The Chamber of Commerce Doesn’t Want You to Know the Terms in Your Contracts
By Ellen Noble, Budd Attorney
The Chamber of Commerce, the country’s largest corporate lobbying organization, is fighting hard against a new rule proposed by the Consumer Financial Protection Bureau (CFPB) that aims to promote consumer awareness of the terms and conditions buried in the fine print of their boilerplate contracts.
The rule would require nonbank financial firms—like payday lenders, credit reporters, auto lenders, private student loan servicers, “buy now, pay later” companies and others—to publicly report certain terms and conditions in consumer contracts that have been weaponized by businesses to limit consumer rights. The proposed rule has a modest but meaningful objective: to increase transparency in the financial services market so consumers understand what rights they are signing away.
But, according to the Chamber of Commerce, an informed consumer is a threat to corporate interests. On Monday, April 3, the Chamber filed a comment on the proposed rule, calling it a “wholly impermissible and unjustified attack on arbitration agreements.”
Keep in mind that the rule isn’t limited to forced arbitration clauses and does nothing to restrict what terms a corporation can put in its contracts. It just makes certain terms, including forced arbitration clauses, known to consumers. The Chamber goes on to argue that forced arbitration clauses “provide significant advantages to consumers.” But if that’s true, what’s the harm in telling consumers that there is a forced arbitration clause in their contract? (Or, even better, letting consumers decide whether to arbitrate after a dispute has arisen?)
For an organization that loves to tout freedom of contract and the beauty of free market forces, the Chamber sure doesn’t trust consumers to make their own decisions. The Chambers’ efforts to keep consumers in the dark while corporations continue to profit off of abusive (and often illegal) contract terms shows that the Chamber is not really concerned with maintaining a free, competitive market; it’s trying to enable and protect predatory corporate behavior shrouded in fine print.
Perhaps because arguing against transparency in consumer contracts is not a great look, the Chamber’s comment quickly pivots to arguing that the proposed rule is illegal. The Chamber first argues that the rule would, in effect, regulate forced arbitration agreements, and that Section 1028 of the Dodd Frank Act only permits regulations of forced arbitration agreements that are consistent with a CFPB arbitration study, in the public interest, and for the protection of consumers.
To say the Chamber is grasping at straws would be an understatement.
First, the CFPB’s 2015 study explicitly found that “consumers are generally unaware of whether their credit card contracts include arbitration clauses,” so informing consumers about the existence of arbitration clauses in their contracts is fully consistent with the study. Second and more importantly, the proposed rule would not regulate the use of forced arbitration clauses; it would just publish information identifying nonbanks’ use of certain terms and conditions, most of which have nothing to do with arbitration. The possibility that consumers, armed with the information that a contract includes a forced arbitration clause, may decide to do business with a different company does not mean the rule “regulates” arbitration. It means the rule promotes a transparent, competitive, and free market.
In the same vein, the Chamber argues that the rule disfavors forced arbitration and thus violates the Federal Arbitration Act (FAA). But the rule seeks to publish a broad set of contract terms that limit consumers’ rights, not just forced arbitration clauses, and it does not disfavor those contract terms. The rule does not restrict their enforcement or penalize companies for using them. It just informs consumers that the terms exist and leaves the rest up to them.
The Chamber insists that the rule disfavors forced arbitration in violation of the FAA because by including forced arbitration clauses in a public registry of terms that waive consumer rights, the CFPB is saying that forced arbitration clauses pose heightened risks for consumers. However, the FAA doesn’t prohibit the CFPB from expressing a view about forced arbitration clauses. If that were true, the CFPB would violate the FAA every time they publish a report about forced arbitration, or every time the director speaks about the topic at a public event. The FAA governs the enforcement of arbitration clauses—not criticism of arbitration clauses.
The Chamber takes one final shot at the CFPB’s legal authority to issue the rule and boy does it miss.
The Chamber argues that the proposed rule violates the Congressional Review Act (CRA). The CRA bars an agency from simply re-issuing a rule rejected by Congress: the new rule cannot be “substantially the same” as the prior disapproved of rule. The Chamber claims that the proposed rule violates the CRA because it requires providers of consumer financial products to make arbitration-related disclosures to the Bureau and so too did the 2017 CFPB rule that was rejected by Congress.
This is absurd. One point of similarity between two rules that are otherwise completely different does not make them “substantially the same.” Anyone who looks at the two rules would conclude that they are, in fact, “substantially different.” The 2017 rule prohibited class action waivers; this rule doesn’t restrict any terms or conditions used in consumer contracts—it just requires companies to publicly report their use of certain terms. And even if there were a rule that did regulate class action bans or forced arbitration provisions, it would not be barred by the CRA so long as there was some meaningful difference from the 2017 rule. If the new rule regulated a different set of entities or different conduct, applied in different circumstances, used different enforcement mechanisms, or had different exemptions, then the new rule would not be “substantially the same” as the old rule.
The Chamber of Commerce made this series of baseless, red herring attacks on the CFPB’s legal authority to issue the rule because it can’t say the truth out loud: its corporate members don’t want you to know what rights you’re giving up when you take out a student loan, check your credit score, or get a car loan.
If the Chamber really cared about consumer choice and a free and competitive marketplace, it wouldn’t be fighting the CFPB’s effort to increase market transparency.
This piece was originally published by The National Law Journal on April 13, 2023.