

consumer protection law, or the harm to 

compliant firms from their competitors’ 

noncompliance. The CFPB is therefore 

unable to quantify this potential benefit 

to covered persons. The CFPB requests 

comments or data that would improve 

its understanding of this potential 

benefit. 

Clauses that restrict free expression 

prevent consumers from obtaining 

information that would be relevant to 

their adoption or purchasing decisions 

and make it more difficult for highquality firms to gain market share. 

Therefore, the prohibition on clauses 

restricting free expression would benefit 

firms that would gain market share if 

more information about consumers’ 

experiences with their competitors was 

publicly available. The magnitude of 

this benefit depends on the prevalence 

of clauses restricting free speech, the 

extent to which such clauses limit the 

information available to other 

consumers regarding disputes or 

negative experiences, and the impact 

that information would have on covered 

persons’ market shares or prices if it 

were publicly available. The CFPB does 

not have sufficient data to quantify 

these factors, and therefore is unable to 

quantify this potential benefit to 

covered persons. The CFPB requests 

comments or data that would improve 

its understanding of this potential 

benefit. 

D. Potential Costs and Benefits to 

Consumers 

This section describes the benefits 

and costs to consumers that the CFPB 

expects to occur under the proposed 

rule. Each of the two subparts of the 

proposed rule is analyzed in detail 

separately. 

Potential Benefits to Consumers of 

Subpart B 

This subpart would re-codify 

Regulation AA, the FTC’s Credit 

Practices Rule, and the companion 

credit practices rules of the prudential 

regulators, which established that these 

credit practices are prohibited. While 

these practices are largely considered 

unlawful pursuant to existing guidance 

from the CFPB and prudential 

regulators, it is possible that there are 

consumer contracts that currently 

include language covered in this subpart 

or that certain providers attempt to 

enforce these practices. The recodification of the prohibition on these 

credit practices would incentivize any 

providers that currently engage in these 

practices through their use of terms and 

conditions in their contracts, or attempt 

to enforce such terms and conditions, to 

cease. This would benefit consumers by 

clarifying that these terms and 

conditions are unenforceable, reducing 

uncertainty and costs associated with 

defending themselves from unlawful 

practices, and reducing firms’ incorrect 

application of these practices against 

consumers. However, the CFPB does not 

have systematic data on the prevalence 

of these practices in consumer contracts 

or on the frequency with which firms 

incorrectly attempt to enforce these 


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188See Tess Wilkinson-Ryan, The Perverse 

Consequences of Disclosing Standard Terms, 103 

Cornell L. Rev. 117–175 (2017). The article provides 

some evidence of this effect. In an experimental 

setting, consumers who read about harsh company 

policies were more likely to believe they were 

legally enforceable if these policies appeared in the 

company’s terms and conditions, rather than in 

some more informal setting. Notably, test subjects 

were asked to read about a particular policy 

presented as either a part of a contract or as a more 

informal policy and asked to assess its 

enforceability. 

189Specifically, the presence of prohibited terms 

as well as particular incidence of waivers of law, 

provisions that allow for unilateral changes to 

terms, and constraints on consumers’ free 

expression. 

practices against consumers. Insofar as 

the scope of this proposed rule extends 

the scope of prohibited credit practices 

to covered persons not previously 

subject to the other rules, this would 

benefit consumers by standardizing the 

credit practices rule across different 

types of lenders, reducing search costs, 

and shielding consumers from unfair or 

deceptive credit practices. However, the 

CFPB does not have systematic data on 

the number of covered persons that 

would be newly subject to the 

prohibited credit practices rule nor the 

number of covered persons that use any 

such credit practices under the baseline. 

Against the baseline, the CFPB is unable 

to quantify the benefit of re-codifying 

these prohibited credit practices. The 

CFPB requests any comments or data 

that would help quantify these benefits. 

