Registry of Supervised Nonbanks That Use Form Contracts To Impose Terms and Conditions That Seek To Waive or Limit Consumer Legal Protections, 6906-6969 [2023-00704]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 88, Number 21 (Wednesday, February 1, 2023)]
[Proposed Rules]
[Pages 6906-6969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-00704]



[[Page 6905]]

Vol. 88

Wednesday,

No. 21

February 1, 2023

Part III





Bureau of Consumer Financial Protection





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12 CFR Part 1092





Registry of Supervised Nonbanks That Use Form Contracts To Impose Terms 
and Conditions That Seek To Waive or Limit Consumer Legal Protections; 
Proposed Rule

Federal Register / Vol. 88, No. 21 / Wednesday, February 1, 2023 / 
Proposed Rules

[[Page 6906]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1092

[Docket No. CFPB-2023-0002]
RIN 3170-AB14


Registry of Supervised Nonbanks That Use Form Contracts To Impose 
Terms and Conditions That Seek To Waive or Limit Consumer Legal 
Protections

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.

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SUMMARY: The Consumer Financial Protection Act of 2010 (CFPA) requires 
the Consumer Financial Protection Bureau (Bureau or CFPB) to monitor 
markets for consumer financial products and services for risks to 
consumers in order to support the various statutory functions of the 
CFPB, and to conduct a risk-based nonbank supervision program for the 
purpose of assessing compliance with Federal consumer financial law 
(among other purposes). Pursuant to these authorities, the CFPB is 
proposing a rule to require that nonbanks subject to its supervisory 
authority, with limited exceptions, register each year in a nonbank 
registration system established by the CFPB information about their use 
of certain terms and conditions in form contracts for consumer 
financial products and services that pose risks to consumers. In 
particular, these nonbanks would be required to register if they use 
specific terms and conditions defined in the proposed rule that attempt 
to waive consumers' legal protections, to limit how consumers enforce 
their rights, or to restrict consumers' ability to file complaints or 
post reviews. To facilitate public awareness and oversight by other 
regulators including the States, the Bureau is proposing to publish 
information identifying registrants and their use of these terms and 
conditions.

DATES: Comments should be received on or before April 3, 2023.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2023-
0002 or RIN 3170-AB14, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include 
Docket No. CFPB-2023-0002 or RIN 3170-AB14 in the subject line of the 
message.
     Mail/Hand Delivery/Courier: Comment Intake--Nonbank 
Registration and Collection of Contract Information, Consumer Financial 
Protection Bureau, c/o Legal Division Docket Manager, 1700 G Street NW, 
Washington, DC 20552. Because paper mail in the Washington, DC area and 
at the Bureau is subject to delay, commenters are encouraged to submit 
comments electronically.
    Instructions: The Bureau encourages the early submission of 
comments. All submissions should include the agency name and docket 
number or Regulatory Information Number (RIN) for this rulemaking. In 
general, all comments received will be posted without change to https://www.regulations.gov.
    All comments, including attachments and other supporting materials, 
will become part of the public record and are subject to public 
disclosure. Proprietary information or sensitive personal information, 
such as account numbers or Social Security numbers, or names of other 
individuals, should not be included. Comments will not be edited to 
remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Owen Bonheimer, Senior Counsel, Office 
of Supervision Policy, at 202-435-7700. If you require this document in 
an alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

    The proposal would establish a Bureau system for registration of 
nonbanks that use covered terms or conditions, as described below, in a 
new part 1092 in title 12 of the Code of Federal Regulations. Proposed 
subpart C would require annual registration by most nonbanks subject to 
the Bureau's supervisory authority under section 1024(a) of the CFPA 
\1\ when they use certain terms or conditions that seek to waive 
consumer rights or other legal protections or limit the ability of 
consumers to enforce or exercise their rights.\2\ With limited 
exceptions, including an exception for certain small entities,\3\ 
supervised registrants would be required to register annually in the 
system by submitting or updating their identifying information as well 
as information about their use of covered terms or conditions. The 
Bureau will provide filing instructions with details on how to 
register, the implementation date for the registration system, and the 
annual registration date. Under the proposal, the Bureau would publish 
this information on its website and potentially in other forms, as 
permitted by applicable law and described further in Sec.  1092.303 of 
the proposed rule.
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    \1\ 12 U.S.C. 5514(a).
    \2\ For brevity, the proposal refers to these nonbanks as 
``supervised nonbanks.''
    \3\ Proposed Sec.  1092.301(h) of the proposed rule would 
include certain exclusions from the registration requirements, 
including an exclusion for nonbanks with less than $1 million in 
annual receipts from offering or providing certain consumer 
financial products or services that would make the nonbank subject 
to the Bureau's supervisory authority.
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    In particular, the Bureau is generally proposing to collect 
information about supervised nonbanks' use of terms and conditions in 
form contracts that expressly seek to impose the following limitations 
on consumer rights and other legal protections applicable to the 
offering or provision of consumer financial products or services in 
markets the Bureau supervises: waivers of claims a consumer can bring 
in a legal action; limits on the company's liability to a consumer; 
limits on the consumer's ability to bring a legal action by dictating 
the time frame, forum, or venue for a consumer to bring a legal action; 
limits on the ability of a consumer to bring or participate in 
collective legal actions such as class actions; limits on the ability 
of the consumer to complain or post reviews; certain other waivers of 
consumer rights or other legal protections; and arbitration agreements. 
The proposal defines these terms and conditions as covered terms and 
conditions. Covered terms and conditions would be covered by the 
proposal whether they are legally enforceable or not.\4\
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    \4\ For brevity, the proposal generally uses the phrase 
``waivers and limitations'' on consumer legal protections broadly, 
to include terms and conditions that seek to impose waivers and 
limitations whether or not they are enforceable. See, e.g., Waiver, 
Black's Law Dictionary (11th ed. 2019) (alternate definitions for 
the relinquishment or abandonment of a right, and for an instrument 
seeking to have that effect). This broad framing is reflected in the 
scope of proposed Sec.  1092.301(d), which covers both effective and 
purported waivers and limitations, as discussed in the section-by-
section analysis in part V below.
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    Consistent with the risks to consumers posed by covered terms and 
conditions contained in form contracts as described below, Congress, 
States, the courts, the Bureau, the Federal Trade Commission (FTC), and 
other governmental bodies periodically have restricted their use in 
some contexts. In its statutory risk-based nonbank supervision program 
and in other activities, the Bureau also has identified risks posed by 
covered terms and conditions contained in form contracts. In addition, 
some States have begun to require registration and publication of

[[Page 6907]]

form contracts in one market (private student lending).
    The Bureau is proposing this rule, pursuant to CFPA sections 
1022(b) and (c) and section 1024(b), to facilitate the Bureau's market 
monitoring functions and its risk-based supervisory processes, 
including by identifying an important subset of non-bank covered 
persons and the covered terms and conditions they use in form contracts 
for the consumer financial products or services they offer or provide. 
In exercise of its authorities discussed in part II.C.3 of the 
proposal, and consistent with general standards for transparency of 
government data, the Bureau preliminarily has determined that the 
Bureau would publish the information it collects as permitted by law 
and described in the proposed rule. Publishing this information would 
facilitate public awareness and oversight by other regulators of the 
use of covered terms and conditions including those that waive or limit 
consumer protections under State law and Tribal law.
    The Bureau proposes to establish the registry to monitor risks to 
consumers from the use of covered terms or conditions in form contracts 
in today's marketplace and to inform its various functions, including 
supervision, enforcement, consumer education, and rulemaking. Most 
immediately, the information collected by the registry would facilitate 
the Bureau's prioritization and implementation of examination work in 
its statutorily-mandated risk-based nonbank supervision program.

II. Background and Rationale for the Proposed Rule

    Fair, transparent, and competitive markets for consumer financial 
products and services depend on fair, transparent, and competitive 
contracting with consumers. Form contracts are the dominant means of 
setting terms and conditions for consumer financial products and 
services in today's marketplace. However, consumers face risks when 
businesses use form contracts to impose terms and conditions that seek 
to waive consumer legal protections or to limit how consumers enforce 
their rights or post complaints or reviews. There is often little 
choice for people except to sign these form contracts due both to the 
market pervasiveness of form contracts and the critical role the 
products and services play in consumers' daily lives.
    In recognition of these risks to consumers, over the past several 
decades, many Federal, State, Tribal, and local laws and regulations 
have limited the use of these types of terms and conditions, including 
in form contracts for consumer financial products and services. 
Examples, discussed in part II.B, include the 1984 FTC Credit Practices 
Rule, which, among other things, prohibits contract terms purporting to 
waive State laws protecting consumer assets from seizure by unsecured 
creditors. In addition, the 2016 Consumer Review Fairness Act generally 
prohibits the use of form contracts that limit how consumers 
communicate their reviews, assessments, or similar analysis of the sale 
of goods or services. Several Federal consumer financial laws the 
Bureau administers also restrict the use of certain covered terms and 
conditions in the offering or provision of consumer financial products 
and services, including in markets where the CFPB exercises supervisory 
authority. The CFPB preliminarily has determined that a nonbank 
registration system to continuously and systematically monitor and 
assess these risks to consumers is needed to support its functions in 
promoting a fair, transparent, and competitive consumer financial 
marketplace, including its statutorily-mandated risk-based non-bank 
supervision program.
    CFPA sections 1022(c) and 1024(b), respectively, require the Bureau 
to monitor for risks to consumers in markets for consumer financial 
products and services, and to conduct a risk-based supervision program 
for nonbanks operating in markets the Bureau supervises. As discussed 
in part II.A below, the use of form contracts to set terms and 
conditions for consumer financial products and services in general 
poses a degree of risk to consumers, particularly as to consumer 
understanding. As elaborated in part II.B, certain terms and conditions 
that often appear in these form contracts either waive or limit 
enforcement or exercise of applicable legal protections, or purport to 
do so. Such waivers of and limitations on applicable legal protections 
often pose risks to consumers, as evidenced by: (a) examples of Federal 
laws, State laws, and Tribal laws summarized in part II.B and also 
discussed in part II.C.2 restricting or invalidating the use of covered 
terms and conditions in certain contexts; and (b) examples discussed in 
part II.C.2 suggesting the prevalence of, and potential for consumer 
harm caused by, the use of covered terms and conditions in markets 
supervised by the Bureau. The risks that covered terms and conditions 
pose to consumers vary in degree or magnitude. And the degree to which 
specific examples would be covered by the proposed rule also may depend 
on the precise wording and context of their terms and conditions 
analyzed in light of the specific provisions of the proposed rule. But 
any time a consumer legal protection is being relinquished or 
constrained pursuant to a term or condition contained in a form 
contract, some degree of risk to the consumer arises. For that reason, 
an assessment of the risk is warranted. Accordingly, for the reasons 
explained in part II.C and elsewhere in the proposal, the Bureau seeks 
to collect information to monitor and assess risks posed by covered 
terms and conditions that supervised nonbanks use to waive or limit 
applicable legal protections in the offering or providing of consumer 
financial products or services.\5\ In developing the proposal, the 
Bureau has considered alternative approaches to achieving these goals, 
as discussed below including in part II.D and the section-by-section 
analysis of the proposed rule in part V.
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    \5\ The examples provided in part II illustrate the types of 
terms and conditions that may pose risks to consumers by purporting 
to waive or limit legal protections applicable to consumer financial 
products or services. As noted above, the scope of the proposed rule 
is informed by these examples but will not necessarily cover each 
and every one of them or similar examples. The proposed regulation 
text as further explained in the section-by-section analysis in part 
V would govern whether the proposed rule would cover a particular 
term or condition.
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A. Use of Form Contracts Poses Risks to Consumer Understanding of Terms 
and Conditions

    Form contracts that establish terms and conditions are a standard 
feature of markets for consumer financial products or services. In the 
Bureau's experience and expertise, virtually all consumer financial 
products and services the Bureau supervises are governed by or operate 
largely on the basis of a paper or electronic written contract with the 
consumer, and sometimes on the basis of multiple such contracts. The 
consumer may enter the contract directly with a provider such as a 
lender, loan servicer, debt collector, remittance provider, or in some 
cases, a consumer reporting agency. The contract typically defines how 
the product or service works and the rights and obligations of the 
consumer, the provider, and, sometimes, third parties hired by the 
provider such as a loan servicer or debt collector.
    Consumers generally do not choose most contract terms and 
conditions in their agreements for consumer financial products or 
services. Form contracts often specify a fixed set of terms and

[[Page 6908]]

conditions which the consumer typically must accept in their totality. 
While form contracts may memorialize certain conspicuous financially 
``core deal terms,'' like price, payment methods, and a few others, 
other contract terms and conditions appear in fine print among a 
variety of ``non-core standard contract terms'' that the business 
requires.\6\
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    \6\ Restatement (Third) of Consumer Contracts (Tentative Draft 
No. 2, approved at ALI 2022 Annual Meeting) at 1. For convenience, 
the proposal refers to this source simply as the Restatement.
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    This type of contracting is ubiquitous in the modern economy and 
gives rise to certain risks. According to a leading treatise on 
contract law published by the American Law Institute, the prevalence of 
``standard-form'' consumer contracts throughout the United States 
presents a ``fundamental challenge . . . arising from the asymmetry in 
information, sophistication, and stakes between the parties to the 
contracts--the business and consumers.'' \7\ This form of contracting 
risks turning the overall agreement into what sometimes is referred to 
as an ``adhesion contract.'' That name derives from the notion that the 
consumer must adhere to the terms and conditions in the form contract; 
they are presented to the consumer on a take-it-or-leave-it basis and 
are non-negotiable by the consumer. A defining characteristic of these 
terms and conditions is ``the absence of meaningful choice on the part 
of the consumer.'' \8\
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    \7\ Id. at 1.
    \8\ Id. sec. 5(b)(2).
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    Consumers also lack an incentive to review fully the terms and 
conditions in form contracts that they cannot negotiate. Form contracts 
often are lengthy, with terms and conditions written by the provider, 
often in fine print. With the expansion of the digital consumer 
economy, online contracting with features such as ``click-through'' 
contracts are the norm. The terms and conditions in electronic form 
contracts may not be visible on the page where the consumer is asked to 
indicate their agreement; consumers may be required to do additional 
clicking or downloading to view the terms and conditions.\9\ Some terms 
or conditions may be de-emphasized. In some cases, some companies may 
also engage in risky digital design practices--termed ``dark 
patterns''--that obscure certain terms and conditions in adhesion 
contracts or the adhesion contract itself.\10\
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    \9\ See generally, e.g., id. at 55-62 (discussing numerous court 
decisions on so-called browsewrap and clickwrap electronic 
contracting processes).
    \10\ See generally FTC Staff Report, ``Bringing Dark Patterns to 
Light'' (Sept. 2022) at 7 (``[s]ome dark patterns operate by hiding 
or obscuring material information from consumers, such as burying 
key limitations of the product or service in dense Terms of Service 
documents that consumers don't see before purchase''), https://www.ftc.gov/system/files/ftc_gov/pdf/sP214800%20Dark%20Patterns%20Report%209.s14.2022%20-%20FINAL.pdf; 
Restatement at 116-17 (discussing relationship between the use of 
dark patterns and risk of procedural unconscionability in the 
contracting process, discussed in this proposal at part II.B.5).
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    Studies confirm that consumers rarely read adhesion contracts.\11\ 
These studies validate conventional wisdom recognized by other academic 
research.\12\ Moreover, consumers generally focus attention on salient 
terms such as price and quantity.\13\ As a result, providers of 
consumer financial products and services may seek to insert terms and 
conditions that pose risks to consumers who may not notice, until the 
consumer has a problem that they need to resolve or the terms and 
conditions face wider public scrutiny. In a recent reported example, a 
provider of consumer financial products and services inserted a term or 
condition that purported to provide for a substantial fine on users of 
a payment processing platform for promoting so-called 
``misinformation.'' \14\
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    \11\ See, e.g., Yannis Bakos, Florencia Marotta-Wurgler & David 
R. Trossen, ``Does Anyone Read the Fine Print?, Testing a Law and 
Economics Approach to Standard Form Contracts,'' 43 U. Chicago J. of 
Legal Studies 1 (2014) (describing study finding one or two of every 
1,000 retail software shoppers access the license agreements and 
that most of those who do access it read no more than a small 
portion), https://www.jstor.org/stable/10.1086/674424; Carl 
Schneider & Omri Ben-Shahar, ``The Failure of Mandated Disclosure,'' 
159 U. Penn. L. Rev. 647, 671 (2011) (reciting research that 
``suggests that almost no consumers read [contract] boilerplate, 
even when it is fully and conspicuously disclosed''), https://www.jstor.org/stable/41149884#metadata_info_tab_contents; Uri 
Benoliel & Shmuel Becher, ``The Duty to Read the Unreadable,'' 
Boston Col. L. Rev. 2255, 2270-81 (2019) (discussing empirical 
research), https://lira.bc.edu/work/ns/508eab7d-ddca-4829-be55-7aa6be4820b1; Jeff Sovern, ``The Content of Consumer Law Classes 
III,'' 22 J. Consumer L. 1 (2018) (reporting 2018 update to survey 
finding 57% of professors surveyed rarely or never read contracts), 
https://www.jtexconsumerlaw.com/V22N1/V22N1_Classes.pdf.
    \12\ See generally Ian Ayres, ``The No-Reading Problem in 
Consumer Contract Law,'' 66 Stanford L. Rev. 546 (2014), https://ianayres.yale.edu/sites/default/files/files/sThe%20No%20sReading%20Problem(2).spdf; Ian Ayres & Gregory Klass, 
``Responses: One-Legged Contracting,'' 133 Harv. L. Rev. Forum 1 
(2019), https://harvardslawreview.org/wp-content/uploads/2019/11/Ayres-Klass_Online.pdf.
    \13\ See generally Robert Hillman & Jeffrey Rachlinski, 
Standard-Form Contracting in the Electronic Age, 77 N.Y.U. L. Rev. 
429, 450-54 (2002) (discussing research on how cognitive factors 
affect consumer decisions related to terms and conditions in form 
contracts, including consumer focus on salient terms).
    \14\ Xinyi Wan, ``PayPal's `Misinformation' Fine Sparks 
Backlash,'' Harv. J. L. & Tech. (Nov. 1, 2022) (describing how 
payment processor updated terms and conditions to claim authority to 
impose a $2,500 ``fine'' on consumers for promoting 
``misinformation'' and then removed the update after public 
criticism), https://jolt.law.sharvard.edu/digest/paypals-misinformation-fine-sparks-backlash (last visited Nov. 30, 2022).
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    In some cases, consumers may have nominal choices, such as to opt-
out of a particular term or condition, or they are given notice of 
certain terms and conditions that they cannot negotiate, or both. And, 
depending on the facts and circumstances, these choices may be 
constrained; for example, some negative options may not present a 
meaningful choice.\15\ Alternatively, a contract may provide a process 
for the consumer to opt into a term or condition such as a waiver or 
limitation. Either way, the business, not the consumer, defines the 
option and drafts the associated terms and conditions. As discussed 
further below in part II.C, the use of so-called non-core contract 
terms and conditions seeking to waive or limit consumer legal 
protections raises questions about a consumer's understanding of these 
terms and conditions.
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    \15\ FTC Enforcement Policy Statement Regarding Negative Option 
Marketing, 85 FR 60822, 60823 (Nov. 4, 2021) (discussing how 
negative option marketing and contracting are ``widespread in the 
marketplace'' and that FTC and States ``regularly bring cases 
challenging a variety of harmful negative option practices''). See 
also CFPB, Supervisory Highlights, 87 FR 26727, 26737 (May 5, 2022) 
(discussing examiner findings of consumer reporting agency using 
``digital dark patterns'' to impose recurring payments that are 
difficult to cancel).
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B. Public Policy Recognizes Risks to Consumers Posed by Contract Terms 
and Conditions That Seek To Waive or Limit Applicable Legal Protections

