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The US Consumer Financial Protection Bureau (CFPB) has proposed a new rule intended to prevent companies using contract clauses to erode fundamental freedoms and bypass legal protections.
The regulator has said the rule “would stop financial companies from forcing Americans to choose between participating in the financial system or giving up their rights, including those guaranteed by the Constitution”.
The proposal seeks to ban practices such as suppressing free speech, waiving legal rights and imposing intrusive conditions through small-print agreements.
“To access the American financial system, people should not be forced into forfeiting rights enshrined in law or our Constitution,” said CFPB director Rohit Chopra.
Commenting on the proposal, on which the CFPB is accepting public comments until April 1, 2025, Chopra continued: “companies should not weaponise fine print to deplatform or purge people from the financial system”.
Key issues
The CFPB’s proposed rule addresses several issues with contract practices that it says undermine consumer rights and the rule of law.
For example, it would prohibit companies from using agreements to sidestep federal and state laws, including those protecting military veterans, while ensuring better protection for elderly customers.
It would also prevent financial firms penalising consumers for exercising free speech, such as posting negative reviews or expressing political or religious beliefs.
Instances of these practices, such as a 2022 case involving PayPal’s controversial amendments to its user agreement and allegations of financial institutions "debanking" individuals based on their personal views, appear to be among the drivers for this new proposal.
The rule seeks to eliminate clauses that allow companies to unilaterally amend contracts in their favour without consumer consent, preserving the integrity of the original agreement.
It also proposes codifying prohibitions against "confessions of judgment", which force consumers to surrender property or plead guilty without judicial oversight, protecting their due process rights.
In recent years, the CFPB has heightened its scrutiny of these restrictive practices, observing how they often lead to significant consumer harm.
The rule now being consulted on aims to protect individuals from unfair contractual terms, while also granting state attorneys general enhanced enforcement capabilities.
For example, it would allow them to apply federal-level remedies, such as civil penalties, to violations by national banks, strengthening accountability for even the largest financial institutions.
Part of a movement
In many ways, the CFPB’s proposed rule reflects the shift towards consumer rights in financial regulation across the world, and bears comparison with regulations such as the UK Financial Conduct Authority’s (FCA) Consumer Duty.
Enacted in 2023, the FCA’s Consumer Duty — like the CFPB’s proposed rule — aims to promote fairness and protect consumer rights, ensuring good consumer outcomes are achieved.
Both frameworks emphasise transparency and require firms to avoid practices that exploit consumers or undermine their rights.
For example, the Consumer Duty mandates firms to provide clear communication and help consumers understand products and services that they are using, while the CFPB rule discourages small print that obscures disadvantageous terms.
Similar rules are also enforced in Singapore, via the Monetary Authority of Singapore's (MAS) Fair Dealing Guidelines and the Financial Advisers Act, and Australia, through the Design and Distribution Obligations (DDO), which are enforced by the Australian Securities and Investments Commission (ASIC).
Both require financial products to be designed and communicated with the best interests of consumers in mind.
These obligations are comparable to the CFPB’s focus on transparency and fairness in consumer agreements, but the CFPB is unique in its focus on free speech protections, perhaps revealing how much of an issue this has become for the US in recent times.
How this could affect payment firms
The proposed CFPB rule could significantly affect firms in the payments space, including retail banks and payments companies where users can hold an account.
By imposing stricter limits on the contractual clauses firms use in customer agreements, the rule would likely compel companies to reassess their legal and business practices, particularly how they draft, implement and enforce customer agreements.
Firms that rely heavily on user agreements to manage risks and define service terms would find that the rule would restrict their ability to include clauses that limit consumer rights.
In addition, provisions related to arbitration, account closures or unilateral amendments to terms would face tighter regulation.
For example, PayPal’s past controversies over imposing fines for user expression would be explicitly prohibited, requiring a fundamental shift in its approach.
Other payment service providers might also need to revise clauses that restrict consumers’ legal recourse or impose strict conditions on usage.
Retail banks, especially those with national operations, could face increased scrutiny over practices such as debanking or contract terms that hinder consumers from pursuing claims in court.
These institutions may need to eliminate clauses that suppress consumer reviews, undermine legal rights or enforce confessions of judgement to recover debts without judicial oversight.
To prepare, firms with US customers should audit their existing customer agreements to identify and address terms that might violate the proposed rules, such as arbitration clauses, waivers of legal rights or provisions suppressing speech.
A policy to charm Trump?
Debanking is a relatively new term in the Western lexicon, and yet it is one that has been a regular talking point for right-wing figures.
“If you aren’t familiar, debanking is a scheme used by large Wall Street institutions to impose their woke agenda on Main Street America, often prohibiting gun stores, energy companies, and conservative causes from accessing their banks or financing, making it all-but-impossible for these patriotic entities to do business,” said Mississippi’s state treasurer David McRae in a post called "The Dangers of Debanking".
“In other words, it’s yet another form of cancel culture that is targeting our First and Second Amendment rights.”
With the US just days away from the second Trump administration, and the CFPB not exactly in his good books, a cynic might think that the proposed rule is an attempt to charm the President-elect and his followers.
The rule may well resonate with Republican politicians due to its alignment with several conservative principles, and is likely to be much more of a priority policy for the incoming administration than other CFPB ventures, such as the new open banking obligations or increased oversight of big tech firms in the payments ecosystem.
Republicans have increasingly emphasised the need to protect individuals from perceived overreach by so-called powerful corporations, particularly in areas such as free speech.
The rule's provisions against deplatforming and account closures based on political or religious views could appeal to these concerns about corporate bias, especially following incidents involving alleged discrimination against conservative or religious organisations.
And by granting state attorneys general more authority to enforce federal protections, the rule aligns with Republican support for decentralising power and enabling states to take the lead in enforcement.
The CFPB has been looking into these sorts of issues for some time, of course, since before the return of President Trump was imminent.
In January 2023, for example, the regulator proposed a rule to establish a public registry of supervised nonbanks’ terms and conditions in “take it or leave it” form contracts that claim to waive or limit consumer rights and protections such as bankruptcy rights, liability amounts or complaint rights.