Potential Benefits to Consumers of 

Subpart C 

The proposed rule would prohibit the 

use of three categories of terms and 

conditions, collectively referred to as 

prohibited terms and conditions. Even 

when they are generally unenforceable 

under the baseline, as is the case with 

clauses that purport to waive legal rights 

of consumers expressly made 

unwaivable under the law, these terms 

and conditions may still harm 

consumers by hampering private action 

because many consumers are unaware 

that such terms and conditions are 

prohibited or void. For example, when 

a consumer complains about a 

particular practice or harm, a firm using 

a prohibited term or condition may 

incorrectly claim that the consumer 

agreed to an enforceable limitation of 

their rights and thus has no rights to 

seek their desired remedy or a consumer 

who first consults the contract terms in 

the event a particular harm arises may 

reasonably assume that they have no 

right to seek remedy due to the presence 

of prohibited terms. In light of what the 

term or condition states and the 

likelihood of the firm standing behind it 

if a consumer complains, a reasonable 

consumer may believe that they have 

agreed to a limitation of their rights, and 

not pursue further action. The removal 

of prohibited terms would lessen this 

effect, increasing dispute incidence 

when consumers experience a particular 

harm. This is likely to benefit 

consumers through the associated 

dispute resolution and remedy of said 

harm. In addition, as noted above, 

covered persons have increased 

incentive to comply with existing 

consumer protection laws, which would 

also benefit consumers. 

While consumers would likely benefit 

from covered persons’ increased 

compliance with consumer protection 

laws, fully quantifying this benefit 

requires data on the incidence of 

violations of consumer protection laws, 

including violations that are difficult to 

quantify, such as limitations on types of 

contacts and calls under the Fair Debt 

Collection Practices Act (FDCPA) and 

the Telephone Consumer Protection Act 

(TCPA) or a creditor taking more time to 

assure the accuracy of the information 

furnished to a consumer reporting 

agency or investigating disputes of this 

information. Moreover, these benefits 

would be related to the aforementioned 

costs of additional investment in 

compliance taken by covered persons in 

response to this rulemaking. The CFPB 

requests any comments or data that 

would help quantify the incidence of 

these violations, the monetary benefit of 

foregone violations, and increased 

investment in compliance by covered 

persons. Similarly, the increased 

incidence of disputes is likely to benefit 

consumers through remedies to these 

disputes; however, the CFPB lacks any 

systematic data that would allow a full 

quantification of this effect, especially 

considering that such a quantification 

requires measurement of the chilling 

effect on consumer behavior and that a 

significant share of these disputes 

would likely be resolved through 

internal consumer relations.188 The 

CFPB requests any comments or data 

that would help quantify the increased 

incidence of disputes that would arise 

due to the rule, the means by which 

they are resolved, and any monetary 

benefits associated with resolution. 

The magnitude of these benefits 

depends on the share of consumer 

contracts that currently contain 

prohibited terms.189 Although the CFPB 

has documented examples of the use of 

these terms and conditions, the CFPB is 

unaware of any systematic data that 

would enable it to estimate the 

prevalence of (1) terms and conditions 

that waive legal rights provided by 

Federal or State laws, (2) clauses that 

allow for unilateral amendment of terms 

and conditions, or (3) terms and 

conditions that restrain a consumer’s 

free expression. Therefore, the CFPB 

cannot quantify the benefit to 

consumers of prohibiting firms’ use of 

these terms and conditions from their 

contracts. The CFPB requests any 

additional information that would 

improve its understanding of this 

benefit. Against that baseline, which the 

CFPB lacks data to quantify, the CFPB 

believes that the rulemaking will result 

in a significant reduction in the 

incidence of these terms and conditions 

relative to baseline, and thus, benefit 

consumers through the channels 

described above. 

Potential Costs to Consumers 

The CFPB expects that costs to 

consumers would be small under the 

proposed rule. As discussed in part A of 

this section, Overview of Economic 

Effects, consumers may experience passthrough costs from covered persons if 

covered persons’ marginal costs 

increase. As stated in that section, the 

CFPB requests any comments or data 

that would aid the evaluation of 

relevant pass-through rates. 

In addition, as discussed in part F of 

this section, Impact on Access to 

Consumer Financial Products and 

Services, at least some covered persons 

might determine that particular features 

of their products make the covered 

persons more susceptible to consumer 

disputes or litigation and decide to 

remove those features from their 

products. A covered person might make 

this decision even if such a feature is 

beneficial to consumers, though the fact 

that these terms would be deemed more 

susceptible to dispute or litigation may 

suggest otherwise. In this case, 

consumers would incur a cost due to the 

loss of this feature. The CFPB is not 

aware of any data showing this 

theoretical phenomenon to be prevalent 

among covered persons. The CFPB 

requests comment on the extent of this 

phenomenon in the context of the 

proposed rule, and it specifically 

requests data and suggestions about how 

to quantify both the prevalence of this 

phenomenon and the magnitude of 

consumer harm if the phenomenon 

exists. 

Finally, under the proposed rule, it is 

possible that some firms would increase 

the frequency with which they ask 

consumers for affirmative consent to 

changes in contract terms. If so, the time 

and effort it would take consumers to 

review these changes would be an 

additional cost to consumers relative to 

the baseline. The proposed rule would 

forbid covered persons from including 

in any contract with a consumer any 


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3592 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Proposed Rules 

190Some of these increased costs—e.g., the cost 

of changing contract language to remove prohibited 

terms—can be considered fixed costs of business. 