    Many providers of consumer financial products and services 
regularly use form contracts to impose one or more contract terms or 
conditions that may effectively strip consumers of legal protections or 
diminish their adequacy, either through an express waiver of rights or 
other legal protections, or a limitation on how consumers may seek to 
enforce or exercise their rights. In this proposal, the Bureau is 
focused on terms and conditions in form contracts that expressly seek 
to impose the following limitations on consumer rights and other legal 
protections: waivers of claims a consumer can bring in a legal action; 
limits on the company's liability to a consumer; limits on the 
consumer's ability to bring a legal action by dictating the time frame, 
forum, or venue for a consumer to bring a legal action; limits on the

[[Page 6909]]

ability of a consumer to bring or participate in collective legal 
actions such as class actions; limits on the ability of the consumer to 
complain or post reviews; certain other waivers of consumer rights or 
other legal protections; and arbitration agreements.
    Express waivers, by definition, purport to extinguish legal 
protections otherwise applicable to consumer financial products and 
services. Some of these legal protections may afford consumers rights, 
such as the right to assert claims in a legal action. Even when terms 
and conditions do not purport to set forth such express waivers, they 
may impose significant limitations on a consumer's ability to bring a 
legal action, such as by capping liability or restricting the timing, 
venue, or forum for a consumer to file a private legal action to 
enforce an applicable consumer legal protection. These limitations, 
like waivers, may diminish the adequacy of the consumer legal 
protections to which they apply. Arbitration agreements also generally 
foreclose a consumer's choice to bring legal actions in court, 
sometimes with limited exceptions for individual actions in small 
claims court. Informal mechanisms, like filing a complaint or posting a 
review online, provide another mechanism for consumers to assert their 
rights and to identify business practices that, in some cases, may 
signify non-compliance with applicable legal protections or their 
inadequacy. Contract terms and conditions that restrict or limit 
consumers' ability to take those steps thus also undermine consumers' 
ability to prevent or obtain relief for violations of their rights.
    By eliminating or diminishing private enforcement or exercise of 
rights, covered terms and conditions risk harming consumers. Indeed, 
given the limited resources of public regulators, private enforcement 
and other forms of exercising rights play an important role in 
incentivizing compliance with the laws applicable to consumer financial 
products and services. For example, Bureau research suggests that 
public and private enforcement actions often have not overlapped, such 
that private enforcement often plays an additive, not duplicative, role 
in supporting the rule of law.\16\ Even when private and public 
enforcement overlap, private enforcement can set the stage for public 
enforcement by identifying risky or unlawful conduct. The Bureau also 
may consider both private and public enforcement actions as field 
market intelligence for its supervisory prioritization process 
discussed in part II.C.2 below.
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    \16\ CFPB, Arbitration Study: Report to Congress, pursuant to 
Dodd-Frank Wall Street Reform and Consumer Protection Act section 
1028(a) (2015) at sec. 1.4.8 (summarizing Bureau research indicating 
that class action and public enforcement resolutions often do not 
both address the same claims), https://www.consumerfinance.gov/data-research/research-reports/arbitration-study-report-to-congress-2015/.
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    Public policy has long recognized the risk covered terms and 
conditions pose to consumers. This part II.B discusses below numerous 
examples of public policies prohibiting or restricting covered terms 
and conditions, dating back to regulations that the FTC issued before 
the 2010 CFPA established the Bureau and some of which the Bureau also 
now enforces. These examples generally confirm that covered terms and 
conditions pose risks to consumers by undermining or diminishing the 
adequacy of existing legal protections.\17\ The Bureau requests comment 
on the risks to consumers indicated by these examples, and requests 
that commenters provide additional examples of Federal, State, or 
Tribal laws that prohibit or restrict the use of covered terms and 
conditions, as well as additional enforcement and supervisory actions 
applying these prohibitions or restrictions.
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    \17\ To be sure, existing law permits certain contractual 
waivers or limitations in consumer contracts. Cf. United States v. 
Mezzanatto, 513 U.S. 196, 203 (1995) (citing presumption that legal 
rights generally, and in the criminal law context, evidentiary 
protections, may be voluntarily waived), cited by Clark v. Capital 
Credit & Collection Services, Inc., 460 F.3d 1162, 1170 (9th Cir. 
2006) (noting exceptions including for waivers that contravene 
statutory policy). However, as discussed in this part II, several 
examples in statutes and regulations applicable to supervised 
nonbanks explicitly restrict when and how waivers can be obtained. 
And while an expressly-prohibited waiver may risk deceiving 
consumers as to the nature of their rights (in the face of an 
express public policy recognizing the importance of the particular 
right), the risk of such provisions is not limited to this 
deception, but rather derives from the consumers inability to 
exercise the affirmative right lost through the contract clause.
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1. Consumer Protection Statutes and Regulations Administered by the FTC 
Including Trade Regulations Enforced by the CFPB
    In 1975, the FTC promulgated a trade regulation, titled 
``Preservation of Consumers' Claims and Defenses'' (also known as the 
Holder in Due Course Rule or the Holder Rule). The Holder Rule requires 
sellers of goods or services to consumers to include a provision in 
their finance contracts that ensures that if another person holds the 
loan or lease a consumer uses to finance acquisition of a good or 
service from a seller or lessor, then the holder is subject to the same 
consumer rights and defenses that the consumer had with respect to the 
seller or lessor.\18\ The FTC adopted this regulation in part to 
prohibit merchant creditors from including a ``waiver of defenses'' 
clause in their installment sale and lease agreements.\19\ ``A `waiver 
of defenses' is the consumer's written agreement that his installment 
purchase contract may be treated like a promissory note in the event it 
is sold or assigned to a credit company.'' \20\ Absent the Holder Rule, 
when such a promissory note was assigned to a third-party, the third-
party would take it free of any claim or defense the buyer would have 
against the seller.
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    \18\ 16 CFR part 433 (Holder Rule), https://www.ecfr.gov/current/title-16/chapter-I/subchapter-D/part-433. A ``seller'' is a 
person that, in the ordinary course of business, sells or leases 
goods or services to consumers. 16 CFR 433.1(j).
    \19\ See 40 FR 53506, 53507 (Nov. 15, 1975) (issuing final 
Holder Rule). FTC Staff Guidelines on Trade Regulation Rule 
Concerning Preservation of Consumers' Claims and Defenses (May 4, 
1976) at 5, https://www.ftc.gov/system/files/documents/rules/holder-due-course-rule/s760504hidcrule.pdf (last visited Dec. 30, 2022).
    \20\ Id.
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    In adopting the Holder Rule, the FTC also acknowledged ``widespread 
public concern about mechanical abrogations of consumer rights'' \21\ 
and noted that associated economic injury ``results from terms 
contained in form contracts'' that ``consumers rarely comprehend. . . 
.'' \22\ The FTC explained that the ``waiver of defenses are presented 
to consumers on a take-it-or-leave-it basis. These contracts are 
drafted by sellers and creditors, and they are not susceptible to 
modification at the point of sale.'' \23\
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    \21\ See 40 FR at 53508.
    \22\ Id. at 53523.
    \23\ Id. at 53524.
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    The Bureau also enforces the Holder Rule,\24\ which applies in 
important ways in markets the Bureau supervises described in part 
II.C.2. For example, the regulation covers many types of consumer 
automobile finance agreements. As a result, under the rule, a consumer 
who obtains automobile financing through a dealer has the right to 
assert claims and defenses that they have against the dealer, as 
against an indirect automobile finance company, when the dealer sells 
the financing to that company. The Holder Rule also applies to credit 
contracts used to finance the sale of services such as trade or 
vocational school agreements.\25\ In addition, U.S. Department of 
Education regulations specify that, in certain

[[Page 6910]]

circumstances, the holder of certain types of Federal student loans is 
subject to ``all claims and defenses that the borrower could assert 
against the school with respect to that loan. . . .'' \26\
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    \24\ The Bureau included the Holder Rule among the list of 
enforceable rules and orders it identified upon transfer of 
authorities to the Bureau in July 2011, pursuant to CFPA section 
1063(i). See 76 FR 43569, 43571 (July 21, 2011), https://www.gpo.gov/fdsys/pkg/FR-2011-07-21/pdf/2011-18426.pdf.
    \25\ 40 FR at 53524.
    \26\ 34 CFR 682.209(g) (describing rules for FFEL loan program). 
See also 34 CFR 685.206 (Direct Loan program borrower defense 
regulations).
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    The FTC also addressed the issue of waivers and limitation of 
consumer rights in form contracts in its 1984 Credit Practices Rule, 
which the Bureau also enforces.\27\ This trade regulation prohibits, 
among other practices, the use of contract terms purporting to waive a 
consumer's State law right to block creditors from seizing personal or 
real property of the consumer in which they do not hold security 
interests.\28\ In adopting that rule, the FTC found that ``creditors 
frequently include clauses in their consumer contracts that require 
consumers to waive [such] statutory protections.'' \29\ It determined 
that such waivers can cause substantial injury because, without these 
assets, ``the consumer can lose the basic necessities of life.'' \30\ 
The FTC also determined that, when entering into contracts, ``most 
consumers are neither aware of the rights they have under [asset 
seizure] exemption statutes nor of the presence or significance of 
waiver clauses in their contracts.'' \31\ For one thing, the waivers 
relate to ``elements of a transaction that are distant in time and 
probability.'' \32\ As a result, the FTC found consumers could not 
bargain over this provision or shop for a contract without one.\33\ Yet 
the FTC found that, when the time comes for collection of a debt, the 
waivers function as ``in terrorem collection devices[.]'' \34\
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    \27\ 76 FR at 43571.
    \28\ 16 CFR 442(a)(2).
    \29\ 49 FR 7740, 7769 (Mar. 1, 1984), https://archives.federalregister.gov/issue_slice/1984/3/1/7708-7793.pdf#spage=82.
    \30\ Id. at 7744.
    \31\ Id. at 7770.
    \32\ Id. at 7747.
    \33\ Id.
    \34\ Id. at 7769.
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    The 1984 FTC rule also prohibits creditors from using contract 
terms that waive consumers' due process rights, such as in the event of 
a future debt collection lawsuit.\35\ The FTC similarly found that 
consumers either are not aware of or rarely understand the significance 
of these clauses, which are framed in technical, confounding language 
and presented in small print; thus, consumers cannot bargain over them 
or shop for alternatives.\36\
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    \35\ 16 CFR 442(a)(1).
    \36\ 49 FR at 7749, 7753.
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    In addition, Congress, in the 2016 Consumer Review Fairness Act, 
generally prohibited the use of form contracts that limit how consumers 
communicate their reviews, assessments, or similar analysis of the sale 
of goods or services.\37\ The statute also invalidates these types of 
contract terms and conditions.\38\ As the legislative history noted, 
these so-called ``[g]ag clauses have been imposed by many different 
types of businesses and come in different forms.'' \39\ Congress noted 
that such clauses may ``become widely adopted[.]'' \40\ Under the 
statute, use of these types of contract terms and conditions 
constitutes an unfair or deceptive act or practice.\41\ The statute 
specifically authorizes enforcement by the FTC and State attorneys 
general. The FTC recently brought enforcement actions for violations of 
this statute by providers of credit repair services and a real estate 
investment training scheme.\42\ One of the clauses purported to 
explicitly restrict the filing of complaints with government 
authorities.\43\
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    \37\ 15 U.S.C. 45b(c); Consumer Review Fairness Act of 2016, 
Public Law 114-258 (Dec. 14, 2016), 130 Stat. 1355.
    \38\ Id. at 45b(b). California law also includes a similar 
protection against these types of terms and conditions in contracts 
for the sale or lease of consumer goods or services. Cal. Civ. Code 
1670.8.
    \39\ H.R. Rep. No. 114-731 at 5 (Sept. 9, 2016).
    \40\ Id.
    \41\ 15 U.S.C. 45b(d)(1).
    \42\ See FTC v. Grand Teton Professionals, LLC, et al., Case No. 
19cv933 (D. Conn) (Complaint filed June 17, 2019), ]] 62-63, 80-82, 
and 127-35; FTC & Utah Div. of Cons. Prot. v. Zurixx, LLC, Case No. 
19cv713 (D. Utah) (Second Amended Complaint filed Feb. 12, 2021), ]] 
115-20, and 150-55.
    \43\ Zurixx Second Amended Complaint, ] 116.
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    In early 2022, the Bureau issued a bulletin noting the public 
policy against that use of these types of terms and conditions. The 
bulletin warned that their use in contracts for consumer financial 
products and services also may constitute an unfair, deceptive, or 
abusive act or practice (UDAAP). The bulletin stated that the Bureau 
intends to prioritize scrutiny of these provisions in its supervisory 
and enforcement activities.\44\
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    \44\ CFPB Bulletin 2022-05, ``Unfair and Deceptive Acts or 
Practices That Impede Consumer Reviews,'' 87 FR 17143 (Mar. 22, 
2022), https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-policy-on-contractual-gag-clauses-and-fake-review-fraud/.
---------------------------------------------------------------------------

    Finally, the FTC also administers the Credit Repair Organizations 
Act (CROA),\45\ which prohibits waivers and attempts to obtain waivers 
of CROA's legal protections. The FTC has applied CROA to, among other 
businesses, foreclosure relief services.\46\
---------------------------------------------------------------------------

    \45\ See, e.g., FTC v. United Credit Adjusters, Case No. 09-cv-
798 (D. N.J.) (consent order entered Feb. 4, 2010, with foreclosure 
relief firm resolving, among other allegations, an alleged violation 
of CROA); FTC v. Lalonde, 545 F. Appx. 825 (11th Cir. 2013) 
(upholding trial court decision finding violations of CROA by firm 
offering credit repair and foreclosure relief services).
    \46\ 15 U.S.C. 1679f(a)-(b).
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2. Federal Consumer Financial Laws Administered by the CFPB
    Several other provisions in statutes and regulations the Bureau 
enforces include prohibitions and restrictions on waivers and 
limitations on the enforcement of consumer legal protections. These 
examples also reflect public policy concerns with the risks covered 
terms and conditions pose to consumers.
    Regulation Z implements the Truth-in-Lending Act (TILA) prohibition 
against including, in a residential mortgage loan or open-ended 
consumer credit plan secured by the principal dwelling, terms requiring 
arbitration or any other nonjudicial procedure as the method for 
resolving any controversy or settling claims arising out of the 
transaction.\47\ Regulation Z also implements the TILA prohibition 
against applying or interpreting terms in agreements related to these 
transactions to bar a consumer from bringing a claim in court in 
connection with any alleged violation of Federal law.\48\
---------------------------------------------------------------------------

    \47\ 12 CFR 1026.36(h)(1), implementing 15. U.S.C. 1639c(e)(1). 
For this reason, the Bureau's 2015 Arbitration Study generally did 
not study the mortgage market. See, e.g., Arbitration Study sec. 5 
n.34, sec. 8 at 8 & n.24.
    \48\ 12 CFR 1026.36(h)(2), implementing 15. U.S.C. 1639c(e)(3).
---------------------------------------------------------------------------

    Several other provisions in the Bureau's consumer mortgage 
regulations also restrict waivers of specified rights or other 
protections, such as waivers of the right of rescission of certain 
mortgage transactions, as well as the right to receive certain 
disclosures within a certain time period in advance of 
consummation.\49\ By restricting the circumstances in which these 
waivers can be lawfully obtained, these regulations illustrate the 
risks that the waivers pose. For example, mortgage lenders cannot use 
``[p]rinted forms'' for purposes of obtaining a waiver of the right of 
rescission.\50\ In addition, consumers can only waive most of these 
protections when necessary to obtain a loan to meet a ``bona fide 
personal financial emergency.'' \51\ Federal

[[Page 6911]]

regulators have rejected requests to allow such waivers in a broader 
set of circumstances. For example, in rejecting a request to broaden 
the exception to the general prohibition against waiving the right of 
rescission for certain mortgage transactions, the Federal Reserve Board 
stated in a 1981 rule as follows:
---------------------------------------------------------------------------

    \49\ 12 CFR 1026.15(e) (rescission); 12 CFR 1026.23(e) (same); 
12 CFR 1026.19(a)(3), (e)(1)(v), (f)(1)(iv) (timing requirements for 
delivery of certain mortgage disclosures); 12 CFR 1026.31(c)(1)(iii) 
(timing requirement for delivery of certain disclosures for high-
cost mortgages); 12 CFR 1024.10(c) (timing requirement for delivery 
of settlement statement); 12 CFR 1002.14(a)(1) (timing requirement 
for providing copy of appraisal or other writing valuation in 
certain mortgage transactions).
    \50\ 12 CFR 1026.15(e).
    \51\ See 12 CFR 1026.15(e); 12 CFR 1026.23(e); 12 CFR 
1026.19(a)(3), (e)(1)(v), (f)(1)(iv); 12 CFR 1026.31(c)(1)(iii).

    before accepting a waiver [of the right of rescission], 
creditors must assure themselves that the reasons given for the 
waiver are both substantial and credible and that the waiver is in 
all respects bona fide. This requirement, combined with the 
prohibition on the use of preprinted forms, will prevent abusive 
practices, while at the same time permitting consumers to waive the 
rescission right in appropriate circumstances.\52\
---------------------------------------------------------------------------

    \52\ Federal Reserve Board, Credit; Truth in Lending; Revision 
of Regulation Z, Final Rule, 46 FR 20848, 20872 (Apr. 7, 1981), 
https://www.govinfo.gov/content/pkg/FR-1981-04-07/pdf/FR-1981-04-07.pdf#page=190.

