On September 13, 2022, Public Justice and other consumer advocacy groups sent a letter to CFPB Director Rohit Chopra urging the CFPB to limit the use of “forced” arbitration provisions by banks and other consumer finance companies.  According to reports appearing in Law360 and BNA, at a virtual event organized by Public Justice and held the day after the letter was sent, Director Chopra expressed concerns about such provisions and is trying to “figure out what the path forward is.”

However, financial services companies need to be aware that the CFPB appears to have more than just arbitration provisions on its radar screen.  The Law360 report quoted Director Chopra as stating: “We’re looking at all sorts of contractual clauses that are put in consumer contracts, often in ways that are not negotiated, are not subjected to normal competitive processes, and looking at how to promote fairness, transparency and competition on that front.”  

Director Chopra seems to suggest that it is problematic that consumer contracts are “often” not individually negotiated.  In fact, the days when consumer contracts were individually negotiated “are long past” (to quote the U.S. Supreme Court), and non-negotiated contracts are not inherently offensive.  On the contrary, non-negotiated contracts can benefit both consumers and customers.  As observed in the American Law Institute’s (ALI) recently- approved Restatement of the Law, Consumer Contracts:

There are many benefits to standard-form contracting …. The efficiencies of mass production and mass distribution of products and services would be hindered if the terms of each transaction with each consumer had to be individually negotiated. These market efficiencies can benefit all market participants ….”  The Reporters Notes to the Restatement likewise state: “[T]he use of standardization in the production of contract terms is, like ​standardization in the production of goods and services, a source of potential benefits to consumers and businesses alike.  Standardization supports efficient production and distribution, resulting in lower prices and lower transaction costs, and the introduction of new forms of products and services.”  

The Restatement culminates an 11-year project by ALI to address how contractual terms are adopted, modified and enforced in contracts between business and consumers.  It reflects the collective input of hundreds of professors, consumer advocates, industry lawyers and other interested persons who carefully considered what rules should apply to consumer contracts.  

Financial services businesses that contract with consumers will need to watch closely for any further CFPB pronouncements on the subject of contract review.  Other than arbitration clauses, Director Chopra has provided no clues as to what types of contract clauses he finds objectionable or the legal basis for his views.  We will keep you updated.