Economic theory suggests that the profitmaximizing response of an increase in fixed costs 

is not to pass that increase through to consumers. 

clause that would reserve to the covered 

person the right to unilaterally amend 

material terms of the contract. 

Therefore, under the proposed rule, 

covered persons that wish to amend 

their contracts would have to comply 

with the appropriate State or Federal 

law process for amending material 

terms. The proposed rule would not 

prescribe the manner in which assent to 

changes in contract terms must be 

attained. Nevertheless, State law or 

common law may require firms to attain 

affirmative consent from consumer, as, 

for example, via written or electronic 

signature. If so, it is plausible that the 

proposed rule would result in an 

additional burden for consumers who 

would need to review, and consent to, 

proposed changes to their contracts. The 

CFPB seeks data or analysis to quantify 

this potential cost to consumers. 

E. Impact on Depository Institutions 

With No More Than $10 Billion in 

Assets 

Subpart B of the proposed rule would 

codify a prohibition on credit practices 

that are generally understood to be 

prohibited, pursuant to settled industry 

expectations and guidance from the 

CFPB and prudential regulators. The 

CFPB believes that by reducing 

confusion or uncertainty about what is 

prohibited, the proposed rule may 

reduce unnecessary costs for these 

depository institutions. The CFPB seeks 

comment or data to quantify the impact 

this may have on depository institutions 

with assets below $10 billion. 

There will be no direct impact of 

subpart C on small depository 

institutions (no more than $850 million 

in assets) as the rulemaking provides an 

exemption for small entities. Subpart C 

of the proposed rule would prohibit 

depository institutions with assets 

between $850 million and $10 billion 

from including in their contracts with 

consumers for consumer financial 

products or services (1) clauses that 

require consumers to waive legal rights 

designed to protect consumers, other 

than rights explicitly made waivable by 

relevant consumer laws; (2) clauses that 

allow the covered person to unilaterally 

amend the contract; and (3) clauses that 

restrict consumers’ free expression. 

Depository institutions with assets 

between $850 million and $10 billion 

would incur one-time administrative 

costs involved in bringing contracts into 

compliance with this part of the 

proposed rule. The CFPB believes that 

all depository institutions subject to the 

proposed rule would need to review 

every contract they use and revise to 

bring into compliance. Furthermore, the 

costs associated with implementation of 

subpart C have been outlined earlier in 

table 2 in the Potential Costs and 

Benefits to Covered Persons of Subpart 

C section. The CFPB asks for any 

comment or data on the impact of the 

proposed rule on depository institutions 

with assets between $850 million and 

$10 billion. 

F. Impact on Rural Areas 

Rural areas might be differently 

impacted to the extent that rural areas 

tend to be served by small entities. The 

proposed rule would not apply to any 

person that is a ‘small entity’ as that 

term is defined in 5 U.S.C. 601, 

including any firm that is at or below 

the SBA standard for its primary 

industry. Therefore, the impact of the 

rulemaking would likely be lower in 

rural areas compared to non-rural areas. 

The CFPB requests any comment or data 

about the impact of the proposed rule 

on rural areas. 

G. Impact on Access to Consumer 

Financial Products and Services 

Subpart B of the proposed rule is 

unlikely to have any impact on 

consumers’ access to financial products 

and services. As discussed earlier in the 

Statement of Need section, the CFPB 

believes that these credit practices are 

generally understood to be prohibited at 

baseline and, by reducing confusion or 

uncertainty about what is prohibited, 

the proposal would reduce costs for 

covered persons. 

Subpart C of the proposed rule would 

prohibit covered persons from including 

in their contracts with consumers for 

consumer financial products or services 

(1) clauses that require consumers to 

waive legal rights designed to protect 

consumers, other than rights explicitly 

made waivable by relevant consumer 

laws; (2) clauses that allow the covered 

person to unilaterally amend the 

contract; and (3) clauses that restrict 

consumers’ free expression. 