    More broadly across the markets the Bureau supervises, including 
when making payments to supervised nonbanks, consumers enjoy important 
protections afforded by the Electronic Fund Transfer Act (EFTA) and its 
implementing regulation, Regulation E.\53\ EFTA prohibits contract 
terms that contain a ``waiver of any right conferred'' by EFTA.\54\ 
Recognizing that depriving consumers of a remedy undermines the right 
itself, EFTA section 914 also prohibits waiver of any ``cause of 
action'' under EFTA.\55\
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 1693 et seq.; 12 CFR part 1005.
    \54\ 15 U.S.C. 1693l.
    \55\ Id.
---------------------------------------------------------------------------

3. Federal Consumer Bankruptcy Statute Protections
    The Federal bankruptcy statute provides a legal process for 
liquidating the debts of consumers who cannot repay their debts. A 
fundamental goal of the bankruptcy laws enacted by Congress is to give 
debtors a financial ``fresh start'' from burdensome debts.\56\ The 
Federal bankruptcy statute generally stays collection on most consumer 
debts during a bankruptcy proceeding,\57\ which generally can result in 
discharge of those debts (under Chapter 7 of the Bankruptcy Code \58\) 
or a plan to facilitate repayment of those debts (under Chapter 13 of 
the Bankruptcy Code \59\). Consumers generally initiate the bankruptcy 
proceeding, which is overseen by the bankruptcy courts and bankruptcy 
trustees. The Bureau does not administer or enforce the Bankruptcy 
Code. However, Federal consumer financial law generally applies to 
consumer financial product and service providers' communications with 
consumers and other acts and practices relating to bankruptcy 
protections and the bankruptcy process.\60\
---------------------------------------------------------------------------

    \56\ Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934) (noting 
that a primary purpose of the bankruptcy law is to ``relieve the 
honest debtor from the weight of oppressive indebtedness, and permit 
[the debtor] to start afresh . . . ,'' citing Williams v. U.S. 
Fidelity & Guaranty Co., 236 U.S. 549, 554 (1915), and elaborating 
that the bankruptcy law ``gives the honest but unfortunate debtor . 
. . a new opportunity in life and a clear field for future effort, 
unhampered by the pressure and discouragement of pre-existing 
debt'').
    \57\ 11 U.S.C. 362.
    \58\ See generally 11 U.S.C. chapter 7.
    \59\ See generally 11 U.S.C. chapter 13.
    \60\ See, e.g., CFPB, Supervisory Highlights (Fall 2014) at 
2.5.5 (describing examiner findings that one or more supervised 
entities were misrepresenting to consumers that student loans are 
never dischargeable in bankruptcy); Supervisory Highlights (Fall 
2015) at 2.5.3 (same); Supervisory Highlights (Spring 2022) at 2.2.6 
(describing examiner findings that certain furnishers violated the 
Fair Credit Reporting Act by, among other things, failing to 
promptly update account statutes to reflect the discharge of debt in 
bankruptcy).
---------------------------------------------------------------------------

    A number of bankruptcy courts long have held that creditors cannot 
enforce contracts purporting to waive consumers' statutory right to 
file for bankruptcy protection under the Federal bankruptcy 
statute.\61\ Relatedly, since 1978, the Federal bankruptcy statute has 
explicitly stated that, in the event of discharge of a debt in 
bankruptcy, the debt may be voided ``whether or not discharge of such 
debt is waived'' by contract.\62\ As discussed in part II.C.2 below, 
however, some lenders nevertheless may use contract terms that attempt 
or purport to limit or waive bankruptcy protections such as these.
---------------------------------------------------------------------------

    \61\ See, e.g., In re Weitzen, 3 F. Supp. 698, 699 (S.D.N.Y. 
1933) (holding that a contract provision seeking to waive the 
benefit of bankruptcy is unenforceable because it would ``frustrate 
the object of the Bankruptcy Act,'' which would be ``nullified in 
the vast majority of debts arising out of contracts, if this were 
permissible''); In re Madison, 184 B.R. 686, 690-692 (E.D. Pa. 
Bktcy. 1995) (``an agreement not to file bankruptcy is unenforceable 
because it violates public policy''). See also Paul R. Hage, 
``Border Control: The Enforceability of Contractual Restraints on 
Bankruptcy Filings, Part 1'' (Dec. 14, 2019) (``Courts almost 
universally agree that the right to file a petition in bankruptcy is 
fundamental and cannot be waived . . . because of the strong public 
policy favoring access to bankruptcy relief.''), https://www.americanbar.sorg/groups/business_law/publications/blt/2019/12/border-control/ (last visited Dec. 2, 2022).
    \62\ 11 U.S.C. 524(a)(1). See Bktcy. Reform Act of 1978, Public 
Law 95-598 (Nov. 6, 1978), 92 Stat. 2549, 2592 (codifying section 
524(a)(1) provisions on non-waiver of discharge); H.R. Rep. No. 95-
595 (Sept. 8, 1977) at 366 (anti-waiver provision ``intended to 
prevent waiver of discharge of a particular debt from defeating the 
purposes'' of the discharge provision in the bankruptcy statute); S. 
Rep. No. 95-989 at 80 (July 14, 1978) (same).
---------------------------------------------------------------------------

4. Federal Statutory Protections for Military Families Including 
Protections Enforced by the CFPB
    Federal law also affords servicemembers other relevant protections 
when taking out mortgages and installment loans, including from lenders 
supervised by the Bureau such as mortgage lenders, payday lenders, 
private student lenders, and automobile finance lenders. The Bureau 
enforces the Military Lending Act (MLA), which covers many types of 
consumer credit, including payday and private student loans.\63\ The 
MLA and its implementing regulations generally prohibit terms in 
consumer credit contracts that require servicemembers and their 
dependents to ``waive the covered borrower's right to legal recourse 
under any otherwise applicable provision of State or Federal law . . . 
.'' \64\ The MLA and its implementing regulations also prohibit 
arbitration agreements in these transactions.\65\ These provisions do 
not apply, however, to certain consumer credit transactions, such as 
residential mortgage or automobile finance transactions.\66\ Congress 
enacted the MLA in 2006 at the recommendation of the Department of 
Defense, which in a 2006 report on predatory lending to servicemembers 
noted:
---------------------------------------------------------------------------

    \63\ 10 U.S.C. 987(f)(6) (authorizing Bureau enforcement of the 
Military Lending Act). See also 32 CFR part 232 (regulations 
implementing the Military Lending Act).
    \64\ 32 CFR 232.8(b), implementing 10 U.S.C. 987(e)(2).
    \65\ 10 U.S.C. 987(e)(3); 32 CFR 232.8(c).
    \66\ See, e.g., 32 CFR 232.3(f)(2).

    Service[ ]members should maintain full legal recourse against 
unscrupulous lenders. Loan contracts to Service members should not 
include mandatory arbitration clauses or onerous notice provisions, 
and should not require the Service[ ]member to waive his or her 
right of recourse, such as the right to participate in a plaintiff 
class. Waiver is not a matter of ``choice'' in take-it-or-leave-it 
contracts of adhesion.\67\
---------------------------------------------------------------------------

    \67\ Department of Defense Report (Aug. 6, 2006) at 7-8, https://apps.dtic.mil/sti/pdfs/ADA521462.pdf (last visited Dec. 2, 2022).

The Bureau has alleged MLA violations with respect to the use of 
contract terms and conditions prohibited by the MLA, including when 
short-term small-dollar lenders allegedly provided servicemembers with 
loans at high rates prohibited by the MLA under contracts that included 
arbitration agreements.\68\
---------------------------------------------------------------------------

    \68\ CFPB v. LendUp Loans, LLC, Case No. 20cv8583 (Complaint 
filed Dec. 4, 2020) (N.D. Cal.), ]] 13-16 (arbitration count), 
https://www.consumerfinance.gov/enforcement/actions/lendup-loans-llc/; CFPB v. First Cash, Inc. & Cash America West, Inc., Case No. 
21cv1251 (Complaint filed Nov. 12, 2021) (N.D. Tex.), ]] 22-25 
(same), https://www.consumerfinance.gov/enforcement/actions/firstcash-inc-and-cash-america-west-inc/; CFPB v. MoneyLion 
Technologies Inc. et al., Case No. 22cv8308 (Compliant filed Sept. 
29, 2022) (S.D.N.Y.), ]] 65-68 (same), https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-moneylion-for-overcharging-servicemembers-trapping-consumers-in-costly-memberships/.


[[Page 6912]]


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    In addition, the Servicemembers Civil Relief Act (SCRA), among 
other things, allows servicemembers to reduce interest rates on 
preservice loans and includes certain protections against default 
judgments and automobile repossessions.\69\ The SCRA also requires that 
any time period for servicemembers to file legal action or to enjoy 
certain defenses in mortgage transactions exclude periods of military 
service.\70\ The SCRA further imposes specific requirements for any 
contractual waiver of a right or other protection afforded by the 
SCRA.\71\ However, in a recent report, the U.S. Government 
Accountability Office (GAO) found that most of the stakeholders GAO 
interviewed who have regular contact with servicemembers or their 
representatives said that ``servicemembers do not understand the 
waivers they are asked to sign[.]'' \72\ And, in resolving claims of 
SCRA violations, the Department of Justice often imposes detailed 
constraints on how lenders may obtain these waivers in order to further 
limit risks to consumers.\73\
---------------------------------------------------------------------------

    \69\ See 50 U.S.C. 3937 (interest rate cap); 50 U.S.C. 3931 
(protections against default judgments); 50 U.S.C. 3952 (protections 
against automobile repossessions); 50 U.S.C. 3953 (mortgage 
protections).
    \70\ 50 U.S.C. 3936(a) (tolling of statute of limitations); 50 
U.S.C. 3936(b) (excluding period of military service from any time 
period provided by law for the redemption of real property sold or 
forfeited to enforce a mortgage obligation).
    \71\ 50 U.S.C. 3918(a)-(c).
    \72\ GAO Rept. 21-550R, Servicemember Rights: Stakeholders 
Reported Servicemembers Have Limited Understanding about Waivers of 
Their Consumer Rights and Protections (June 29, 2021) at 4-7 
(reporting that 12 of 15 stakeholders interviewed reported that 
servicemembers have limited understanding about waivers of their 
rights and protections under SCRA, and the other three said they did 
not know or did not respond).
    \73\ See e.g., United States v. Sallie Mae, Inc., et al., Case 
No. 14cv600 (D. Del.), Consent Order (Sept. 29, 2014), ]] 36.c, 37-
38 (requiring Department of Justice (DoJ) approval of procedures for 
obtaining waivers of SCRA legal protections); United States v. 3rd 
Generation, Inc. & California Auto Finance, Case No. 18cv523 (C.D. 
Cal.), Consent Order (Mar. 12, 2019), ] 10.e; United States v. 
Westlake Services, LLC, Case No. 17cv7125 (C.D. Cal.), Settlement 
Agreement (Sept. 27, 2017), ] 10.e; see also generally DoJ SCRA 
settlement agreements, https://www.justice.gov/servicemembers/servicemembers-civil-relief-act-scra.
---------------------------------------------------------------------------

5. State Laws and Tribal Laws
    As discussed in this part II.B.5 and also in part II.C below, a 
number of State laws and Tribal laws specifically prohibit or restrict 
contractual waivers of or certain limits on enforcement and exercise of 
important consumer legal protections. These State and Tribal laws 
reflect a judgment that waivers and other such limitations may 
undermine the adequacy of legal protections. Some of these legal 
protections are so fundamental that waiving or otherwise limiting their 
enforcement or exercise through consumer contracts is prohibited under 
State or Tribal law. Other State and Tribal laws set specific standards 
for waivers of certain consumer legal protections or limits on their 
enforcement or exercise. These anti-waiver prohibitions, waiver 
restrictions, and prohibitions and restrictions on other limits on 
enforcement and exercise of legal protections appear in a variety of 
State laws and Tribal laws, including some of those that prohibit 
unfair and deceptive acts and practices, some consumer lending 
statutes, and other statutes setting forth specific types of 
protections, as well as in the general principles of State common law 
of contracts. While not summarized in detail in this part II.B, other 
similar prohibitions also appear in regulations and ordinances adopted 
at the local level.\74\
---------------------------------------------------------------------------

    \74\ See, e.g., New York City Admin. Code sec. 20-701(4) 
(providing that ``the degree to which terms of the transaction 
require consumers to waive legal rights'' shall be a factor in 
considering whether to regulate an act or practice in connection 
with the extension of consumer credit or the collection of consumer 
debt as a prohibited unconscionable trade practice); S.F. Police 
Code sec. 2704 (prohibiting attempts by mortgage modification 
consultants to induce real property owners to waive rights under 
municipal mortgage modification regulations); City of Los Angeles 
Muni. Code sec. 47.107 (same).
---------------------------------------------------------------------------

    For example, the California Consumer Privacy Act affords consumers 
certain rights to know how their information is used and to instruct 
businesses not to sell personal information of the consumer.\75\ That 
statute further states that ``[a]ny provision of a contract or 
agreement of any kind, including a representative action waiver, that 
purports to waive or limit in any way rights under this title, 
including, but not limited to, any right to a remedy or means of 
enforcement, shall be deemed contrary to public policy and shall be 
void and unenforceable.'' \76\ California's consumer credit reporting 
agencies statute includes a similar anti-waiver provision.\77\ 
Similarly, the Model Tribal Consumer Protection Code also encourages 
Indian Tribes to establish privacy protections that are non-
waivable.\78\
---------------------------------------------------------------------------

    \75\ See generally Cal. Civ. Code sec. 1798.100 et seq. 
described at https://oag.ca.gov/privacy/ccpa.
    \76\ Cal. Civ. Code sec. 1798.192.
    \77\ Cal. Civ. Code sec. 1785.36.
    \78\ First Nations Development Institute, Model Tribal Consumer 
Protection Code (2018) Ch. II--Privacy Protection--section D 
(``[a]ny waiver of a provision of this title is contrary to public 
policy and is void and unenforceable''), https://www.firstnations.org/publications/model-tribal-consumer-protection-code/ (last visited Dec. 5, 2022).
---------------------------------------------------------------------------

    In addition, several State and Tribal laws specifically prohibit or 
restrict waivers of protections against unfair and deceptive acts and 
practices. Michigan law defines prohibited unfair, unconscionable, or 
deceptive methods, acts, or practices to include ``[e]ntering into a 
consumer transaction in which the consumer waives or purports to waive 
a right, benefit, or immunity provided by law, unless the waiver is 
clearly stated and the consumer has specifically consented to it.'' 
\79\ Texas law prohibits waivers of consumer legal protections under 
the State deceptive trade practices statute as contrary to public 
policy, unenforceable, and void unless certain conditions are met and 
``the consumer is not in a significantly disparate bargaining 
position.'' \80\ Other State laws contain outright prohibitions of 
waivers of legal protections in general consumer protection laws. 
Illustrative examples include the laws of California,\81\ Illinois,\82\ 
Kansas,\83\ and Tennessee.\84\ Finally, the Navajo Nation unfair trade 
practices statute broadly prohibits acts or practices that take 
advantages of a lack of consumer understanding of contract terms to an 
unreasonably unfair degree.\85\
---------------------------------------------------------------------------

    \79\ Mich. Code 445.903 sec 3(1)(t).
    \80\ Tex. Bus. & Com. Code sec. 17.42.
    \81\ Cal. Civ. Code. sec. 1751 (barring waivers of protections 
under California Consumers Legal Remedies Act).
    \82\ Ill. St. Ch. 815 sec. 505(10c), Waiver or modification 
(barring waiver or modification of protections under consumer fraud 
and deceptive practices statute).
    \83\ Kan. Stat. 50-625(a), Waiver (generally prohibiting waivers 
of rights or benefits under the Kansas Consumer Protection Act, 
unless otherwise specified in the statute).
    \84\ Tenn. Stat. 47-18-113(a) (generally prohibiting waivers 
``by contract, agreement, or otherwise'' of provisions of the 
Tennessee Consumer Protection Act of 1977). See also Tenn. Stat. 47-
18-113(c) (specifying conditions for waivers of other consumer 
protections in Tennessee law).
    \85\ NNCA Ch. 7 sec. 1103.E.1, https://www.nnols.org/wp-content/uploads/2022/05/1-5.pdf.
---------------------------------------------------------------------------

    Some State consumer lending laws also generally prohibit waivers, 
either outright or by provisions rendering them void and unenforceable. 
Illustrative examples include the Virginia usury statute,\86\ the 
Louisiana consumer credit law,\87\ and the Nebraska loan brokers 
statute.\88\ Other State laws generally prohibit waivers for certain 
types of loan and loan-related

[[Page 6913]]

products. For example, the Florida payday lending statute expressly 
prohibits waiver of its protections, including a mandatory cooling-off 
period between payoff on an existing payday loan and origination of a 
new payday loan.\89\ Several other State payday and short-term small-
dollar lending statutes include similar prohibitions, whether against 
waivers generally \90\ or waivers of certain rights such as jury trial 
waivers not contained in permissible arbitration agreements.\91\ In the 
automobile lending market, the California automobile sales financing 
statute and the New Mexico motor vehicle sales financing statute 
include general prohibitions on waivers, and in the mortgage market, 
the New Mexico mortgage foreclosure relief statute does the same.\92\ 
And in the context of secured lending nationwide, Article 9 of the 
Uniform Commercial Code (UCC)--adopted in both State and Tribal laws--
identifies numerous consumer legal protections that may not be waived 
or varied, including, among others, a prohibition on extrajudicial 
repossession without breach of the peace.\93\ Article 9 also restricts 
waivers of other consumer legal protections, including several that 
apply in the event of default on the loan.\94\ Some State laws also set 
forth additional applicable legal protections against certain waivers 
in contracts for the financing of the sale of goods and services.\95\
---------------------------------------------------------------------------

    \86\ Va. Code. Ann. 6-2-306, Waiver of rights violative of 
public policy.
    \87\ La. R. S. 9:3513 (barring waivers or agreements to forego 
rights or benefits under Louisiana Consumer Credit Law, except for 
settlement of a claim disputed in good faith).
    \88\ Neb. Stat. 45-191.05, Waiver of sections; attempt; 
prohibited.
    \89\ Fl. Stat. 560.404(10)(e) (general prohibition on waivers); 
Fl. Stat. 560.404(19)-(20) (cooling-off period provisions).
    \90\ See, e.g., Ks. Stat. 16a-2-404(10)(d)(iii) (prohibiting use 
of terms and conditions in which the consumer agrees not to assert a 
claim or defense arising out of the contract); Oh. Stat. 1321.41(G) 
(prohibiting short-term loan licensees from requiring the borrower 
to ``waive the borrower's right to legal recourse under any 
otherwise applicable provision of state or federal law''); Ill. 
Stat. Ch. 815 sec. 122/4-5(10)(D) (prohibiting ``a provision in 
which the consumer agrees not to assert any claim or defense arising 
out of the contract'').
    \91\ Ill. Stat. Ch. 815 sec. 122/4-5(10)(B).
    \92\ Cal. Civ. Code sec. 2983.7(a) & (c), Prohibition on certain 
provisions (prohibiting automobile sale finance agreements that 
contain waivers of claims or defenses of consumers); N.M. Stat. 58-
19-12, Waiver (``Any waiver of the provisions of this act shall be 
unenforceable and void''); N.M. Stat. 47-15-5.G(1) (prohibiting 
including a provision in a foreclosure consulting contract that 
``attempts or purports to waive an owner's rights'' under the New 
Mexico foreclosure relief statute).
    \93\ UCC 9-602, Waiver and Variance of Rights and Duties. See, 
e.g., CNCA, title 80, sec. 9-602 (Cherokee nation secured lending 
code restricting waiver and variance of rights), https://attorneygeneral.cherokee.org/media/5upcrg3j/word-searchable-full-code.pdf. See also First Nations Development Institute, Model Tribal 
Consumer Protection Code (2018) Ch. IV--Rental-Purchase Agreements--
sec. F.1.e (defining ``waiver by the consumer of claims or 
defenses'' as an example of ``[p]rohibited rental-purchase agreement 
terms; practices'' in automobile finance agreements); Ch. V--
Repossessions of Personal Property--sec. D.4.c (prohibiting any 
seller from ``attempt[ing] to obtain a waiver of this section from 
any consumer, or to obtain such a waiver''), https://www.firstnations.org/publications/model-tribal-consumer-protection-code/.
    \94\ UCC 9-624, Waiver (placing restrictions on waivers of 
certain rights to notice of disposition of collateral, to require 
disposition of collateral, and to redeem collateral). See, e.g., 
CNCA title 80, sec. 9-624.
    \95\ See, e.g., N.J. Stat. 17:16C-38.2. See also Nat'l Conf. of 
Commissioners on Uniform Laws, Revised Model Tribal Secured 
Transactions Act (May 2017), sec. 9-403(a) (model statute for Tribal 
use providing that waivers of rights and defenses not enforceable in 
consumer finance agreements related to sale or lease of goods or 
services), https://www.uniformlaws.org/committees/community-
home?CommunityKey=1f31aa7f-74be-457e-904b-
ba3b6d7d3646#:~:text=The%20Model%20Tribal%20Secured%20Transactions,se
cured%20credit%20to%20their%20members.
---------------------------------------------------------------------------

