CFPB’s Proposed Credit Practices Rule: What It Means for Credit Unions 

On December 13th, the Consumer Financial Protection Bureau (CFPB) proposed a rule targeting protections in consumer credit contracts: Prohibited Terms and Conditions in Agreements for Consumer Financial Products or Services (Regulation AA). The proposed rule seeks to codify key provisions of the Federal Trade Commission (FTC) Credit Practices Rule for all “covered persons” under the CFPB’s jurisdiction. Additionally, the rule addresses several contract clauses, including prohibiting waivers of substantive consumer legal rights granted by state or federal law, restricting unilateral amendments, and banning contract terms that limit lawful consumer speech. 

As stated previously, any rule finalized or proposed at this time could be subject to review and potential changes under the incoming Administration and new CFPB leadership. President-elect Donald Trump is expected to name an acting CFPB Director next week, a new Director could opt to reassess or roll back outstanding proposed rules. 

Through this period of transition, we are committed to updating you with each new development. Below provides background and an overview of the proposal.  

Background on the FTC Credit Practices Rule 

The FTC first issued the Credit Practices Rule in 1984 to prohibit unfair or deceptive acts or practices in consumer credit contracts. Key provisions of the rule made it unlawful for creditors to include certain terms in contracts, such as: waivers of consumer rights, confessions of judgment, and assignments of wages. 

In response to the FTC’s action, banking regulators, including the National Credit Union Administration (NCUA), issued companion rules applying these prohibitions to banks, credit unions, and savings associations. However, the Consumer Financial Protection Act (CFPA) was passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 and the CFPB gained authority over consumer financial regulations. This ultimately caused the companion rules to be repealed. In 2014, the CFPB and other regulatory agencies issued joint interagency guidance clarifying that the previous prohibitions did not become lawful and could still violate the broader UDAAP standards.  

The CFPB’s current proposal now seeks to codify these provisions under its direct regulatory authority. 

Key Provisions of the Proposed Rule 

The proposed rule would direct financial institutions to review and eliminate specific contract terms including: 

  • Prohibiting waivers of substantive consumer legal rights: Creditors would need to ensure contracts do not attempt to waive legal protections granted by state or federal law.  
  • For example, a financial institution offers a credit card agreement that includes a clause stating, “By accepting this credit card, the cardholder waives their right to participate in any lawsuit against the creditor regarding unfair billing practices.” Similarly, if a loan agreement includes a clause stating, “By signing this agreement, the borrower waives their right to sue the creditor in court for any dispute related to the loan.” Under the proposed rule, both clauses would need to be removed because they attempt to waive the consumer’s protections and rights to pursue legal action in court going against State and Federal law.   
  • Restricting unilateral amendments: Provisions allowing creditors to unilaterally amend the terms of a consumer contract without the consumer’s consent would need to be removed.  
  • For example, if a financial institution’s loan agreement includes a provision that allows the institution to change the interest rate, late fees, or other loan terms at any time without the borrower’s consent or prior notice. This clause would need to be removed under the proposed rule, because it permits unilateral amendments by the creditor, and leads to unfair or unexpected changes for the consumer. 
  • Banning terms that limit lawful consumer speech: Clauses that restrict a consumer’s ability to share their opinions or experiences about a product or service would be prohibited. 

How Does This Affect Credit Unions? 

The proposed rule applies to all “covered persons” under CFPB jurisdiction, including federal and state-chartered credit unions. While many credit unions already follow practices that align with the principles outlined in the proposal, the implementation of the rule would require a closer review of current contracts. As outlined above, credit unions would need to ensure their contracts do not include provisions waiving consumer legal rights, limiting lawful speech, or allowing unilateral amendments. Additionally, it would be essential to review internal policies and procedures to ensure future contracts align with the proposed rule.  

The CFPB is inviting comments on the proposed rule until April 1, 2025.  

GoWest will continue tracking developments on proposals and provide updates as the government transitions through leadership changes. If you have any questions or comments, please reach out to Gracie Nelson at [email protected]. 

Posted in Advocacy on the Move, Regulatory Advocacy.