Collectively, these are referred to as 

prohibited terms and conditions. As 

discussed in part A of this section, 

Overview of Economic Effects, the 

adoption of the rule could increase the 

marginal costs incurred by covered 

persons because of increased costs of 

compliance with consumer finance laws 

or increased costs associated with 

dispute resolution. The CFPB believes 

that most providers would pass through 

some portion of these marginal cost 

increases to consumers.190 As a result, 

it is possible that some consumers might 

experience price increases for some 

financial products and services. This 

may induce them to seek other financial 

products or services from a different 

provider, or to forgo using a particular 

financial product or service. However, 

the CFPB believes that the marginal cost 

increases discussed in the foregoing 

sections would be small, and as a result, 

under the proposed rule, the likelihood 

of price increases for certain financial 

products or services that would render 

them unaffordable would be very 

limited. 

Providers might determine that 

offering some features of certain 

financial products or services may be 

too costly and, as a result, decide to 

remove these features from their 

product offering. For example, a 

provider might conclude that a 

particular product feature might 

increase the incidence of consumer 

disputes even accounting for increased 

compliance under financial laws, and 

therefore decide to remove that feature 

entirely from the product or restructure 

the feature by reducing its availability. 

Similarly, a provider might update its 

product features based on external 

information, such as actions against the 

provider’s competitors by either 

regulators or private actors. The ongoing 

component could also include changes 

to the general product design process. 

Product design could consume more 

time and expense due to additional 

rounds of legal and compliance review. 

The additional exposure to consumer 

disputes, including litigation, could also 

result in some products not being 

developed and marketed primarily due 

to the risk associated with consumer 

disputes. The CFPB requests any 

comments or data on the impact of the 

proposed rule on access to consumer 

financial products and services. 

X. Regulatory Flexibility Act Analysis 

The Regulatory Flexibility Act (RFA) 

generally requires an agency to conduct 

an initial regulatory flexibility analysis 

(IRFA) and a final regulatory flexibility 

analysis of any rule subject to noticeand-comment rulemaking requirements, 

unless the agency certifies that the 

rulemaking will not have a significant 

economic impact on a substantial 

number of small entities (SISNOSE). 

The CFPB is also subject to specific 

additional procedures under the RFA 

involving convening a panel to consult 

with small business representatives 

before proposing a rule for which an 

IRFA is required. An IRFA is not 

required for this proposal because the 

proposal, if adopted, would not have a 

SISNOSE. 


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191 49 FR 7779. 

192 60 FR 24805 (May 10, 1995). 

Small institutions, for the purposes of 

the Small Business Regulatory 

Enforcement Fairness Act (SBREFA) of 

1996, are defined by the Small Business 

Administration. Effective March 17, 

2023, depository institutions with less 

than $850 million in total assets are 

determined to be small. For nondepository entities covered by the 

proposed rule, the standard is $47 

million in receipts. According to the Q4 

2023 Federal Financial Institutions 

Examination Council Call Report, there 

are 3,422 banks with $850 million or 

less in assets. According to the Q4 2023 

National Credit Union Administration 

Call Report, there are 4,201 credit 

unions with $850 million or less in 

assets. Nonbank institutions covered 

under the proposed rule are subject to 

different size standards defined with 

respect to their average annual receipts. 

Table 3 below presents estimated small 

entity counts for the North American 

Industry Classification System (NAICS) 

codes that generally align with 

consumer financial products or services 

and the corresponding size standards. 

Note that the NAICS codes listed below 

all incorporate covered persons, but 

several also are likely to include many 

non-covered persons, and so these 

estimates are likely higher than the real 

number of small covered persons. 

TABLE 3—ENTITY COUNTS FOR NAICS CODES AND CORRESPONDING SIZE STANDARDS

NAICS name(s) NAICS code(s) 

Estimated 

number of 

small entities 

Revenue size 

standard 

(million/year) 

Assets size 

standard 

(million) 

Credit Unions ........................................................................... 522110, 522120, 522210 ....... 4,202 ........................ $850 

Commercial Banking, Savings Institutions, and Credit Card 

Issuing.

522130 ................................... 3,422 ........................ 850 

Nondepository Credit Intermediation ....................................... 522220, 522291, 522292, 

522299.

6,965 $47 ........................

Activities Related to Credit Intermediation .............................. 522310, 522320, 522390 ....... 11,040 28.5 ........................

Activities Related to Real Estate ............................................. 531311, 531312, 531320, 

531390.

62,855 19.5 ........................

Portfolio Management & Investment Advice ........................... 523920, 523930 ..................... 34,153 47 ........................

Passenger Car Leasing ........................................................... 532112 ................................... 199 47 ........................

Truck, Utility Trailer, and Recreational Vehicle Rental and 

Leasing.

532120 ................................... 920 47 ........................

Consumer Reporting ............................................................... 561450 ................................... 267 41 ........................