    Other provisions of State and Tribal laws prohibit contract terms 
and conditions that limit how consumers can enforce applicable legal 
protections. The California automobile sales financing statute, for 
example, prohibits contract provisions that limit liability for legal 
remedies available to the consumer.\96\ Tennessee law, for example, 
prohibits specifying an out-of-state forum for adjudication of claims 
arising under the Tennessee consumer protection statute.\97\ Minnesota 
law similarly prohibits specifying an out-of-state forum for resolution 
of disputes related to certain short-term loans.\98\ Idaho law 
prohibits contract terms shortening the statute of limitations in some 
circumstances.\99\ Cherokee Nation law prohibits waiver of numerous 
provisions in arbitration agreements.\100\
---------------------------------------------------------------------------

    \96\ Cal. Civ. Code sec. 2983.7(e).
    \97\ Tenn. Stat. 47-18-113(b).
    \98\ See, e.g., Minn. Stat. 47.601 sec. 2 (prohibiting certain 
terms and conditions in contracts for short-term loans, including, 
among others, ``a provision choosing a forum for dispute resolution 
other than the state of Minnesota.'').
    \99\ See, e.g., DelJack, Inc. v. U.S. Bank Nat'l Ass'n, 2012 WL 
4482049 at *6-*7 (D. Idaho 2012) (applying Idaho Code 29-110(1) to 
invalidate attempt to use a standard contract term to shorten 
statute of limitation). Under Idaho law, ``[e]very stipulation or 
condition in a contract . . . which limits the time within which 
[any party thereto] may thus enforce [their] rights, is void as it 
is against the public policy of Idaho.'' Idaho Code 29-110(1) (also 
qualifying that section 110(1) does not apply to arbitration 
agreement allowing arbitration in Idaho).
    \100\ CNCA title 11, Ch.8, sec. 1304.B & C.
---------------------------------------------------------------------------

    Even when State statutory law may not expressly prohibit or 
restrict waivers or limitations on how consumers may enforce or 
exercise their rights, the Restatement of the law of consumer contracts 
further articulates how the State common law of contracts scrutinizes 
certain standard terms and conditions for unconscionability. A similar 
analysis also may be applied under some Tribal laws.\101\ The doctrine 
of unconscionability protects consumers against (1) fundamentally 
unfair or unreasonably one-sided terms and conditions that are (2) 
imposed through a contracting process that results in unfair surprise 
or results from the absence of meaningful choice on the part of the 
consumer.\102\ The common law of contracts describes two distinct 
aspects of unconscionability: substantive and procedural. As the 
American Law Institute has explained, when consumer contract terms and 
conditions are substantively unconscionable, they ``undermine the 
substantive rights consumers acquired under the contract.'' \103\ 
Examples of substantively unconscionable terms and conditions include 
terms and conditions that unreasonably limit either liability for a 
consumer's loss ``by an intentional or negligent act or omission of the 
business'' or ``the consumer's ability to pursue or express a complaint 
or seek reasonable redress for a violation of a legal right.'' \104\ 
The Restatement also expressly acknowledges the potential for overlap 
in circumstances involving terms and conditions that are unconscionable 
and UDAAPs under the CFPA.\105\
---------------------------------------------------------------------------

    \101\ See, e.g., Green Tree Servicing, LLC v. Duncan, 7 a.m. 
Tribal Law 633, 640 (Navajo Nat'n Sup. Ct. 2008) (applying 
principles of unconscionability to invalidate an arbitration 
agreement associated with a mobile home loan), https://cite.case.law/am-tribal-law/7/633/.
    \102\ Restatement sec. 5.
    \103\ Id. at 97 (comment on sec. 5(c)(3)).
    \104\ Id. at secs. 5(c)(1)(B) and 5(c)(2).
    \105\ Id. at 99 (citing 12 U.S.C. 5531 and 5536(a)).
---------------------------------------------------------------------------

    The Restatement discusses how the doctrine of unconscionability may 
render several types of contractual waivers and limitations on 
applicable legal protections unenforceable.
    First, terms and conditions in consumer contracts may attempt to 
waive certain types of liability of the business. Public policy 
recognizes that these types of contract terms and conditions pose risks 
to consumers. As the Restatement explains, most State courts deem a 
contact term to be substantively unconscionable and thus, 
unenforceable, if it ``unreasonably exclude[s] or limit[s] the 
business's liability or the consumer's remedies that would otherwise be 
applicable for . . . any loss to the consumer caused by an intentional 
or negligent act or omission of the business.'' \106\
---------------------------------------------------------------------------

    \106\ Standard contract terms stating that the liability or 
remedy limitations are specifically agreed upon, or that conduct 
that would otherwise be regarded by law as negligent is 
contractually-agreed upon to be non-negligent, do not necessarily 
render the limit on liability reasonable. Restatement at 93-94.

---------------------------------------------------------------------------

[[Page 6914]]

    Second, forum selection clauses often found in consumer contracts 
may designate a specific judicial forum to hear any ensuing disputes 
arising out of the contract.\107\ In some cases, the designated forum 
might be so inconvenient as to eliminate the viability of pursuing 
legal action. The Restatement describes some examples that may pose 
risks to consumers, including the following:
---------------------------------------------------------------------------

    \107\ Forum clauses were historically perceived as contrary to 
public policy and as preventing the proper forum from hearing the 
dispute. Now, courts generally enforce forum selection clauses 
unless exceptional circumstances exist. M/S Bremen v. Zapata Off-
Shore Corp., 407 U.S. 1, 15 (1972) (holding that, in an 
international commercial dispute, ``the forum clause should control 
absent a strong showing that it should be set aside'').
---------------------------------------------------------------------------

     A business's standard contract terms include a dispute-
resolution term specifying a forum in a distant location, such that the 
consumer would have to bear travel and accommodation expenses exceeding 
the value of the remedy sought. The dispute-resolution forum requires a 
non-refundable filing fee exceeding the value of the remedy sought. 
Either one of these two features unreasonably limits or imposes 
obstacles to the consumer's ability to enforce legal rights. That 
result applies to any type of dispute-resolution forum clause in 
standard terms in a consumer contract that imposes such an unreasonable 
cost or personal burden, be it a public court or a private arbitration 
panel.\108\
---------------------------------------------------------------------------

    \108\ Restatement sec. 5 cmt. 7.
---------------------------------------------------------------------------

    Third, terms and conditions that impose unreasonably short 
limitations periods may pose risks to consumers by imposing challenges 
or creating hurdles for consumers in seeking redress. Terms and 
conditions that limit the period in which a consumer must bring an 
action to a shorter time period than underlying law may block the 
consumer from asserting an otherwise viable substantive claim. These 
terms and conditions reduce the time for a consumer to sue, which may 
result in fewer actions and otherwise actionable claims prematurely 
going stale. As noted above, some State laws prohibit these terms and 
conditions as void and against public policy in some circumstances. 
Absent an express prohibition in State law, though, the Restatement 
indicates that courts often enforce these terms and conditions, even 
when the parties have unequal bargaining power, as long as the 
resulting time period is reasonable (six months is an oft-mentioned 
floor).\109\
---------------------------------------------------------------------------

    \109\ Restatement sec. 5. The Restatement notes (at 98), 
however, that a business's standard contract terms that require that 
all claims against the business be made within three months after 
the conclusion of the transaction may be unenforceable to the extent 
that it covers claims for ``latent defects'' (claims not widely 
relevant to consumer financial products and services). Cf. UCC sec. 
2-725(1).
---------------------------------------------------------------------------

    Fourth, some arbitration agreements may have features that 
unreasonably limit the consumer's ability to enforce their rights. The 
Restatement describes examples, including the following:
     A business's standard contract terms require consumers to 
resolve disputes through arbitration. If the costs of pursuing 
individual arbitration make it impractical for consumers to seek 
redress for breach of the contract, a court may determine that the 
provision in the contract barring class actions is not enforceable. In 
those circumstances where costs of pursuing individual arbitration are 
prohibitive, such arbitration clauses may still be enforceable where 
the arbitration forum permits class arbitration, but substantively 
unconscionable otherwise.\110\
---------------------------------------------------------------------------

    \110\ Restatement at 98 (example 9). The Department of Education 
also has proposed to prohibit the use of arbitration agreements and 
class action waivers in connection with Federal student loan 
programs. See Dept. of Educ. Proposed Rule, 87 FR 41878 (July 13, 
2022).
---------------------------------------------------------------------------

     A business's standard contract terms include a class-
action waiver and do not specify a choice of forum, thus allowing 
consumers to resolve disputes in court. A common grievance for 
consumers entering this contract involves low damages--no more than a 
few dollars each. Thus, these clauses may unreasonably limit consumers' 
ability to obtain a remedy for breach.\111\
---------------------------------------------------------------------------

    \111\ Restatement at 98 (example 8).
---------------------------------------------------------------------------

    While the Restatement expressly does not address ``possible 
preemption under the Federal Arbitration Act,'' \112\ these examples 
nonetheless illustrate how arbitration agreements can pose risks to 
consumers.
---------------------------------------------------------------------------

    \112\ Id. at 97.
---------------------------------------------------------------------------

    Fifth, in addition to the Consumer Review Fairness Act discussed 
above and the Bureau's related policy statement, State law contract 
principles also illustrate how clauses that seek to restrict consumers 
from posting negative reviews or filing complaints may pose several 
risks to consumers. These restrictions may explicitly limit the ability 
of consumers to obtain informal resolution of a dispute. These 
restrictions also pose risks to other consumers who may be deprived of 
the benefits of information about the experiences of other consumers. 
As the Restatement explains, ``[s]uch restrictions undermine the 
reputation mechanism. In consumer markets, in which legal forms of 
redress are often impractical or delayed, the existence of a robust 
reputation mechanism is particularly important. Contractual 
arrangements that seek to weaken it are therefore against public policy 
and substantively unconscionable.'' \113\ When such restrictions are 
prohibited by law, they ``may also be unenforceable under the doctrine 
of illegality or on grounds of public policy.'' \114\
---------------------------------------------------------------------------

    \113\ Id. at 114; see also id. at 98-99 (discussing example 
where a business includes in its standard-form contract a clause 
that charges a high monetary penalty every time a consumer posts a 
negative review of the business online or obligates the consumer to 
indemnify the business for any loss caused by the negative 
review.'').
    \114\ Id. at 107.
---------------------------------------------------------------------------

C. Need for Registry of Supervised Nonbanks That Use Form Contracts To 
Impose Terms and Conditions That Seek To Waive or Limit Consumer Legal 
Protections

    Accordingly, and in light of the considerations described in part 
II.C.1 below, the Bureau is proposing to collect information described 
in this rule to learn more about the business practices of supervised 
nonbanks that use the covered terms and conditions, and to monitor for 
associated risks to consumers that would inform the Bureau's evaluation 
of how it can utilize its functions to address those risks. Most 
immediately, as further described in part II.C.2 below, the proposal 
would facilitate the Bureau's risk-based nonbank supervision program, 
including through facilitating the assessment and detection of risks to 
consumers posed by covered terms and conditions. In addition, to 
support the public interest in promoting public understanding of the 
use of covered terms and conditions, as discussed in part II.C.3 below, 
the Bureau is proposing to make information collected public as 
described in Sec.  1092.303 of the proposed rule. The proposal is thus 
authorized under the Bureau's monitoring, supervisory, and related 
nonbank registration authorities, described below and in part IV of the 
proposal. The proposed registry also would further these goals in ways 
that existing registration systems do not.
    This proposal reflects a priority on establishing a system by rule 
for the collection of information on the use of covered terms and 
conditions from supervised nonbanks as a subset of covered persons. One 
of the reasons for prioritizing coverage of supervised nonbanks is the 
need to identify them, as discussed in part II.C.2 below. As discussed 
in the impacts analysis in part VII of the proposal, the Bureau 
estimates that there are thousands of nonbanks subject to its 
supervisory authority

[[Page 6915]]

under CFPA section 1024(a). In addition, there is no comprehensive 
registry of identifying information for nonbanks subject to the 
Bureau's supervisory authority across supervised markets. Finally, in 
light of resource constraints, the Bureau does not regularly examine 
each of the thousands of nonbanks subject to its supervisory authority 
under CFPA section 1024. Rather, under CFPA section 1024(b)(2), the 
Bureau must implement a risk-based program for supervision of these 
nonbanks. By contrast, Federal prudential regulators track and already 
publicize information about the identity and size of depository 
institutions.\115\ These include depository institutions subject to the 
Bureau's supervisory authorities under CFPA sections 1025 and 1026. The 
Bureau also publicly identifies the fewer than 200 large depository 
institutions subject to its supervisory authority under CFPA section 
1025, and it has procedures for regularly supervising them.\116\ In 
light of all these considerations, the Bureau is prioritizing this 
proposal to establish a registration system for identifying those 
nonbanks that use covered terms or conditions and monitoring and 
assessing the associated risks to consumers as discussed in this part 
II above.\117\ This proposal does not affect how the Bureau can apply 
its functions for monitoring and assessing risks posed by covered terms 
and conditions used by depository institutions and credit unions 
subject to its authority under CFPA sections 1022, 1025, and 1026.
---------------------------------------------------------------------------

    \115\ See, e.g., FDIC Bank Find Suite, https://banks.data.fdic.gov/bankfind-suite/bankfind; Federal Financial 
Institutions Examinations Council National Information Center, 
https://www.ffiec.gov/NPW; OCC Financial Institutions Lists, https://www.occ.treas.gov/topics/charters-and-licensing/financial-institution-lists/index-financial-institution-lists.html; Credit 
Union Locator, https://mapping.ncua.gov/.
    \116\ See CFPB, List of Depository Institutions and Depository 
Affiliates under CFPB Supervision, https://www.consumerfinance.gov/compliance/supervision-examinations/institutions/; CFPB Supervision 
and Examination Manual, Overview at 5 (describing Bureau's approach 
to setting regular examination schedules for large depository 
institutions), https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_2022-09.pdf.
    \117\ In prioritizing this proposal, the Bureau also has 
considered other factors, including the following: The Bureau's 
existing regulations already require depository institutions to 
submit to the Bureau information about their agreements in certain 
markets, such as credit cards and prepaid accounts. The Bureau makes 
these agreements publicly available at https://www.consumerfinance.gov/credit-cards/agreements/ and https://www.consumerfinance.gov/data-research/prepaid-accounts/. In 
addition, CFPA sections 1022 and 1024 do not expressly authorize the 
Bureau to establish a registration system for depository 
institutions, which are excluded from the Bureau's registration 
authority under section 1022(c)(7)(A) and excluded from the scope of 
section 1024(b)(7). There is no parallel registration provision in 
the Bureau's authorities over depository institutions generally.
---------------------------------------------------------------------------

1. The Proposed Registry Would Support the Bureau in Fulfilling Its 
Statutory Mandate To Monitor Risks to Consumers in Markets for Consumer 
Financial Products and Services
    As recently discussed in the Bureau's proposal to register certain 
orders,\118\ Congress established the Bureau to regulate (among other 
things) the offering and provision of consumer financial products and 
services under the Federal consumer financial laws, and it granted the 
Bureau authority to ensure that the Bureau could achieve that 
mission.\119\ But it also understood that the Bureau could not fully 
and effectively achieve that mission unless it developed a clear window 
into the markets for and persons involved in offering and providing 
such products and services. To that end, Congress mandated that the 
Bureau ``shall monitor for risks to consumers in the offering or 
provision of consumer financial products or services, including 
developments in markets for such products or services.'' \120\
---------------------------------------------------------------------------

    \118\ See generally CFPB, Proposed Rule, Registry of Nonbank 
Covered Persons Subject to Certain Agency and Court Orders (Dec. 12, 
2022), (``Nonbank Registration--Orders Proposal''), https://files.consumerfinance.gov/f/documents/cfpb_proposed-rule__registry-of-nonbank-covered-persons_2022.pdf.
    \119\ See 12 U.S.C. 5511.
    \120\ See 12 U.S.C. 5512(c)(1).
---------------------------------------------------------------------------

    Notably, Congress directed the Bureau to engage in such monitoring 
``to support its rulemaking and other functions,'' \121\ instructing 
the Bureau to use monitoring to inform all of its work. Congress 
separately described the Bureau's ``primary functions'' as ``conducting 
financial education programs''; ``collecting, investigating, and 
responding to consumer complaints''; ``collecting, researching, 
monitoring, and publishing information relevant to the functioning of 
markets for consumer financial products and services to identify risks 
to consumers and the proper functioning of such markets''; 
``supervising covered persons for compliance with Federal consumer 
financial law, and taking appropriate enforcement action to address 
violations of Federal consumer financial law''; ``issuing rules, 
orders, and guidance implementing Federal consumer financial law''; and 
``performing such support activities as may be necessary or useful to 
facilitate the other functions of the Bureau.'' \122\ Put simply, 
Congress envisioned that the Bureau would use its market monitoring 
work to inform its activities, all with the express purpose of 
``ensuring that all consumers have access to markets for consumer 
financial products and services and that markets for consumer financial 
products and services are fair, transparent, and competitive.'' \123\
---------------------------------------------------------------------------

    \121\ Id.
    \122\ 12 U.S.C. 5511(c).
    \123\ 12 U.S.C. 5511(a).
---------------------------------------------------------------------------

