The Consumer Financial Protection Bureau (“CFPB”) released a circular attempting to address “Unlawful and unenforceable contract terms and conditions”. From the face of the document, it raises more questions than it answers.

The circular states that “covered persons” and “service providers” are prohibited from deceptive acts or practices. As a reminder, per the CFPB, digital marketers can be considered “service providers”.

The circular states “A representation or omission is deceptive if it is likely to mislead a reasonable consumer and is material”. According to the CFPB, “the inclusion of certain terms in contracts for consumer financial products or services may violate the prohibition when applicable federal or state law renders such contractual terms, including those that purport to waive consumer rights, unlawful or unenforceable.”

Great. So what does that mean?

If you are trying to deceive consumers by placing a contract term that is unenforceable by state or federal law, then the CFPB says you are violating the Consumer Financial Protection Act.

I don’t have a problem with that. It makes sense. One of the examples was an auto loan servicer which used written agreements “that included language that created the net misimpression that consumers could not exercise bankruptcy protection rights, what was false.” Sure, again, that makes sense.

The issues that I see stems from the Circular’s comments from a prior Compliance bulletin. The CFPB stated that while unenforceable contract clauses are deceptive, even “’disclaimers in a contract such as ‘subject to applicable law’ do not cure the misrepresentation caused by the inclusion of an unenforceable contract term.” (emphasis added).

That’s interesting.

So, are all boilerplate contracts under this? What about privacy policies?

The other thing that makes this interesting is this is a CFPB Circular. Circulars “are intended to promote consistency in approach across the various enforcement agencies and parties” including state attorneys general and other state regulators. Therefore, this Circular is giving more ammunition to the states for enforcement.

Our recommendation:

Boilerplate agreements, including privacy policies, should be examined to ensure that they are not presenting the law in a way that could deceptively take away a consumer’s rights.