Debt Collection ........................................................................ 561440 ................................... 2,634 19.5 ........................

Total ................................................................................. ................................................ 126,657 ........................ ........................

The CFPB is proposing an exemption 

for small entities from the provisions of 

subpart C, but does not propose to 

exempt small entities from the 

provisions of subpart B. 

In the practice of the CFPB, evaluating 

whether a proposed rule has a SISNOSE 

proceeds in several steps. First, the 

CFPB estimates the total number of 

small entities directly affected, and then 

it estimates the number of small entities 

significantly affected by the rulemaking. 

If the latter is substantial relative to the 

former, a SISNOSE exists. However, 

since the proposed rule contains an 

exemption for small entities for the 

provision of subpart C, no small entities 

would be directly and significantly 

affected by its provisions. The 

remaining question is whether a 

SISNOSE would result from the 

provisions of subpart B. The CFPB 

outlines below the reasoning for 

establishing that the proposed rule 

would not have a SISNOSE. 

Subpart B of the proposed rule would 

codify the already existing FTC Credit 

Practices Rule to apply it to covered 

persons under the CFPB’s jurisdiction. 

Consistent with the FTC’s Credit 

Practices Rule, subpart B would prohibit 

covered persons from entering into or 

enforcing an agreement that contains 

any of the following provisions: a 

confession of judgment, a waiver of 

exemption, an assignment of wages, or 

a security interest in household goods. 

The rulemaking would also prohibit 

covered persons from misrepresenting 

the nature or extent of cosigner liability 

to any person or obligating a cosigner 

unless the cosigner is informed prior to 

becoming obligated of the nature of the 

cosigner’s liability. The rulemaking 

would also prohibit covered persons 

from levying or collecting any 

delinquency charge on a payment, when 

the only delinquency is attributable to 

late fees or delinquency charges 

assessed on earlier installments, and the 

payment is otherwise a full payment for 

the applicable period and is paid on its 

due date or within an applicable grace 

period. 

The FTC first issued the Credit 

Practices Rule in 1984. Although that 

rule generally applied only to nonbank 

creditors, prudential regulators 

subsequently issued their own credit 

practices rules applicable to banks, 

Federal credit unions, and saving 

associations. The rules issued by the 

prudential regulators were repealed 

upon enactment of the CFPA, which 

transferred those agencies’ consumer 

financial protection authorities to the 

CFPB. However, in 2014 the Federal 

financial regulators—including the 

CFPB—issued a joint interagency 

guidance clarifying that financial 

institutions could violate the law by 

including in consumer credit contracts 

any provisions prohibited by the Credit 

Practices Rule. 

When the FTC originally enacted the 

Credit Practices Rule, it highlighted that 

the rule’s prohibitions, which are 

mirrored by the prohibitions in subpart 

B, would have minimal effects on costs 

and availability of credit.191 In 1995, the 

Federal Trade Commission undertook a 

periodic review of the Credit Practices 

Rule and solicited data and comments 

on whether the rule has had a 

SISNOSE.192 Based on the comments 

received, the FTC did not find a 

sufficient basis to conclude that the 

Rule has had a SISNOSE. It is 

noteworthy that the FTC’s notice 

attracted limited public interest and the 

comments received involved minimal 

discussion of issues relating to small 

entities. Further, in the only comment 

from a creditor that discussed the 

impact on small entities, the Credit 

Union National Association indicated 

that ‘‘[g]enerally, credit unions have not 

reported any significant economic or 


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193 Id. at 24808. 

regulatory impact on their operations 

due to this rule.’’ 193

Nonbanks are already subject to the 

FTC Credit Practices Rule, and the 

prohibitions in subpart B would not 

result in any change, and thus would 

not cause any new costs, for nonbank 

small entities. As the background 

section above discusses, the practices in 

subpart B were prohibited for 

depository institutions prior to the 

enactment of the CFPA, and these 

institutions received interagency 

guidance that indicated that the 

practices in subpart B are likely illegal 

and involve substantial risks. In 

addition, the CFPB is unaware of small 

depository institutions that started using 

contractual terms prohibited in subpart 

B after the enactment of the CFPA. 

In sum, the CFPB concludes there 

would not be a SISNOSE because 

subpart C does not apply to small 

entities, subpart B merely duplicates an 

existing FTC regulation for small 

nonbanks, and subpart B is unlikely to 

have a significant economic impact on 

entities not covered by the FTC’s 

existing regulation. No small entities 

would be directly affected by provisions 

in subpart C of the proposed rule 

because the proposed rule contains a 

small entity exemption for these 

provisions. As noted above, the FTC’s 

original issuance of the Credit Practices 

Rule concluded there would be minimal 

effects on costs and availability of 

credit, and a 1995 periodic review of the 

Credit Practices Rule indicated that 

there had been no SISNOSE since the 

rule’s publication in 1984. Until the 

enactment of the CFPA, the prohibitions 

in subpart B were expressly prohibited 

by rule for both banks and nonbanks. 