    To achieve these ends, Congress took care to ensure that the Bureau 
had the tools necessary to effectively monitor for risks in the markets 
for consumer financial products and services. It granted the Bureau 
authority ``to gather information from time to time regarding the 
organization, business conduct, markets, and activities of covered 
persons and service providers.'' \124\ In particular, Congress 
authorized the Bureau to ``require covered persons and service 
providers participating in markets for consumer financial products and 
services to file with the Bureau, under oath or otherwise, in such form 
and within such reasonable period of time as the Bureau may prescribe 
by rule or order, annual or special reports, or answers in writing to 
specific questions,'' that would furnish the Bureau with such 
information ``as necessary for the Bureau to fulfill the monitoring . . 
. responsibilities imposed by Congress.'' \125\
---------------------------------------------------------------------------

    \124\ 12 U.S.C. 5512(c)(4)(A).
    \125\ 12 U.S.C. 5512(c)(4)(B)(ii).
---------------------------------------------------------------------------

    To assist the Bureau in allocating resources to perform its 
monitoring, Congress also identified a non-exhaustive list of factors 
that the Bureau may consider, including ``likely risks and costs to 
consumers associated with buying or using a type of consumer financial 
product or service''; \126\ ``understanding by consumers of the risks 
of a type of consumer financial product or service''; \127\ ``the legal 
protections applicable to the offering or provision of a consumer 
financial product or service, including the extent to which the law is 
likely to adequately protect consumers''; \128\ ``the extent, if any, 
to which the risks of a consumer financial product or service may 
disproportionately affect traditionally underserved consumers''; \129\ 
and ``the types, number, and other pertinent characteristics of covered 
persons that offer or provide the consumer financial product or 
service.'' \130\
---------------------------------------------------------------------------

    \126\ 12 U.S.C. 5512(c)(2)(A).
    \127\ 12 U.S.C. 5512(c)(2)(B).
    \128\ 12 U.S.C. 5512(c)(2)(C).
    \129\ 12 U.S.C. 5512(c)(2)(E).
    \130\ 12 U.S.C. 5512(c)(2)(F).
---------------------------------------------------------------------------

    The Bureau takes its market monitoring obligations seriously, and 
it

[[Page 6916]]

has incorporated valuable insights gained to date from such monitoring 
in conducting the multiple functions assigned to it under the CFPA, 
including its supervisory and enforcement efforts, as well as its 
rulemaking, consumer education, and other functions.\131\ As discussed 
in further detail below, this proposed rule seeks to continue and build 
upon that commitment by creating a registry of covered terms and 
conditions to accomplish a number of goals, with a particular focus on 
monitoring for risks to consumers related to the use of form contracts 
containing terms and conditions that waive or limit consumer legal 
protections.
---------------------------------------------------------------------------

    \131\ See, e.g., CFPB Semiannual Regulatory Agenda, 87 FR 5326, 
5328 (Jan. 31, 2022) (``The Bureau's market monitoring work assists 
in identifying issues for potential future rulemaking work.''); 
Payday, Vehicle, and Certain High-Cost Installment Loans, 82 FR 
54472, 54475, 54488, 54498 (Nov. 17, 2017) (citing information 
obtained through Bureau market monitoring efforts); Arbitration 
Agreements, 82 FR 33210, 33220 (July 19, 2017) (same). See also, 
e.g., Consumer Fin. Prot. Bureau, Buy Now, Pay Later: Market trends 
and consumer impacts (Sept. 2022), https://files.consumerfinance.gov/f/documents/cfpb_buy-now-pay-later-market-trends-consumer-impacts_report_2022-09.pdf (publishing information 
obtained through Bureau market monitoring efforts); Consumer Fin. 
Prot. Bureau, Consumer Credit Trends: Credit Card Line Decreases 
(June 2022), https://files.consumerfinance.gov/f/documents/cfpb_credit-card-line-decreases_report_2022-06.pdf (same); Consumer 
Fin. Prot. Bureau, Data Point: Checking Account Overdraft at 
Financial Institutions Served by Core Processors (Dec. 2021), 
https://files.consumerfinance.gov/f/documents/cfpb_overdraft-core-processors_report_2021-12.pdf (same). See also, e.g., Consumer Fin. 
Prot. Bureau, Buy Now, Pay Later: Market trends and consumer impacts 
(Sept. 2022), https://files.consumerfinance.gov/f/documents/cfpb_buy-now-pay-later-market-trends-consumer-impacts_report_2022-09.pdf (publishing information obtained through Bureau market 
monitoring efforts); Consumer Fin. Prot. Bureau, Consumer Credit 
Trends: Credit Card Line Decreases (June 2022), https://files.consumerfinance.gov/f/documents/cfpb_credit-card-line-decreases_report_2022-06.pdf (same); Consumer Fin. Prot. Bureau, 
Data Point: Checking Account Overdraft at Financial Institutions 
Served by Core Processors (Dec. 2021), https://files.consumerfinance.gov/f/documents/cfpb_overdraft-core-processors_report_2021-12.pdf (same).
---------------------------------------------------------------------------

How the Proposed Registry Would Support Market Monitoring
    A registry of covered terms and conditions would further the 
Bureau's market monitoring activities in several ways. As discussed in 
further detail below, among other things, the registry would assist the 
Bureau in assessing the impact of the covered terms and conditions on 
the adequacy of applicable legal protections, and consumer 
understanding of covered terms and conditions included in form 
contracts.\132\
---------------------------------------------------------------------------

    \132\ 12. U.S.C. 5512(c)(2).
---------------------------------------------------------------------------

    In particular, and as reflected in Congress' own judgment, the 
Bureau has a particular interest in exercising its market monitoring 
authorities to address questions or concerns regarding the ``legal 
protections applicable'' to consumer financial products and services 
``including the extent to which the law is likely to adequately protect 
consumers. . . .'' \133\ Numerous legal protections apply to consumer 
financial products and services. Federal, State, Tribal, and local 
government bodies have adopted these consumer protections in statutes 
and regulations. However, these laws may not adequately protect 
consumers when consumers are required through covered terms and 
conditions to waive the protections or agree to limits on their 
enforcement or exercise.
---------------------------------------------------------------------------

    \133\ 12 U.S.C. 5512(c)(2)(C). Inadequate legal protections also 
create risks the Bureau's monitoring program must consider under 
section 1022(c)(2)(A).
---------------------------------------------------------------------------

    These types of provisions may simultaneously place consumers at an 
increased risk of harm from conduct the protections are designed to 
prevent, while making it more difficult for consumers to remedy those 
harms by enforcing the protections. Covered terms and conditions pose 
risks to consumers by potentially reducing deterrence, compliance, and 
accountability for non-compliance with the underlying legal protections 
to which they apply. Some of these legal protections are so fundamental 
that the use of covered terms and conditions is prohibited or 
restricted by law, as discussed in part II.C.1. As discussed above and 
in the section 1022(b) impacts analysis, when consumers cannot protect 
themselves, such as by directly enforcing legal protections or 
exercising informal mechanisms, there may be an increased risk that 
these protections will not be followed (less deterrence) and that they 
will not be remedied when violated (less accountability). These risks 
may be significant, given the prevalence of covered terms and 
conditions in supervised markets and the examples of harms identified 
in supervisory and enforcement actions discussed in part II.C. The 
proposed registry would allow for fuller and continuous monitoring of 
these risks, but the information already available suggests these risks 
warrant increased regulatory oversight of supervised market 
participants that use covered terms and conditions. Indeed, Federal, 
State, Tribal, and local regulators can enforce many of the legal 
protections constrained by covered terms and conditions, or analogous 
legal protections. The GAO recently recognized, for example, that 
public enforcement of a Federal statute can be particularly important 
where private enforcement is constrained by contract.\134\
---------------------------------------------------------------------------

    \134\ See GAO Rept. 21-221, Servicemember Rights: Mandatory 
Arbitration Clauses Have Affected Some Employment and Consumer 
Claims but the Extent of Their Effects is Unknown (Feb. 2021) at 9-
10 (describing instances where arbitration agreements prevented 
servicemembers from resolving SCRA claims in court, while noting 
that Federal enforcement under the SCRA is not limited by 
arbitration agreements).
---------------------------------------------------------------------------

    In addition to the foregoing risks, covered terms and conditions 
also may create the risk of a UDAAP violation whether they are 
expressly prohibited under existing statutes or regulations and thus 
unenforceable or whether no existing law expressly addresses the 
provision. In the former circumstance, as discussed below, the covered 
term or condition risks deceiving consumers into thinking the 
underlying legal protection no longer applies or that they cannot 
enforce a right, when in fact that is not this case. This misimpression 
is likely to dissuade consumers from availing themselves of available 
mechanisms to enforce or otherwise exercise their rights. In the latter 
circumstance, as also discussed below, the waiver still might 
constitute an unfair act or practice under Federal or State law. For 
example, Bureau examiners have found unfairness violations where, 
although not expressly prohibited under existing law, a waiver 
substantially injured consumers (through loss of the underlying right), 
was not reasonably avoidable (for example, because presented in a form 
contract on a take it or leave it basis), and did not have 
countervailing benefits to consumers or competition.\135\
---------------------------------------------------------------------------

    \135\ See discussion of examples from mortgage market 
supervision, part II.C.2 infra.
---------------------------------------------------------------------------

    Consumer understanding of the risks described above also is a 
factor the Bureau has considered in proposing the registry. Because 
covered terms and conditions are established through an adhesion-type 
contracting process, as discussed in part II.A above, consumers may not 
understand the covered terms and conditions or be aware that they have 
agreed to them and therefore may not recognize the ensuing risks from 
this agreement.
    Of course, the Bureau does not supervise or enforce all consumer 
legal protections that are applicable to consumer financial products 
and services it supervises, including both the laws to which covered 
terms and conditions apply and the laws that may prohibit particular 
covered terms and conditions. But, even apart from a potential UDAAP 
violation as described

[[Page 6917]]

above, a company that violates other applicable law may have a poor 
compliance management system and thus may be more likely to violate 
Federal consumer financial law. And the existence of a covered term or 
condition in some circumstances may be indicative of a violation of 
law, since a company that would go to such lengths to include certain 
terms or conditions in its contracts may be acting in other ways to 
undermine the underlying rights addressed by the waivers or 
limitations. Thus, the existence of covered terms and conditions may 
inform the Bureau's understanding of the adequacy of legal protections, 
including compliance with Federal consumer financial law, in protecting 
consumers who buy or use consumer financial products or services.
    The Bureau can use that market monitoring information to support a 
variety of its functions, including through conducting consumer 
education (where a waiver or limit may risk deceiving consumers, or may 
be lawful but nevertheless harmful to consumers who lack 
understanding), bolstering its consumer response function (for example, 
through better understanding of whether consumer complaints the Bureau 
receives or does not receive may be driven by covered terms and 
conditions or the risks they pose), or identifying regulatory voids 
that it may consider filling through regulation implementing Federal 
consumer financial law, orders, or guidance (if another important 
protection is not adequate due to waivers or limitations).
    A registry of covered terms and conditions would fill an important 
information gap on the topic of covered terms and conditions. 
Currently, there is limited information on the use of covered terms and 
conditions, especially at the individual provider/product level. Even 
at the market level, information is limited. The Bureau issued the 
latest comprehensive national study of one type of covered term or 
condition--arbitration agreements--in a report to Congress over seven 
years ago, discussed above. The Bureau requests information from 
commenters on other studies of the use of covered terms and conditions. 
The Bureau also has not identified any existing Federal, State, or 
Tribal system that collects information specifically about the use of 
covered terms and conditions across markets the Bureau supervises.\136\ 
The absence of this data leaves uncertain the degree to which the use 
of covered terms and conditions is eroding legal protections in many of 
the markets the Bureau oversees. Collection of that data and filling 
the gaps in available information on these issues would be important 
for the Bureau's efforts to monitor for risks to consumers in the 
offering of consumer financial products or services.
---------------------------------------------------------------------------

    \136\ As noted in this part II.C.2, the Bureau is only aware of 
existing registration systems that collect and publish limited 
information about standard contracts in private student loan markets 
in certain states and mortgage market contracts used for certain 
federally-related mortgage transactions.
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    As indicated above, in developing the proposal, the Bureau has 
considered (among others) the factors listed at CFPA section 
1022(c)(2), to the extent relevant here to the allocation of Bureau 
resources to perform market monitoring. For example, the proposed 
registry would help the Bureau to monitor the extent to which 
supervised nonbanks are using covered terms or conditions in form 
contracts in a manner that allows consumers to understand the risks 
that covered terms or conditions pose to consumers (see CFPA section 
1022(c)(2)(B)). The proposed registry would help the Bureau to monitor 
potential effects of covered terms or conditions on the adequacy of 
legal protections to which they apply or which apply to them (see CFPA 
section 1022(c)(2)(C)). And relatedly, the proposed registry would help 
the Bureau to monitor likely risks and costs to consumers from buying 
or using consumer financial products or services that contain covered 
terms and conditions (see CFPA section 1022(c)(2)(A)).\137\
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    \137\ See 12 U.S.C. 5512(c)(2)(A)-(C).
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    In addition, the information collected in the proposed registry may 
form the basis of additional focused assessments. For example, the 
information collected may help the Bureau to identify changes over time 
in the use of certain covered terms or conditions which may be relevant 
to assessing the rate of growth in the offering of consumer financial 
products and services that have different contractual frameworks (see 
CFPB section 1022(c)(2)(D)). In addition, to the extent that supervised 
nonbanks use covered terms or conditions in offering a consumer 
financial product or service to traditionally underserved consumers, 
the registry would enable comparisons to covered terms and conditions 
used by other supervised nonbanks offering similar consumer financial 
products or services. That information may help the Bureau to monitor 
whether the covered terms or conditions may disproportionately affect 
these consumers (see CFPB section 1022(c)(2)(E)). The registry also 
would enable other comparisons in the degree and type of covered terms 
and conditions used across supervised nonbanks in a given market and 
across supervised markets. These comparisons may identify pertinent 
characteristics of firms that use particular covered terms or 
conditions or combinations of covered terms or conditions (see CFPB 
section 1022(c)(2)(F)).\138\
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    \138\ See 12 U.S.C. 5512(c)(2)(D)-(E).
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    Accordingly, for the reasons described in this part II., as 
elaborated elsewhere in the proposal, the Bureau proposes to establish 
a registration system to collect data on supervised nonbanks' use of 
covered terms and conditions, allowing it to monitor and assess the 
risks described above on a continuous basis in supervised markets.
2. The Proposed Registry Would Facilitate the Bureau's Statutorily-
Mandated Risk-Based Nonbank Supervision Program
    As recently discussed in the Bureau's proposal to register certain 
orders,\139\ one of the Bureau's key responsibilities under the CFPA is 
the supervision of very large banks, thrifts, and credit unions, and 
their affiliates, and certain nonbank covered persons. Congress has 
authorized the Bureau to supervise certain categories of nonbank 
covered persons under CFPA section 1024.\140\ Congress provided that 
the Bureau ``shall require reports and conduct examinations on a 
periodic basis'' of nonbank covered persons subject to its supervisory 
authority for purposes of ``assessing compliance with the requirements 
of Federal consumer financial law''; ``obtaining information about the 
activities and compliance systems or procedures of such person[s]''; 
and ``detecting and assessing risks to consumers and to markets for 
consumer financial products and services.'' \141\ Pursuant to the CFPA, 
the Bureau implements a risk-based supervision program under which it 
prioritizes nonbank covered persons for supervision in accordance with 
its assessment of risks posed to consumers.\142\ In making 
prioritization determinations, the Bureau considers several factors, 
including ``the asset size of the covered person,'' \143\ ``the volume 
of transactions involving consumer financial products or services in 
which the covered person engages,'' \144\ ``the risks to consumers 
created by the provision of such consumer financial

[[Page 6918]]

