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The US Consumer Financial Protection Bureau (CFPB) has withdrawn a rule that had been intended to take on problematic contractual clauses, claiming it is duplicative and raises legal questions.
The proposed rule, Prohibited Terms and Conditions in Agreements for Consumer Financial Products or Services, was first published in January 2025, under then-director Rohit Chopra.
As covered by Vixio, the rule was proposed to “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 intention was to ban contractual clauses that limit consumers’ ability to express opinions, waive legal rights or access remedies under state or federal law.
These provisions, the CFPB said at the time, could restrict consumers' legal protections and free expression.
However, the new-look CFPB has now said that it would not move forward with the rule, describing it as “largely duplicative” of the Federal Trade Commission’s Credit Practices Rule. This was introduced in 1985 in a bid to curb abusive lending practices and protect consumers from unfair contract terms in credit agreements.
“Given this duplication and the Bureau's policy of erring on the side of limiting regulatory burdens on the American people, the Bureau believes it is necessary to withdraw,” the CFPB said.
A response to public concerns
In addition to its own reservations, the CFPB said that it had received public comments raising concerns about the legal foundation of the proposed rule, particularly whether the agency has the authority to issue it.
In the public comments registered for the rule, it is clear that there were clearly some apprehensions about the rule from stakeholders.
For example, the trade association America’s Credit Unions said that it had “serious concerns that the proposed rule, as drafted, would impose significant burdens on credit unions’ contractual flexibility and compliance operations with little corresponding benefit to consumers”.
“Credit unions generally do not rely on the kinds of problematic contract provisions targeted by the proposal,” its feedback said.
“Moreover, existing legal standards and guidance have already proven effective in curbing unfair credit contract terms. We respectfully urge the bureau’s leadership to reconsider this rulemaking.”
This was echoed by fintech group the Financial Technology Association (FTA), which said that the CFPB was “imposing duplicative, ambiguous, and unnecessary prohibitions on a financial provider’s right to contract with customers”.
“The proposal instead injects unnecessary ambiguity, red tape, and costs into the financial ecosystem,” the CFPB said.
“The result will be increased compliance burden, loss of customer choice and access, and an unnecessary infringement on commercial activity and freedom of contract.”
The CFPB's new direction
The withdrawal of the coercive contracts rule is just the latest in a string of steps taken by the CFPB that is making the agency’s role under the second Trump administration increasingly clear.
As covered by Vixio, acting CFPB director Russell Vought recently announced that the bureau had withdrawn nearly 70 guidance documents, including interpretive rules, policy statements and advisory opinions.
The axed documents cover a vast range of products and service areas under CFPB supervision, including remittances, credit cards, overdrafts, mortgages and buy now, pay later (BNPL) loans.
In the short term, firms will need to devote resources to reviewing the impact of the withdrawal of guidance on their operations, which will no doubt be challenging.
In the longer term, however, they may see a reduction in the compliance burden under a regulator that seems intent on taking a hands-off approach to supervision.