The proposal would not cause nonbanks 

in general, and small nonbanks in 

particular, to incur any additional costs, 

since the provisions of the Credit 

Practices Rule, which would be codified 

by subpart B, have continued to apply 

to them. For depository institutions, the 

prohibitions in subpart B would have a 

minimal effect on small entities since 

they had been illegal and remain 

discouraged as explained in interagency 

guidance. Even in an unlikely scenario 

involving limited use of subpart B’s 

prohibited practices by small entities, 

consistent with earlier FTC analyses 

discussed above, the CFPB finds it very 

unlikely that the proposed rule would 

have more than a negligible impact on 

small entities. Further, in the CFPB’s 

experience, use of these practices 

appears rare. 

Accordingly, the Director of the CFPB 

certifies that the proposed rule, if 

adopted, would not have a significant 

economic impact on a substantial 

number of small entities and that an 

IRFA therefore is not required. The 

CFPB seeks comment about this 

determination. 

XI. Paperwork Reduction Act 

Under the Paperwork Reduction Act 

of 1995 (PRA), Federal agencies are 

generally required to seek the Office of 

Management and Budget’s (OMB’s) 

approval for information collection 

requirements prior to implementation. 

Under the PRA, the CFPB may not 

conduct or sponsor and, 

notwithstanding any other provision of 

law, a person is not required to respond 

to an information collection unless the 

information collection displays a valid 

control number assigned by OMB. 

The CFPB has determined that the 

proposed rule would not impose any 

new information collections or revise 

any existing recordkeeping, reporting, or 

disclosure requirements on covered 

entities or members of the public that 

would be collections of information 

requiring approval by the Office of 

Management and Budget under the 

Paperwork Reduction Act. 

The CFPB has a continuing interest in 

the public’s opinions regarding this 

determination. At any time, comments 

regarding this determination may be 

sent to: The Consumer Financial 

Protection Bureau (Attention: PRA 

Office), 1700 G Street NW, Washington, 

DC 20552, or by email to CFPB_Public_

PRA@cfpb.gov. 

List of Subjects in 12 CFR Part 1027 

Banks, banking, Consumer protection, 

Contracts, Credit unions, Finance, 

National banks, Savings associations. 

Authority and Issuance 

■ For the reasons set forth in the 

preamble, the CFPB proposes to add 

part 1027 to chapter X in title 12 of the 

Code of Federal Regulations, to read as 

follows: 

PART 1027—AGREEMENTS FOR 

CONSUMER FINANCIAL PRODUCTS 

OR SERVICES 

Subpart A—General 

Sec. 

1027.100 Authority and purpose. 

1027.101 General definitions. 

1027.102 Exclusions from coverage. 

1027.103 Severability. 

1027.104 Compliance date. 

Subpart B—Credit practices 

1027.201 Definitions. 

1027.202 Unfair credit contract provisions. 

1027.203 Unfair or deceptive practices 

involving cosigners. 

1027.204 Unfair late charges. 

1027.205 State exemption. 

Subpart C—Prohibited terms and 

conditions 

1027.301 Prohibition. 

Authority: 12 U.S.C. 5512, 12 U.S.C. 5531. 

Subpart A—General 

§ 1027.100 Authority and purpose. 

(a) Authority. This part is issued by 

the Consumer Financial Protection 

Bureau (CFPB) pursuant to section 

1022(b)(1) and (c) and section 1031(b) of 

the Consumer Financial Protection Act 

of 2010, codified at 12 U.S.C. 5512(b)(1) 

and (c) and 12 U.S.C. 5531(b). 

(b) Purpose. The purpose of this part 

is to prescribe rules governing 

agreements for consumer financial 

products or services. 

(1) Subpart A contains general 

provisions and definitions used in this 

part. 

(3) Subpart B prohibits certain credit 

practices. 

(4) Subpart C prohibits certain other 

terms and conditions. 

§ 1027.101 General definitions. 

For the purposes of this part the 

following definitions apply: 

(a) Consumer, consumer financial 

product or service, covered person, 

credit, person, and State have the same 

meanings as in 12 U.S.C. 5481. 