products or services,'' \145\ ``the extent to which such institutions 
are subject to oversight by State authorities for consumer 
protection,'' \146\ and ``any other factors that the Bureau determines 
to be relevant to a class of covered persons.'' \147\ CFPA section 
1024(b)(7)(A)-(C) further authorizes the Bureau to prescribe rules to 
facilitate supervision and assessing and detecting risks to consumers, 
as well as to ensure that supervised nonbanks ``are legitimate entities 
and are able to perform their obligations to consumers.'' \148\ Since 
it began its nonbank supervision program in 2012, the Bureau has 
provided further explanation to the public about the purposes of the 
program and how it works.\149\
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    \139\ See generally Nonbank Registration--Orders Proposal.
    \140\ 12 U.S.C. 5514.
    \141\ 12 U.S.C. 5514(b)(1).
    \142\ 12 U.S.C. 5514(b)(2).
    \143\ 12 U.S.C. 5514(b)(2)(A).
    \144\ 12 U.S.C. 5514(b)(2)(B).
    \145\ 12 U.S.C. 5514(b)(2)(C).
    \146\ 12 U.S.C. 5514(b)(2)(D).
    \147\ 12 U.S.C. 5514(b)(2)(E).
    \148\ 12 U.S.C. 5514(b)(7)(A)-(C).
    \149\ See, e.g., Steve Antonakes and Peggy Twohig, ``The CFPB 
launches its nonbank supervision program'' (Jan. 5, 2012), https://www.consumerfinance.gov/about-us/blog/the-cfpb-launches-its-nonbank-supervision-program/; Lorelei Salas, ``Explainer: What is nonbank 
supervision? (May 25, 2022), https://www.consumerfinance.gov/about-us/blog/explainer-what-is-nonbank-supervision/.
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How the Proposed Registry Would Facilitate Risk-Based Nonbank 
Supervision
    Under those authorities, the Bureau is proposing the registry to 
facilitate its assessment of risks to consumers in connection with its 
nonbank supervision program. The proposed registry can facilitate the 
Bureau's risk-based nonbank supervision program in a number of ways. 
For example, as discussed below, the proposed registry can facilitate 
the Bureau's prioritization of which entities to examine, as well as, 
relatedly, its identification of entities eligible for examination. The 
proposed registry also can facilitate the scoping of its examinations.
    First, the Bureau can use the information collected on supervised 
nonbanks' use of covered terms and conditions to inform its 
prioritization process to determine which entities to examine. 
Prioritization is a fundamental component of the Bureau's supervision 
program, which has been designed to conduct slightly more than 100 on-
site examinations per year, and less than 1,000 overall exam events per 
year.\150\ As discussed in the impacts analysis in part VII of the 
proposal, the Bureau estimates that there are thousands of nonbanks 
subject to its supervisory authority under CFPA section 1024(a). Given 
resource constraints and the number of supervised nonbanks, the Bureau 
does not regularly examine each of the nonbanks subject to its 
supervisory authority under CFPA section 1024. Rather, pursuant to CFPA 
section 1024(b)(2), the Bureau implements a risk-based supervision 
program, prioritizing which supervised nonbanks it will examine in a 
given annual period based on information available about the risks they 
pose to consumers. By incorporating into its supervisory prioritization 
process the information it collects on supervised registrants' use of 
covered terms and conditions that pose risks to consumers, the Bureau's 
risk-based nonbank supervision program would be able to better take 
into consideration the ``risks to consumers created by the provisions'' 
of consumer financial products and services within the meaning of CFPA 
section 1024(b)(2)(C).\151\
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    \150\ See CFPB Annual Performance Plan and Report FY 2022 at 
Table 2.2.1.1 (on-site exams) & Table 2.2.1.2 (all supervisory 
events with significant activity), https://files.consumerfinance.gov/f/documents/cfpb_performance-plan-and-report_fy22.pdf.
    \151\ 12 U.S.C. 5514(b)(2)(C).
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    The Bureau can use the information collected on supervised 
nonbanks' use of covered terms and conditions to assess potential risks 
to consumers posed by different covered terms and conditions, and 
combinations of covered terms and conditions. That assessment can 
inform its decisions prioritizing which supervised nonbanks to examine. 
For example, when covered terms and conditions violate anti-waiver and 
other legal prohibitions in Federal consumer financial law, the 
proposed registry could highlight where this may be a problem, 
potentially facilitating prioritization of supervisory action or, in 
some cases, potentially, enforcement action.
    In addition, certain covered terms and conditions, such as non-
disparagement clauses, also could be an important companion to the 
Bureau's existing prioritization process that is based in significant 
part on consumer complaints. Depending on the wording of these terms 
and conditions, they may pose varying degrees of risk of suppressing 
consumer complaints, which could result in an understatement of or gap 
in complaint information in the Bureau's consumer complaint database. 
Or they could deter online reviews, which the Bureau also may use as 
field market intelligence to inform its assessments of risks used for 
prioritization of its exam work.
    In addition, by prioritizing based on the risks specifically posed 
by covered terms and conditions, the Bureau's risk-based supervision 
would better account for the limited extent to which this information 
is available to inform existing oversight by enforcers of Federal 
consumer financial law, including certain State authorities.\152\ As 
discussed below, the universe of nonbanks supervised by the States and 
the Bureau overlaps but is not coextensive. Even with respect to areas 
of overlap, existing State registration systems generally do not 
collect information about the use of supervised entity's covered terms 
and conditions across the market. States have made only limited use of 
this option for specific markets. For example, Colorado, Louisiana, 
Maine, and Illinois recently adopted laws establishing registration 
systems for private student lenders that obtain their standard loan 
terms and conditions; the Colorado, Louisiana, and Maine statutes also 
require the registry to post these terms and conditions on a public 
website.\153\ Accordingly, the proposed rule would facilitate 
supervision on a topic--the use of covered terms or conditions in form 
contracts--that otherwise would not be overseen to the same extent by 
State authorities for consumer protection within the meaning of CFPA 
section 1024(b)(2)(D).\154\
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    \152\ See CFPB Consumer Financial Protection Circular 2022-01, 
``System of Consumer Financial Protection Circulars to Agencies 
Enforcing Federal Consumer Financial Law'' (June 14, 2022), 87 FR 
34868 (June 14, 2022) (discussing role of State attorneys general 
and State regulators in enforcing Federal consumer financial law as 
described in CFPA section 1042, codified at 12 U.S.C. 5552).
    \153\ See Col. Rev. Stat. 5-20-203(2)(b)(V) (requiring private 
education lenders to annually provide model loan agreements) & id. 
5-20-203(3)(c) (requiring copies of the model loan agreements for 
each registered private education lender to be posted on a publicly 
accessible website); La. Rev. Stat. 6:1401-1404 (added by HB 789 
enacted June 18, 2022); Me. Rev. Stat. 9-A:15-102.1.B(5) & id. 15-
102.2 (same); Il. Pub. Act. 102-0583 sec. 10(e). These websites are 
available at https://coag.gov/office-sections/consumer-protection/consumer-credit-unit/student-loan-servicers-act/private-education-lender-registration/registered-private-education-lenders/, https://www.maine.gov/pfr/consumercredit/student_loan_registry/.
    \154\ 12 U.S.C. 5514(b)(2)(B) (describing ``the extent to which 
supervised nonbanks are subject to oversight by State authorities 
for consumer protection'' as something for the Bureau to consider in 
conducting risk-based supervision). As discussed in the section-by-
section analysis of the exemption in proposed Sec.  1092.301(h)(5) 
related to certain small entities, the Bureau also has considered 
the factors in CFPA section 1022(b)(2)(A) and (B). Other factors, 
such as risks from the provision of the consumer financial product 
or service, also are generally discussed throughout this part II.
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    Second, and relatedly, for those nonbank entities that use covered 
terms and conditions in offering consumer financial products or 
services in markets supervised by the Bureau, the proposed registry can 
facilitate a more efficient process for the Bureau to identify these

[[Page 6919]]

nonbank entities. In particular, a registration system that more 
comprehensively and periodically collects identifying information about 
many nonbank entities subject to the Bureau's supervisory authority 
would facilitate the Bureau's nonbank supervision program at the most 
basic level--identifying who the Bureau could examine. As discussed 
below there is no comprehensive registry of identifying information for 
nonbanks subject to the Bureau's supervisory authority across 
supervised markets. Thus, the identifying information the proposal 
would collect would, in turn, enhance the Bureau's prioritization 
process discussed above.
    The proposed registry would gather identifying information that 
would be uniquely useful to the Bureau's supervision of nonbanks. For 
most nonmortgage markets where the Bureau has supervisory authority, 
existing registration systems do not necessarily identify all nonbanks 
based on whether they are subject to Bureau supervisory authority.\155\ 
While some States and Indian Tribes require licensing of participants 
in certain supervised markets, there is no comprehensive list of who 
participates in these markets. The full scope of State and Tribal 
licensing requirements across the States and Tribes is not co-extensive 
with the scope of the Bureau's supervisory authority across these 
markets, leaving geographic and market gaps where the Bureau supervises 
but States or Tribes do not license. Moreover, even for institutions 
that States or Tribes license, the data about them that States and 
Tribes collect does not consistently establish whether they engage in 
the specific activities, or volume of such activity, that would make 
them subject to the Bureau's supervisory authority.\156\ As a result, 
for purposes of identifying Bureau-supervised nonbanks, information on 
providers licensed at the State and Tribal level is both overinclusive 
(of entities the Bureau does not supervise, such as persons who are not 
larger participants) and potentially underinclusive (not necessarily 
covering all markets as defined in the statute in all States).
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    \155\ For mortgage markets, there is considerably more 
information available about who participates and may be subject to 
the Bureau's supervisory authority, in light of registration and 
licensing systems for mortgage originators under the SAFE Act 
(discussed in more detail at https://files.consumerfinance.gov/f/201203_cfpb_update_SAFE_Act_Exam_Procedures.pdf), data submission 
requirements of mortgage originators under the Home Mortgage 
Disclosure Act (HMDA) in Regulation C at 12 CFR part 1003, and call 
reports for mortgage servicers and others (described at https://mortgage.nationwidelicensingsystem.org/slr/common/mcr/Pages/default.aspx (last visited Dec. 5, 2022)).
    \156\ For the international money transfer market, State 
registration money services business licensing data often is aligned 
with the Bureau's supervisory authority to facilitate the Bureau's 
identification of larger participants.
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    The Bureau currently may draw upon information about who is 
licensed at the State and Tribal level to inform its assessment of who 
may be subject to the Bureau's supervisory authority. However, as 
described above, that information does not clearly or consistently 
identify which entities are subject to the Bureau's supervisory 
authority in many cases. As a result, in many cases, to determine 
whether it can commence an examination, the Bureau must first collect 
information directly from individual market participants about the 
nature, and in the case of markets subject to larger participant rules, 
the volume of certain consumer financial product and service offerings 
or associated receipts. This activity can be resource- and time-
intensive and can lead to rescheduling of planned exams when the 
information collected indicates entities are not subject to supervisory 
authority. A registration system that more comprehensively collects and 
periodically updates identifying information about many nonbank 
entities subject to the Bureau's supervisory authority would facilitate 
the Bureau's nonbank supervision program at the most basic level--
identifying who the Bureau could examine.
    For that reason, the Bureau also considered proposing a registry 
that would require registration of all supervised nonbank covered 
persons, regardless of whether those persons use form contracts that 
impose covered terms and conditions that pose risks to consumers. 
However, the Bureau preliminarily has concluded that it is a higher 
priority to require registration of supervised nonbank covered persons 
that use covered terms and conditions contained in covered form 
contracts. The proposed registry therefore has a fundamentally 
different purpose from a universal registration system. This proposal 
would focus on identifying the supervised nonbanks offering consumer 
financial products and services that pose risks to consumers as 
identified above, rather than identifying all supervised nonbanks 
regardless of whether they present such risks. In this way, the 
proposed registry is almost fully distinct from the type of licensing 
and registration systems typically maintained by States and Tribes, 
which, as discussed above, generally do not focus on collection of 
covered terms and conditions contained in covered form contracts. As a 
result, this approach is even less likely to lead to duplication with 
State and Tribal licensing and registration systems. The Bureau 
requests comment on this approach.
    Third, the information collected can form a basis for the Bureau to 
scope and conduct examinations of supervised nonbanks, enhancing its 
ability to detect and address violations and risks of violations of 
Federal consumer financial law or compliance management system 
deficiencies.\157\ With respect to detecting and addressing violations, 
if the Bureau scheduled an examination at an entity who had registered 
its use of a covered term or condition that appeared to be prohibited 
by Federal consumer financial law, the Bureau likely would incorporate 
the use of this term or condition into the scope of an exam. More 
broadly, if the entity registered other covered terms and conditions, 
an examination could review and assess risks to consumers related to 
how the entity established, used, and applied these terms or 
conditions, including in the contracting process or in response to 
consumer complaints. That review could inform examiners' conclusions 
concerning the presence of a UDAAP, a risk of a UDAAP, or a compliance 
management system concern. Examiners also could coordinate with other 
regulators about their findings, especially if they implicate consumer 
legal protections administered by the other regulators. In addition, 
prior to an examination, examiners could consult the registry and 
review any non-disparagement clause, which may inform how the examiners 
scope and conduct a review of consumer complaints. In these and other 
ways discussed in this proposal, by developing its examination scope 
based on the information it collects on supervised registrants' use of 
covered terms and conditions that pose risks to consumers, the Bureau's 
risk-based nonbank supervision program would be able to better take 
into consideration the ``risks to consumers created by the provisions'' 
of consumer financial products and services within the meaning of CFPA 
section 1024(b)(2)(C).\158\
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    \157\ See generally CFPB Bulletin 2021-01, ``Changes to Types of 
Supervisory Communications'' (Mar. 31, 2021) (describing scope of 
Bureau supervisory communications as including findings of 
violations of laws the Bureau enforces, risks of violation, and 
compliance management system concerns), https://files.consumerfinance.gov/f/documents/cfpb_bulletin_2021-01_changes-to-types-of-supervisory-communications_2021-03.pdf.
    \158\ 12 U.S.C. 5514(b)(2)(C).

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[[Page 6920]]

Covered Terms and Conditions Are Prevalent in Markets Supervised by the 
Bureau
    As discussed below, enforcement and supervisory findings in markets 
the Bureau supervises illustrate how covered terms and conditions used 
by nonbanks pose risks to consumers. The proposed registry would 
facilitate review and assessment of these types of risks more broadly 
throughout the Bureau's non-bank supervision program, as discussed 
above.
Mortgage Markets
    While the TILA and Regulation Z provisions discussed at the outset 
of part II.B.2 above may protect consumers against certain waivers and 
limitations on private enforcement in the mortgage market, the Bureau 
has routinely highlighted for the public examiner findings over the 
past decade that some mortgage originators and servicers have been 
engaging in acts and practices inconsistent with this prohibition and 
that the examiners found constituted UDAAPs.\159\ In addition, even 
before the June 1, 2013 effective date of this provision of Regulation 
Z,\160\ examiners found that two mortgage servicers engaged in an 
unfair practice in connection with the use of ``across-the-board 
waivers of existing claims'' in a ``take it or leave it'' loss 
mitigation agreements for forbearance or loan modification.\161\
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    \159\ See, e.g., Supervisory Highlights (Fall 2022) at 2.6.2; 
Supervisory Highlights (Summer 2021) at 2.6.3; Supervisory 
Highlights (Summer 2017) at 2.6.2; Supervisory Highlights (Fall 
2015) at 2.4.2; Supervisory Highlights (Summer 2015) at 2.4.5. See 
also Lyons v. PNC Bank, N.A., 26 F.4th 180, 191 (4th Cir. 2022) 
(holding that an arbitration agreement related to a mortgage 
transaction was unenforceable in light of the restriction in TILA 
discussed in part II.B.2 above).
    \160\ 12 CFR 1026.36(h).
    \161\ Supervisory Highlights (Winter 2013) at 2.1.2 (covering 
results of supervision work completed between July and October 
2013).
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    In addition, the Bureau's supervisory authority over the mortgage 
market extends to nonbanks that offer or provide ``loan modification or 
foreclosure relief services'' in connection with residential 
mortgages.\162\ Some nonbanks offering these products and services have 
used terms and conditions that pose risks. For example, as noted 
earlier, the FTC has taken action against a credit repair firm for its 
use of non-disparagement clauses in violation of a Federal 
statute.\163\ In addition, the Bureau is aware of reports that a 
nonbank mortgage lender had imposed certain non-disparagement 
provisions in certain loan modification agreements associated with 
settlement of pending legal claims, until committing to the New York 
State financial regulator to stop doing so.\164\
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    \162\ 12 U.S.C. 5514(a)(1)(A).
    \163\ FTC v. Grand Teton Professionals, LLC, et al., Case No. 
19cv933 (D. Conn) (Complaint filed June 17, 2019).
    \164\ Peter Rudegeair, Michelle Conlin, ``Exclusive: Ocwen 
Financial to stop gagging homeowners in mortgage deals,'' 
Reuters.com (June 3, 2014), https://www.reuters.com/article/us-banks-mortgages/exclusive-ocwen-financial-to-stop-gagging-homeowners-in-mortgage-deals-idUSKBN0EE1XG20140603 (last visited 
Dec. 2, 2022); Brena Swanson, ``Ocwen will stop using mortgage gag 
orders,'' Housingwire.com (June 3, 2014), https://www.housingwire.com/articles/30196-ocwen-will-stop-using-mortgage-gag-orders/ (last visited Dec. 8, 2022).
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Other Credit Markets (Payday Lending, Private Student Lending, and 
Automobile Finance) \165\
---------------------------------------------------------------------------

    \165\ The Bureau supervises the automobile finance market 
pursuant to its rule defining larger participants in that market. 
See 12 U.S.C. 5514(a)(1)(B) & 5514(a)(2); 12 CFR 1090.108.
---------------------------------------------------------------------------

    The potential for significant prevalence in the use of contract 
terms and conditions seeking to waive or limit applicable legal 
protections in the automobile finance, private student lending, and 
short-term small-dollar markets is supported by the following examples:
     Automobile finance lender engaged in a deceptive act or 
practice by using a contract term that created the impression consumers 
could not exercise a right to file bankruptcy when in fact consumers 
could file for bankruptcy in light of the public policy voiding waivers 
of individual's right to file for bankruptcy.\166\
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    \166\ In re Nissan Motor Acceptance Corporation, Admin. Proc. 
2020-BCFP-0017 (Consent order filed Oct. 13, 2020), ] 46 et seq., 
https://files.consumerfinance.gov/f/documents/cfpb_nissan-motor-acceptance-corporation_consent-order_2020-10.pdf.
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     Private student lenders and servicers enjoined from 
enforcing borrower certifications in contracts entered into before 
filing for bankruptcy on the ground that such prepetition waivers of 
dischargeability in bankruptcy are unenforceable as against public 
policy.\167\
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    \167\ In re Homaidan v Sallie Mae, Inc. Navient Sol'n, LLC, 
Navient Cred. Fin. Corp., 640 B.R. 810, 848 (E.D.N.Y. Bktcy. 2022). 
See also In re Mazloom, 2022 WL 950932 at *5 (N.D.N.Y. Bktcy. 2022) 
(``Courts are rightfully concerned that lenders would consistently 
take advantage of unsophisticated or desperate debtors by including 
pre-petition waivers of dischargeability in all loan agreements, 
thus vitiating one of the core protections of the bankruptcy 
process.''); Lichtenstein v. Barbanel, 161 F. Appx. 461, 467 (6th 
Cir. 2005) (collecting earlier cases); Klingman v. Levinson, 831 
F.2d 1292, 1296 n.3 (7th Cir. 1987) (``For public policy reasons, a 
debtor may not contract away the right to a discharge in 
bankruptcy.''), cited by In re Palmer, 2021 WL 1259258 at *10 (N.D. 
Ohio Bktcy. 2021) (holding ``stipulation contained in the [student 
loan] Credit Agreement's boilerplate language is legally 
insufficient to determine nondischargeability in a later-filed 
bankruptcy case'').
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     Institutional private student lender violated the Holder 
Rule where it failed to include the notice required under that rule, 
and attempted to waive consumers' legal rights by including a contract 
clause purporting to ``waive any claim or cause of action of any kind 
whatsoever that they may have'' against the lender education 
institution.\168\
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    \168\ FTC v. Hum. Resc. Dev. Svcs., Inc., d/b/a Saint James 
Schools of Medicine and HRDS et al., Case No. 22cv1919 (N.D. Ill.) 
(Complaint filed Apr. 14, 2022), ]] 28, 43-48 (citing violation of 
the Holder Rule); id. Stipulated Order dated Apr. 14, 2022) 
(settlement of allegations).
---------------------------------------------------------------------------

     Short-term small-dollar lender allegedly used contract 
term excluding lender liability for fees imposed by the borrower's bank 
as a result of lender's payment practices.\169\
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    \169\ See, e.g., Klarna Pay Later in 4 Agreement (Oct. 26, 2022) 
(provision labelled ``Fees Imposed By Your Financial Institution or 
Card Issuer'' stating that lender ``do[es] not have any liability to 
[consumer] for such fees''), https://cdn.klarna.com/1.0/shared/content/legal/terms/0/en_us/sliceitinx (last accessed Dec. 5, 2022). 
Cf. Perks et al. v. Activehours, Inc. d/b/a Earnin, Case No. 
19cv5543 (N.D. Cal. 2019) (Complaint filed Sept. 3, 2019), ] 52, 
https://www.govinfo.gov/app/details/USCOURTS-cand-5_19-cv-05543/context. That matter resulted in a court order of final approval of 
a class action settlement. Id., Order of Mar. 25, 2021, 2021 WL 
1146038. In the Bureau's experience and expertise, payday lenders 
may also be incentivized to use provisions like this, given the 
potential their payment practices have to cause bank fees. See 
generally CFPB v. ACE Cash Express, Case No. 22cv1494 (N.D. Tex.), 
Complaint filed July 12, 2022, ]] 79-84 (citing unfair practice for 
payment practices likely to result in bank fees).
---------------------------------------------------------------------------

     Short-term small-dollar lender allegedly frequently 
enforced a forum selection clause to file debt collection lawsuits in a 
State that was not where consumers resided or entered into the loan 
agreement, leading to default judgments and their enforcement in 
garnishment actions against consumers.\170\
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    \170\ CFPB v. Freedom Stores, Inc., et al. (E.D. Va. Case no. 
2:14cv643) (Complaint filed Dec. 18, 2014), ]] 50-59, 62-81 
(alleging unfair and abusive acts and practices based on lender's 
filing ``over 3,500 [collection] lawsuits in Norfolk, Virginia, 
against consumers who lived in distant venues and who were not 
physically present in Norfolk, Virginia, when they executed the 
underlying financing contract; almost all of the lawsuits resulted 
in a default judgment.''), https://files.consumerfinance.gov/f/201412_cfpb_complaint_freedom-stores_va-nc.pdf. The Bureau entered 
into a 2015 settlement barring this company from filing distant-
forum actions and providing relief for affected consumers. See 
https://files.consumerfinance.gov/f/201512_cfpb_stipulated-final-judgment-and-order-freedom-stores_va-nc.pdf.
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     Short-term small-dollar lender's standard terms set an 
unenforceable 30-day deadline for filing suit, attempting to shorten 
four-year period set by State law.\171\
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    \171\ Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d 1197, 
1201 (Wa. 2013).

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[[Page 6921]]

     Short-term small dollar lender allegedly used term or 
condition attempting to limit or waive consumers' right to cancel 
preauthorized electronic funds transfers used to repay loan, despite 
anti-waiver provision in EFTA section 914.\172\
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    \172\ 15 U.S.C. 1693l. See, e.g., Cobb v. Monarch Finance Corp., 
913 F. Supp. 1164, 1179 (N.D. Ill. 1995) (rejecting motion to 
dismiss claim that nonbank lender violated EFTA anti-waiver 
provisions by using contract term purporting to waive right under 
EFTA to stop payment of preauthorized electronic funds transfers); 
Baldukas v. B&R Check Holders, Inc., 2012 WL 7681733 at *5 (D. Colo. 
Oct. 2, 2012) (similar holding), adopted by 2013 WL 950847 (D. Colo. 
Mar. 8, 2013). See also Jordan v. Freedom Nat'l, 2016 WL 5363752 (D. 
Ariz. Sept. 26, 2016) (granting class certification for EFTA anti-
waiver claims involving payment authorizations requiring consumers 
to agree that the payee ``will not be responsible for claims 
relating to the debit or credit of my account'').
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    The Bureau also previously studied and reported on the prevalence 
of one type of contract term that limits enforcement of consumer rights 
in these markets--arbitration agreements. For more than a decade now, 
under U.S. Supreme Court precedent, the Federal Arbitration Act has 
preempted State law prohibitions on enforcement of arbitration 
agreements due to their containing a ``no class'' provision.\173\ As a 
result, some supervised institutions have used arbitration agreements 
to block collective legal action by consumers. When that occurs, there 
is a risk that consumers may not receive relief for breach of consumer 
legal protections unless they pursue actions individually. And if the 
threat of individual action is lower, arbitration agreements also may 
reduce deterrence and in turn compliance with these consumer legal 
protections. This risk may be present across supervised markets.\174\ 
For example, in its 2015 Arbitration Study, the Bureau noted that 
nearly 84% of storefront payday loan agreements representing nearly 99% 
of storefronts sampled had arbitration clauses in their agreements in 
2013 and 2014, with almost all of these agreements also limiting 
availability of class proceedings.\175\ Similarly, over 85% of private 
student loan contracts sampled by the Bureau included arbitration 
clauses in 2014, with all of these limiting availability of class 
proceedings.\176\ The 2015 Arbitration Study also found that, while 
consumers sometimes can obtain relief in class actions concerning these 
products,\177\ arbitration agreements also can be used to block those 
efforts.\178\ Although the Bureau had issued a 2017 regulation to 
prohibit limitations on class actions in arbitration agreements for 
many types of consumer financial products and services,\179\ Congress 
overturned that rule later that year.\180\ As a result, in the Bureau's 
experience and expertise, arbitration agreements remain a common term 
or condition in contracts for supervised consumer financial products or 
services. Arbitration agreements also may specify the location for an 
arbitration hearing \181\ and may include provisions setting deadlines 
for filing of claims, raising a question of whether those deadlines are 
shorter than the time frame specified in State statutes.\182\ Tracking 
on an ongoing basis when these agreements are used, by whom, and 
whether they are held to be enforceable, is important to the Bureau for 
the assessment of potential risks to consumers from such limitations on 
their ability to actually pursue and/or participate in legal action.
---------------------------------------------------------------------------

    \173\ Arbitration Study at 4 (citing AT&T Mobility LLC v. 
Concepcion, 131 S. Ct. 1740 (2011)).
    \174\ As noted in part II.B.2 above, Federal law (TILA) 
restricts the use of arbitration agreements in the mortgage market. 
But as discussed at the outset of this part II.C.2, the Bureau 
routinely finds acts and practices inconsistent with the TILA 
prohibitions and restrictions.
    \175\ 2015 Arbitration Study sec. 2.3.4 & sec. 2.5.5 (describing 
prevalence of class action-limiting terms).
    \176\ Id. sec. 2.3.5 & sec. 2.5.5 (describing prevalence of 
class action-limiting terms).
    \177\ Id. sec. 8 Table 1 (number of Federal class action 
settlements, by market, identified from cases filed from 2010 to 
2012) & Table 8 (gross monetary relief to class members, by market).
    \178\ Id. sec. 6.7.1 (motions to compel arbitration of putative 
class litigation filed in Federal court and selected State courts 
from 2010 through 2012 in payday loan, private student loan, and 
automobile finance markets).
    \179\ 82 FR 33210 (July 19, 2017).
    \180\ 82 FR 55500 (Nov. 22, 2017) (discussing adoption of joint 
resolution of Congress disapproving the 2017 rule, signed by the 
President).
    \181\ Arbitration Study sec. 2 at 56.
    \182\ Id. sec. 2.5.7 (noting three storefront payday loan 
agreements specified time limits for consumer claims).
---------------------------------------------------------------------------

Consumer Reporting Market \183\
---------------------------------------------------------------------------

    \183\ The Bureau supervises the consumer reporting market 
pursuant to its rule defining larger participants in that market. 
See 12 U.S.C. 5514(a)(1)(B) & 5514(a)(2); 12 CFR 1090.104.
---------------------------------------------------------------------------

    In the credit monitoring market, contract waivers and other 
provisions may undermine the adequacy of the legal protections afforded 
to consumers under the Fair Credit Reporting Act (FCRA). The Bureau's 
Arbitration Study found that FCRA claims were the third most common 
type of Federal statutory claim in Federal class action settlements 
reviewed by the Bureau from selected cases filed from 2010 through 
2012.\184\ Moreover, class settlements of Federal class actions related 
to consumer reporting filed between 2010 and 2012 provided over $750 
million in relief to consumers.\185\ More recently, as discussed below, 
case law indicates that consumer reporting agencies may use arbitration 
agreements to block potential availability of this type of relief in 
this market.
---------------------------------------------------------------------------

    \184\ Arbitration Study sec. 8.3.1 Figure 1.
    \185\ Id. sec. 8.3.3 Table 8.
---------------------------------------------------------------------------

    For example, the Bureau has learned that some credit monitoring 
products that some consumer reporting agencies market by representing 
that they help consumers detect and fix inaccuracies in their consumer 
reports may undermine FCRA protections. For example, in one case, after 
consumers engaged the service, the consumer reporting agency used the 
terms of that service against the consumer to block a putative class 
action lawsuit. The consumer reporting agency used an arbitration 
agreement in the credit monitoring contract to block consumers' legal 
action seeking to remedy alleged failure to reasonably investigate 
inaccurate information on consumer reports in violations of the 
FCRA.\186\ This outcome illustrates how consumer reporting agencies 
could use arbitration agreements to limit collective legal action 
seeking to remedy pre-existing inaccuracies in a consumer's credit 
report. This outcome also may indicate a broader trend: through its 
market monitoring activity, the Bureau also has seen several examples 
of national consumer reporting agencies imposing arbitration agreements 
when consumers use their online interface to obtain copies of their 
credit report or their credit score, to file a dispute, or to place a 
security freeze. The Bureau has a need, through its nonbank supervision 
program and market monitoring more broadly, to assess the potential 
magnitude of these risks across the consumer reporting market.
---------------------------------------------------------------------------

    \186\ See, e.g., Coulter v. Experian Info. Sols., Inc., Case No. 
20-cv-1814 (E.D. Pa.) (Order Feb. 25, 2021), 2021 WL 735726.
---------------------------------------------------------------------------

Consumer Debt Collection Market \187\
---------------------------------------------------------------------------

    \187\ The Bureau supervises the consumer debt collection market 
pursuant to its rule defining larger participants in that market. 
See 12 U.S.C. 5514(a)(1)(B) & 5514(a)(2); 12 CFR 1090.105.
---------------------------------------------------------------------------

    Waivers and other limitations often found in the terms and 
conditions of a form contract can put consumers at risk during the debt 
collection process. For example, although debt collectors typically do 
not enter into arbitration agreements directly with consumers, 
nevertheless, they may attempt to use these and other limitations in 
the terms and conditions of the underlying consumer contract 
establishing the debt

[[Page 6922]]

to block class actions.\188\ When used in this manner, any valid claims 
that would have been asserted only on a class basis are suppressed. 
Such potential for claim suppression may pose risks to consumers. 
Indeed, the collective action mechanism can generate relief in this 
market, as the Bureau's Arbitration Study found that Fair Debt 
Collection Practices Act (FDCPA) claims were by far the most common 
type of claim in Federal class action settlements the Bureau analyzed 
from cases filed between 2010 and 2012.\189\ And these settlements 
provided over $95 million in monetary relief to consumers.\190\
---------------------------------------------------------------------------

    \188\ Arbitration Study sec. 6 at n.94 (describing examples).
    \189\ Id. sec. 8.3.1 Figure 1.
    \190\ Id. sec. 8.3.3 Table 3.
---------------------------------------------------------------------------

    In addition, as discussed above, when setting up recurring payments 
or payment plans on loans, creditors or their collectors may use 
contract terms that attempt to limit or waive consumers' rights to 
cancel these payments, including in circumstances that violate the 
anti-waiver provision in EFTA section 914.\191\
---------------------------------------------------------------------------

    \191\ 15 U.S.C. 1693l. See, e.g., Cobb v. Monarch Finance Corp., 
913 F. Supp. 1164, 1179 (N.D. Ill. 1995) (rejecting motion to 
dismiss claim that nonbank lender violated EFTA anti-waiver 
provisions by using contract term purporting to waive right under 
EFTA to stop payment of preauthorized electronic funds transfers); 
Baldukas, 2012 WL 7681733 at *5 (D. Colo. Oct. 2, 2012) (similar 
holding), adopted by 2013 WL 950847 (D. Colo. Mar. 8, 2013). See 
also Jordan v. Freedom Nat'l, 2016 WL 5363752 (D. Ariz. Sept. 26, 
2016) (granting class certification for EFTA anti-waiver claims 
involving payment authorizations requiring consumers to agree that 
the payee ``will not be responsible for claims relating to the debit 
or credit of my account'').
---------------------------------------------------------------------------

    Debt collectors also may seek to rely on other covered terms and 
conditions used by creditors. For example, debt collectors may seek to 
rely on contract terms in creditor contracts that seek to waive the 
right of consumers to revoke consent to receive autodialed calls under 
the Telephone Consumer Protection Act and its implementing 
regulations.\192\ In the Bureau's experience and expertise, including 
based on findings in recent examination activity, waivers of that 
consumer right to revoke consent--an applicable legal protection 
administered by the Federal Communications Commission (FCC)--may make 
it challenging for consumers to exercise applicable legal protections 
under other statutes the Bureau administers to stop unwanted or even 
harassing or unlawful debt collection calls. The FCC has determined 
that consumers' right to revoke this consent cannot be waived.\193\ But 
some courts have not embraced that position.\194\ Creditor contract 
terms that waive any such right to revoke consent to so-called 
robocalls pose potential risk to consumers in debt collection markets. 
Similarly, to the extent that debt collectors contract directly with 
consumers, debt collectors also might attempt to directly deploy 
contract terms that seek to waive or otherwise limit consumer rights 
under the FDCPA and its implementing regulations \195\ to stop 
collections communications or to specify inconvenient times, places, or 
media for collections communications.\196\
---------------------------------------------------------------------------

    \192\ Under the TCPA, according to the FCC, such consent when 
given to a creditor in connection with an existing debt may also 
extend to the debt collector. Implementing the Telephone Consumer 
Protection Act of 1991, Request of ACA Int'l for Clarification and 
Declaratory Ruling, 23 FCC Rcd 559, 563-65 (Feb. 1, 2008).
    \193\ In re Rules & Regulations Implementing the Tel. Consumer 
Prot. Act of 1991, 30 FCC. Rcd. 7961, 7994-7999 (2015); ACA 
International v. FCC, No. 15-1211 (D.C. Cir. 2018). See also 
Ginwright v. Exeter Finance Corp., 280 F.Supp.3d 674, 683-84 (D. Md. 
2017) (holding that a standard contractual term in an automobile 
finance agreement prohibiting the consumer from revoking consent to 
be called would violate FCC ruling that a consumer has a right of 
revocation); Jara v. GC Servs. LP, 2018 WL 2276635 at *5 (C.D. Cal. 
May 17, 2018) (same, in private legal action by consumer against a 
debt collector).
    \194\ Reyes v. Lincoln Automotive Fin. Svs., 16-2104-cv, 2017 WL 
2675363 (2d Cir. June 22, 2017); Medley v. Dish Network, LLC, No. 
18-13841 (11th Cir. 2020). See also Harris v. Navient Sols., LLC, 
2018 WL 3748155 (D. Conn. Aug. 7, 2018) (applying Reyes to private 
legal action by consumer against student loan servicer).
    \195\ See Bureau's Regulation F at 12 CFR part 1006.
    \196\ Cf. Clark v. Capital Credit & Collection Services, Inc., 
460 F.3d 1162, 1170 (9th Cir. 2006) (applying heightened standard of 
voluntariness but finding that consumer's initiation of contact with 
a debt collector constituted a limited waiver of the consumer's 
cease communications request under the FDCPA).
---------------------------------------------------------------------------

    As also discussed above, under FTC rules, in consumer credit and 
collection markets, consumers have important rights to limit the types 
of assets that can be seized or garnished to enforce a court order to 
pay a debt. As noted above, terms and conditions may directly flout 
those rules and the rules may not be comprehensive enough to prevent 
contract terms that waive or undermine these rights. For example, the 
Bureau recently found that a very large depository institution sought 
to limit its liability to consumers for failing to follow these 
laws.\197\ Garnishor creditors or their debt collectors may seek to 
utilize similar contract terms and conditions.
---------------------------------------------------------------------------

    \197\ In re Bank of America, N.A., Admin. Proc. 2022-CFPB-0002 
(Consent Order filed May 4, 2022), ] 49 et seq. (citing deposit 
agreement provision stating that bank has ``no liability to'' the 
consumer if it follows the provisions of the contract), https://files.consumerfinance.gov/f/documents/cfpb_bank-of-america_consent-order_2022-05.pdf.
---------------------------------------------------------------------------

    Further, the Bureau notes that the FDCPA prohibits debt collectors 
from bringing legal actions in certain inconvenient venues, generally 
requiring that debt collectors only file suit where the consumer 
resides or entered into the contract, or in the case of real property, 
where the real property is located.\198\ Forum selection clauses in 
terms or conditions may suggest otherwise. For example, similar to the 
case involving a short-term small-dollar lender described above, a debt 
collector could seek to use such a clause as a basis for filing actions 
in venues not permitted under the FDCPA.
---------------------------------------------------------------------------

    \198\ 15 U.S.C. 1692i(a).
---------------------------------------------------------------------------

    Finally, some larger participant debt collectors the Bureau 
supervises also collect medical debt. Collection of amounts subject to 
waiver, arbitration agreements, or both can pose risks to consumers in 
the medical debt context. For example, the Department of Health and 
Human Services (HHS) recently finalized rules implementing the No 
Surprises Act. Under these implementing regulations, when an insured 
consumer seeks non-emergency treatment at a hospital, the hospital may 
use a contract that includes a waiver of the consumer's new Federal law 
protections against surprise bills. The regulations require that these 
waivers must meet certain standards, including that they are ``provided 
voluntarily, meaning the individual is able to consent freely, without 
undue influence, fraud, or duress . . . .'' \199\ HHS estimated that 
hospitals may deploy these contract waivers nearly 2.5 million times 
each year.\200\ Debt collectors may attempt to collect amounts 
hospitals charge on the basis of such waivers. Depending on the 
circumstances of the waiver, this may raise risks to consumers 
including under applicable legal protections such as the FDCPA and the 
FCRA.\201\ If a consumer contests such an amount in a legal action, a 
debt collector could seek to enforce the underlying waiver to block 
such a claim. If a consumer asserts the waiver is invalid, that may 
raise questions of whether the Holder Rule, described above, applies to 
ensure the consumer may assert that defense. Or

[[Page 6923]]

the debt collector could seek to enforce an arbitration agreement the 
hospital may enter into with the consumer. In addition, in a different 
medical debt context, debt collectors could seek to enforce arbitration 
agreements in long-term care facility admission contracts. If a debt 
collector uses an arbitration agreement in that context, its use may 
raise a question about whether the consumer was given a choice to 
accept the arbitration agreement as is required by HHS regulations and 
whether the arbitration agreement complies with other requirements in 
the HHS regulations.\202\
---------------------------------------------------------------------------

    \199\ 45 CFR 149.420(c)(2)(i).
    \200\ HHS Supporting Statement--Part A, Requirements Related to 
Surprise Billing: Qualifying Payment Amount, Notice, and Consent, 
Disclosure on Patient Protections Against Balance Billing, and State 
Law Opt-in (CMS-10780/OMB control number: 0938-1401) at 16.
    \201\ See CFPB Bulletin 2022-01, ``Medical Debt Collection and 
Consumer Reporting Requirements in Connection with the No Surprises 
Act,'' 87 FR 3025 (Jan. 20, 2022).
    \202\ See 42 CFR 483.70(n)(2).
---------------------------------------------------------------------------

Student Loan Servicing Market \203\
---------------------------------------------------------------------------

    \203\ The Bureau supervises the student loan servicing market 
pursuant to its rule defining larger participants in that market. 
See 12 U.S.C. 5514(a)(1)(B) & 5514(a)(2); 12 CFR 1090.106.
---------------------------------------------------------------------------