(b) Include, includes, and including 

mean that the items named may not 

encompass all possible items that are 

covered, whether like or unlike the 

items named. 

§ 1027.102 Exclusions from coverage. 

(a) This part shall not apply to any 

person to the extent that it is providing 

a product or service in circumstances 

excluded from the CFPB’s rulemaking 

authority pursuant to 12 U.S.C. 5517 or 

5519. 

(b) Subpart C shall not apply to any 

‘‘small business,’’ ‘‘small organization,’’ 

or ‘‘small governmental jurisdiction’’ as 

those terms are defined in 5 U.S.C. 601. 

§ 1027.103 Severability. 

The provisions of this part are 

separate and severable from one 

another. If any provision or any 

application of a provision is stayed or 

determined to be invalid, the remaining 

provisions or applications shall 

continue in effect. 

§ 1027.104 Compliance date. 

The compliance date for subparts B 

and C is [30 days after publication of the 

final rule in the Federal Register], 

except that if an agreement for a 

consumer financial product or service 


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between a covered person and a 

consumer was executed before [30 days 

after publication of the final rule in the 

Federal Register], compliance with 

subparts B and C of this part for such 

an agreement is required by [180 days 

after publication of the final rule in the 

Federal Register]. 

Subpart B—Credit practices 

§ 1027.201 Definitions. 

For the purposes of this subpart, the 

following definitions apply: 

(a) Cosigner means a natural person 

who renders themself liable for the 

obligation of another person without 

compensation. The term shall include 

any person whose signature is requested 

as a condition to granting credit to 

another person, or as a condition for 

forbearance on collection of another 

person’s obligation that is in default. 

The term shall not include a spouse 

whose signature is required on a credit 

obligation to perfect a security interest 

pursuant to State law. A person who 

does not receive goods, services, or 

money in return for a credit obligation 

does not receive compensation within 

the meaning of this definition. A person 

is a cosigner within the meaning of this 

definition whether or not they are 

designated as such on a credit 

obligation. 

(b) Earnings means compensation 

paid or payable to an individual or for 

the individual’s account for personal 

services rendered or to be rendered by 

the individual, whether denominated as 

wages, salary, commission, bonus, or 

otherwise, including periodic payments 

pursuant to a pension, retirement, or 

disability program. 

(c) Household goods means clothing, 

furniture, appliances, one television and 

one radio, linens, china, crockery, 

kitchenware, and personal effects 

(including wedding rings) of a consumer 

and a consumer’s dependents. The term 

household goods does not include: 

(1) Works of art; 

(2) Electronic entertainment 

equipment (except one television and 

one radio); 

(3) Items acquired as antiques; that is, 

items over one hundred years of age, 

including such items that have been 

repaired or renovated without changing 

their original form or character; and 

(4) Jewelry (other than wedding 

rings). 

(d) Obligation means an agreement 

between a consumer and a creditor. 

§ 1027.202 Unfair credit contract 

provisions. 

In connection with the extension of 

credit to consumers, it is an unfair act 

or practice for a covered person to enter 

into or enforce an agreement that 

contains any of the following 

provisions: 

(a) Confession of judgment. A 

cognovit or confession of judgment (for 

purposes other than executory process 

in the State of Louisiana), warrant of 

attorney, or other waiver of the right of 

notice and the opportunity to be heard 

in the event of suit or process thereon. 

(b) Waiver of exemption. An 

executory waiver or a limitation of 

exemption from attachment, execution, 

or other process on real or personal 

property held, owned by, or due to the 

consumer, unless the waiver applies 

solely to property subject to a security 

interest executed in connection with the 

obligation. 

(c) Assignment of wages. An 

assignment of wages or other earnings 

unless: 

(1) The assignment by its terms is 

revocable at the will of the debtor; 

(2) The assignment is a payroll 

deduction plan or preauthorized 

payment plan, commencing at the time 

of the transaction, in which the 

consumer authorizes a series of wage 

deductions as a method of making each 

payment; or 

(3) The assignment applies only to 

wages or other earnings already earned 

at the time of the assignment. 

(d) Security interest in household 

goods. A nonpossessory security interest 

in household goods other than a 

purchase money security interest. 

§ 1027.203 Unfair or deceptive practices 

involving cosigners. 

(a) Prohibited practices. In connection 

with the extension of credit to 

consumers, it is: 

(1) A deceptive act or practice for a 

covered person, directly or indirectly, to 

misrepresent the nature or extent of 

cosigner liability to any person; and 

(2) An unfair act or practice for a 

covered person, directly or indirectly, to 

obligate a cosigner unless the cosigner is 

informed prior to becoming obligated, 

which in the case of open-end credit 

shall mean prior to the time that the 

agreement creating the cosigner’s 

liability for future charges is executed, 

of the nature of his or her liability as 

cosigner. 

(b) Disclosure requirement. To 

prevent these unfair or deceptive acts or 

practices, a disclosure, consisting of a 

separate document that shall contain the 

following statement and no other, shall 

be given to the cosigner prior to 

becoming obligated, which in the case 

of open-end credit shall mean prior to 

the time that the agreement creating the 

cosigner’s liability for future charges is 

executed: 

Notice to Cosigner 

You are being asked to guarantee this debt. 

Think carefully before you do. If the 

borrower doesn’t pay the debt, you will have 

to. Be sure you can afford to pay if you have 

to, and that you want to accept this 

responsibility. 

You may have to pay up to the full amount 

of the debt if the borrower does not pay. You 

may also have to pay late fees or collection 

costs, which increase this amount. 

The creditor can collect this debt from you 

without first trying to collect from the 

borrower. The creditor can use the same 

collection methods against you that can be 

used against the borrower, such as suing you, 

garnishing your wages, etc. If this debt is ever 

in default, that fact may become a part of 

your credit record. This notice is not the 

contract that makes you liable for the debt. 

(c) Effect of compliance. A covered 

person that is in compliance with 

paragraph (b) of this section may not be 

held in violation of paragraph (a) of this 

section. 

§ 1027.204 Unfair late charges. 

(a) In connection with collecting a 

debt arising out of an extension of credit 

to a consumer, it is an unfair act or 

practice for a covered person directly or 

indirectly to levy or collect any 

delinquency charge on a payment, 

which payment is otherwise a full 

payment for the applicable period and 

is paid on its due date or within an 

applicable grace period, when the only 

delinquency is attributable to late fees 

or delinquency charges assessed on 

earlier installments. 

(b) For the purposes of this section, 

collecting a debt means any activity, 

other than the use of judicial process, 

that is intended to bring about or does 

bring about repayment of all or part of 

money due (or alleged to be due) from 

a consumer. 

§ 1027.205 State exemption. 

(a) General rule. (1) An appropriate 

State agency may apply to the CFPB for 

a determination that: 

(i) There is a State requirement or 

prohibition in effect that applies to any 

transaction to which a provision of this 

subpart applies; and 

(ii) The State requirement or 

prohibition affords a level of protection 

to consumers that is substantially 

equivalent to, or greater than, the 

protection afforded by this subpart. 

(2) If the CFPB makes such a 

determination, the provision of this 

subpart will not be in effect in that State 

to the extent specified by the CFPB in 

its determination, for as long as the 

State administers and enforces the State 

requirement or prohibition effectively. 


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(b) Applications. The procedures 

under which a State agency may apply 

for an exemption under this section are 

the same as those set forth in appendix 

B to Regulation Z (12 CFR part 1026). 

Subpart C—Prohibited terms and 

conditions 

§ 1027.301 Prohibition. 

(a) It shall be unlawful for a covered 

person to include in an agreement with 

a consumer for a consumer financial 

product or service any of the following 

terms or conditions: 

(1) Waivers of law. Any term or 

condition that disclaims or waives, or 

purports to disclaim or waive, any 

substantive State or Federal law 

designed to protect or benefit 

consumers, or their remedies, unless an 

applicable statute explicitly deems it 

waivable. Waivers of law include, but 

are not limited to: 

(i) Waivers of remedies to consumers 

for violations of State or Federal laws; 

and 

(ii) Waivers of a cause of action to 

enforce State or Federal laws. 

(2) Unilateral amendments. Any term 

or condition that expressly reserves the 

covered person’s right to unilaterally 

change, modify, revise, or add a material 

term of a contract for a consumer 

financial product or service. 

(3) Restraints on expression. Any term 

or condition that limits or restrains, or 

purports to limit or restrain, the free and 

lawful expression of a consumer. 

Nothing in this subpart affects a covered 

person’s ability to close an account that 

is being used to commit fraud or other 

illegal activity. 

(b) It shall be unlawful for a covered 

person to use, enforce, or otherwise rely 

on any term or condition in paragraph 

(a) of this section in an agreement 

between a consumer and any person for 

a consumer financial product or service. 

Rohit Chopra, 

Director, Consumer Financial Protection 

Bureau. 

[FR Doc. 2025–00633 Filed 1–13–25; 8:45 am] 

BILLING CODE 4810–AM–P 


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