    As in the consumer debt collection market discussed above, student 
loan servicers may attempt to rely on waivers or other covered terms 
and conditions in creditor contract clauses to defend against legal 
actions by consumers. Examples of waivers that may pose risks to 
consumers include terms and conditions attempting to waive 
dischargeability of loans prior to the filing of a bankruptcy petition. 
In addition, depending on the facts and circumstances and applicable 
law, student loan servicers may use creditor contracts to compel 
arbitration of claims consumers file in court.\204\ As noted above, 
while class actions can provide relief to student loan borrowers, 
arbitration agreements in private student loan contracts can be used to 
block that relief. Further, as with creditors and their debt collectors 
discussed above, loan servicers also could attempt to use terms and 
conditions for payment authorizations that attempt to limit or waive 
consumers' rights to cancel these payments--including in circumstances 
that may violate the anti-waiver provision in EFTA section 914.
---------------------------------------------------------------------------

    \204\ See, e.g., Howard v. Navient Solutions, LLC, 2018 WL 
5112634 at *4 (W.D. Wa. 2018) (granting student loan servicer's 
motion to compel arbitration of consumer's claims based on 
arbitration provision in original promissory note).
---------------------------------------------------------------------------

Remittance Market \205\
---------------------------------------------------------------------------

    \205\ The Bureau supervises the remittance market (International 
Money Transfer Market) pursuant to its rule defining larger 
participants in that market. See 12 U.S.C. 5514(a)(1)(B) & 
5514(a)(2); 12 CFR 1090.107.
---------------------------------------------------------------------------

    Remittance transfer service agreements may contain rights waivers 
that are prohibited by statute. The Bureau recently resolved an 
enforcement action for violations of EFTA's anti-waiver provision by a 
remittance provider.\206\ In addition, the Bureau recently reported 
that examiners found multiple instances of such violations in 
remittance transfer service agreements with consumers in direct 
violation of the law. Specifically, examiners found terms and 
conditions that expressly limited consumer rights under EFTA section 
916 to bring legal action against the institution and to recover costs 
and attorney's fees.\207\
---------------------------------------------------------------------------

    \206\ In re Choice Money Transfer, Inc., Admin. Proc. 2022-CFPB-
0009 (Oct. 4, 2022), ]] 79-83 (consent order citing a waiver of 
liability that was inconsistent than rights conferred by regulations 
implementing EFTA).
    \207\ See Supervisory Highlights (Spring 2022) at sec. 2.8.2.
---------------------------------------------------------------------------

    In addition, with respect to arbitration agreements and waivers of 
collective legal action, the Bureau's Arbitration Study noted an 
example of $5.5 million in monetary relief in a Federal class action 
settlement in the remittances market.\208\
---------------------------------------------------------------------------

    \208\ Arbitration Study sec. 8 at 25.
---------------------------------------------------------------------------

3. Making Information Collected in the Registry Publicly Available 
Would Serve the Public Interest
    The public transparency provisions in proposed Sec.  1092.303, 
described in the section-by-section analysis in part V below, also 
accomplish core elements of the Bureau's mission.
    Congress anticipated that the insights the Bureau would gain from 
mandatory market monitoring should at times become available to a wider 
audience than just Bureau employees. Not only did Congress mandate that 
the Bureau ``publish not fewer than 1 report of significant findings of 
its monitoring . . . in each calendar year,'' but it also instructed 
that the Bureau may make non-confidential information available to the 
public ``as is in the public interest.'' \209\ Congress gave the Bureau 
discretion to determine the format of publication, authorizing the 
Bureau to make the information available ``through aggregated reports 
or other appropriate formats designed to protect confidential 
information in accordance with [specified protections in this 
section].'' \210\ These instructions regarding public release of market 
monitoring information align with one of the Bureau's ``primary 
functions'' mentioned above--to ``publish[ ] information relevant to 
the functioning of markets for consumer financial products and services 
to identify risks to consumers and the proper functioning of such 
markets.'' \211\ CFPA section 1022(c)(7)(B) similarly contemplates that 
publishing registry information for this purpose can be beneficial to 
consumers, authorizing the Bureau to ``publicly disclose registration 
information to facilitate the ability of consumers to identify covered 
persons that are registered with the Bureau.'' \212\
---------------------------------------------------------------------------

    \209\ 12 U.S.C. 5512(c)(3).
    \210\ 12 U.S.C. 5512(c)(3)(B).
    \211\ 12 U.S.C. 5511(c)(3).
    \212\ 12 U.S.C. 5512(c)(7)(B).
---------------------------------------------------------------------------

    The Bureau believes that publication of registration information is 
in the public interest for a variety of reasons as discussed below and 
in the section-by-section analysis of proposed Sec.  1092.303.
    Other regulators would be able to quickly access the centralized, 
publicly-accessible database, facilitating their efficient 
prioritization of oversight of supervised nonbanks that, in their 
judgment, use particularly risky covered terms and conditions. These 
regulators could associate the data the Bureau publishes with other 
information they have about supervised nonbanks, providing a better 
picture of their practices. This oversight would be particularly 
valuable when the covered terms and conditions limit private 
enforcement or exercise of rights. Some regulators also may identify 
published covered terms and conditions explicitly prohibited by laws 
they enforce or supervise, including some of the laws discussed in part 
II.B above and similar laws. This information may spur action by those 
regulators to enjoin or otherwise stop further use of those covered 
terms and conditions. However, as discussed in part VII.E below, the 
registry already would disincentivize use of expressly prohibited 
covered terms and conditions. Thus, it is uncertain how prevalent use 
of expressly prohibited covered terms and conditions would be in the 
registry.
    More broadly, use of form contracts and covered terms and 
conditions have long been topics of public debate in consumer finance 
markets and beyond, informing adoption of the legal protections 
applicable to consumer financial products and services offered in 
markets supervised by the Bureau discussed in part II.B and the broader 
public policy they reflect. The registry would provide reliable, 
comprehensive, and periodically updated data about this matter of 
significant public import. For example, regulators, legislatures, 
courts, the legal profession, researchers, universities, and other non-
governmental organizations, the press, and the general public would be 
able to use data from the registry to monitor trends and to identify 
high-risk areas affecting consumers in markets for consumer financial 
products and services. Indeed, as described above,

[[Page 6924]]

some statutory consumer legal protections either specifically 
contemplate waivers or are silent on the topic. A registry of waivers 
could highlight legal protections that are at risk of being undermined.
    Currently, there appears to be no similar database of covered terms 
and conditions available to the public with widespread coverage of one 
or more markets for consumer financial products and services. The 
public appears to have access to only limited data, such as form 
contracts used by certain private student lenders registered in the few 
States that collect and publish the entire form contract, form 
contracts for first-lien mortgages on site-bult homes insured, 
guaranteed, or eligible for purchase in Federal mortgage programs, and 
to some degree, form contracts marketed by form providers for 
automobile finance transactions. As a result, a comprehensive, 
periodically-updated database focused on the use of covered terms and 
conditions would substantially inform that debate and more fully ground 
it in data.\213\
---------------------------------------------------------------------------

    \213\ The Bureau's recent proposal to register orders also, in 
conjunction with data gathered under this proposal, can help the 
public to understand when contract terms and conditions limiting 
private action are associated with conduct that leads to public 
orders. See Nonbank Registration--Orders Proposal.
---------------------------------------------------------------------------

    Other benefits exist as well. For example, other regulators, 
researchers, consumer advocacy organizations, the press, and others 
could review this information and, where it indicates a concern, 
potentially educate consumers about identifying and managing these 
risks. Those activities could complement the Bureau's consumer 
education functions. Based on information gleaned from trends in the 
information collected, researchers, non-governmental organizations, and 
other regulators could provide timely and well-informed consumer 
education materials. And companies that do not include covered terms or 
conditions in their contracts may consider using their absence from 
being required to register and other information in the registry from 
competitors to market their consumer financial products or services as 
potentially less risky to consumers.
    Similarly, publication of registration information would facilitate 
the ability of consumers to identify supervised nonbank covered persons 
that are registered with the Bureau. CFPA section 1022(c)(7)(B) 
contemplates that publishing registry information for this purpose can 
be beneficial to consumers.\214\ Publishing registration information 
identifying the supervised nonbanks that use covered terms and 
conditions could help consumers when disputes or problems arise. When a 
consumer has a dispute with a supervised registrant giving rise to a 
potential legal claim, the consumer or their representative could 
quickly check the Bureau's website to see if the supervised registrant 
was identified as using covered terms or conditions for that type of 
consumer financial product or service.\215\ Reviewing information in a 
published registry would not be a substitute for reviewing the covered 
form contract. But the registry can be a resource that may be easier 
for consumers to perform an initial check quickly, before obtaining and 
reviewing their entire contract. It also may identify additional 
covered terms or conditions that may affect to the consumer's account 
or transaction.
---------------------------------------------------------------------------

    \214\ 12 U.S.C. 5512(c)(7)(B).
    \215\ This information could indicate whether the consumer's 
covered terms and conditions were typical of those offered to other 
consumers. But the consumer's form contract itself (which a 
consumer's representative may already have) typically would be used 
with many consumers by its very nature. And arbitration agreements 
generally do not allow class actions, as discussed elsewhere in this 
part II. Thus, for these and other reasons discussed in part VII.E, 
a significant increase in class action litigation as a result of the 
proposal is unlikely. Indeed, a chief purpose of the proposal is to 
increase public oversight of covered terms and conditions precisely 
because of the limitations covered terms and conditions impose on 
private enforcement.
---------------------------------------------------------------------------

    All of the above groups and the rest of the general public also 
would have access to identifying information collected on the nonbank 
itself, affording a better understanding of which specific nonbanks are 
subject to supervision and examination by the Bureau.
    Finally, publication would formally align the proposed nonbank 
registration system with the Federal government's emphasis on making 
government data available to and usable by the public, by default, to 
the greatest extent possible.\216\
---------------------------------------------------------------------------

    \216\ See, e.g., Open, Public, Electronic and Necessary 
Government Data Act, in title II of Public Law 115-435 (Jan. 14, 
2019); Office of Management & Budget, M-19-18, ``Federal Data 
Strategy--A Framework for Consistency'' (June 4, 2019), https://www.whitehouse.gov/wp-content/uploads/2019/06/M-19-18.pdf (last 
visited Dec. 7, 2022).
---------------------------------------------------------------------------

D. Other Alternatives Considered

    As explained in part II.C and in the section-by-section analysis in 
part V, the Bureau has considered a number of alternatives to the scope 
of the rule and the coverage of particular provisions. In addition to 
those alternatives, the Bureau has considered several other 
alternatives.
    The Bureau considered proposing that supervised nonbanks submit 
their covered form contracts, instead of providing information about 
them. That alternative might reduce burdens on some registrants, who 
would not have to review their contracts in order to provide 
standardized data. However, that type of registry would result in a 
much greater volume of information collected and published. As 
discussed in this part II above, the Bureau is concerned that terms and 
conditions waiving or limiting enforcement of consumer legal 
protections may not receive adequate attention by consumers or the 
public. Publication of additional information unrelated to those types 
of terms could reduce the attention to those type of terms in the 
registry. At the same time, the Bureau also lacks the resources to 
engage in an annual review of the full text of all of the standard 
contracts of every nonbank subject to its supervisory authority. In 
particular, the Bureau lacks the resources to extract from such 
standard contracts the standardized data on the clauses of concern 
described in the proposal. Therefore, collecting this data from the 
supervised registrants themselves would establish a registration system 
that is more effective.
    The Bureau also has considered alternative means of collecting 
information relating to use of covered terms and conditions, including 
requesting the information on an ad hoc basis from supervised entities, 
whether during examinations or through an order pursuant to CFPA 
section 1022(c)(4)(B)(ii). However, these alternatives generally would 
be infeasible for accomplishing the goals of the proposed rule. As 
discussed in the impacts analysis in part VII, there are thousands of 
nonbanks subject to the Bureau's supervisory authority. By contrast, 
the Bureau's supervision program historically has been designed to 
conduct slightly more than 100 on-site examinations per year, and less 
than 1,000 overall exam events per year.\217\ In addition, as discussed 
in this part II above, existing systems do not generate a comprehensive 
list of persons the Bureau may supervise.\218\ In addition,

[[Page 6925]]

an important purpose of the proposal is to facilitate an assessment of 
the adequacy of applicable legal protections for consumers whose 
contracts contain covered terms and conditions. These legal protections 
are not ad hoc or time-limited. Furthermore, the Bureau's need to 
consider their adequacy as part of its monitoring and supervisory work 
is similarly ongoing, and so is best served by a system that collects 
information on a recurring basis. In addition, these alternatives would 
not be as effective at informing the Bureau's ongoing prioritization of 
its supervisory resources for examining nonbank covered persons. 
Nonbank covered persons' use of covered terms and conditions may change 
over time, as business structures, product offerings, and markets 
evolve. In the Bureau's experience and expertise, supervised 
registrants frequently make changes in terms and conditions in their 
form contracts, including to alter or add covered terms or conditions. 
Doing a one-time collection or performing point-in-time collections 
would be less useful to the Bureau's continuous prioritization. And for 
the same reasons, it would be less useful to the public as well.
---------------------------------------------------------------------------

    \217\ See CFPB Annual Performance Plan and Report FY 2022 at 
Table 2.2.1.1 (on-site exams) & Table 2.2.1.2 (all supervisory 
events with significant activity), https://files.consumerfinance.gov/f/documents/cfpb_performance-plan-and-report_fy22.pdf.
    \218\ For markets where the Bureau has information about many of 
the participants, the Bureau also has considered the alternative of 
issuing orders on a recurring basis, which might approximate an 
annual collection. However, a general plan for such orders, even if 
recurring, would not establish a rule that creates predictability, 
reliability, and certainty that a rule provides. For example, the 
proposed rule would require nonbanks to collect the relevant 
information. Absent that requirement in regulation, supervised 
nonbanks could find responding to an order more burdensome.
---------------------------------------------------------------------------

    Further, the Bureau has considered the alternative of not 
specifying in the rule whether information collected would be publicly 
released. After all, the Bureau has authority to publicly release 
information under CFPA section 1022(c)(3) without first promulgating a 
rulemaking. In addition, the information collection under proposed 
Sec.  1092.302 would enable the Bureau to monitor for risks to 
consumers and to prioritize its resources based on risk indicators, 
even without publication of the information as described in proposed 
Sec.  1092.303. Thus, the information collection requirements in 
proposed Sec.  1092.302 can operate independently of the publication 
requirements in proposed Sec.  1092.303.
    However, the Bureau is proposing to specify expectations about 
public release in the rule. Without specifying these expectations, the 
rule itself would lack transparency, and submitters of information, and 
the public (consumers, competitors, and researchers, among others) 
would be less certain about how the Bureau will use and disclose the 
information. In addition, by including in the proposed regulation its 
plans to disclose the data, the Bureau will gain the benefit of public 
comment on those plans in the rulemaking process, including comment on 
the degree to which the submitters of collected information may keep 
that information confidential (a topic on which the Bureau requests 
comment in the section-by-section analysis of proposed Sec.  1092.303 
below). In any event, the Bureau requests comment on whether there is 
an important reason for nondisclosure of the information collected when 
disclosure otherwise would be permitted by law.
    Finally, this proposal reflects a priority on establishing a system 
by rule for the collection of information on the use of covered terms 
and conditions from supervised nonbanks as a subset of covered persons. 
One of the reasons for prioritizing coverage of supervised nonbanks is 
the need to identify them, as discussed in this part II.C.2 above. As 
discussed in the impacts analysis in part VII of the proposal, the 
Bureau estimates that there are thousands of nonbanks subject to its 
supervisory authority under CFPA section 1024(a). In addition, there is 
no comprehensive registry of identifying information for nonbanks 
subject to the Bureau's supervisory authority across supervised 
markets. Further, given resource constraints, the Bureau does not 
regularly examine each of the thousands of nonbanks subject to its 
supervisory authority under CFPA section 1024. Rather, under CFPA 
section 1024(b)(2), the Bureau must implement a risk-based program for 
supervision of these nonbanks. By contrast, Federal prudential 
regulators track and already publicize information about the identity 
and size of depository institutions.\219\ These include depository 
institutions subject to the Bureau's supervisory authorities under CFPA 
sections 1025 and 1026. The Bureau also publicly identifies the fewer 
than 200 large depository institutions subject to its supervisory 
authority under CFPA section 1025, and it has procedures for regularly 
supervising them.\220\ In light of all these considerations, the Bureau 
is prioritizing this proposal to establish a registration system for 
identifying those nonbanks that use covered terms or conditions and 
monitoring and assessing the associated risks to consumers as discussed 
in this part II above.\221\ This proposal does not affect how the 
Bureau can apply its functions for monitoring and assessing risks posed 
by covered terms and conditions used by depository institutions and 
credit unions subject to its authority under CFPA sections 1022, 1025, 
and 1026.
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    \219\ See, e.g., FDIC Bank Find Suite, https://banks.data.fdic.gov/bankfind-suite/bankfind; Federal Financial 
Institutions Examinations Council National Information Center, 
https://www.ffiec.gov/NPW; OCC Financial Institutions Lists, https://www.occ.treas.gov/topics/charters-and-licensing/financial-institution-lists/index-financial-institution-lists.html; Credit 
Union Locator, https://mapping.ncua.gov/.
    \220\ See CFPB, List of Depository Institutions and Depository 
Affiliates under CFPB Supervision, https://www.consumerfinance.gov/compliance/supervision-examinations/institutions/; CFPB Supervision 
and Examination Manual, Overview at 5 (describing Bureau's approach 
to setting regular examination schedules for large depository 
institutions), https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_2022-09.pdf.
    \221\ In prioritizing this proposal, the Bureau also has 
considered other factors, including the following: The Bureau's 
existing regulations already require depository institutions to 
submit to the Bureau information about their agreements in certain 
markets, such as credit cards and prepaid accounts. The Bureau makes 
these agreements publicly available at https://www.consumerfinance.gov/credit-cards/agreements/ and https://www.consumerfinance.gov/data-research/prepaid-accounts/. In 
addition, CFPA sections 1022 and 1024 do not expressly authorize the 
Bureau to establish a registration system for depository 
institutions, which are excluded from the Bureau's registration 
authority under section 1022(c)(7)(A) and excluded from the scope of 
section 1024(b)(7). There is no parallel registration provision in 
the Bureau's authorities over depository institutions generally.
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III. Outreach

    The Bureau received feedback from external stakeholders in 
developing this proposal. The following is a brief summary of that 
effort.

A. State Agencies and Tribal Governments

    As required by CFPA sections 1022(c)(7) and 1024(b)(7),\222\ the 
Bureau consulted with State agencies and Tribal governments, including 
agencies involved in supervision of nonbanks and agencies charged with 
law enforcement, in crafting the proposed registration requirements and 
system.\223\ In developing this proposal, the Bureau considered the 
input it received from State agencies and Tribal governments. This 
input included concerns State agencies expressed regarding possible 
duplication between any registration system the Bureau might build and 
existing registration systems. This input also included concerns Tribal 
governments expressed regarding maintaining Tribal sovereignty.
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    \222\ 12 U.S.C. 5512(c)(7)(C); 12 U.S.C. 5514(b)(7)(D).
    \223\ During the rulemaking process for issuing rules under the 
Federal consumer financial laws, Bureau policy is to consult with 
appropriate Tribal governments. See https://files.consumerfinance.gov/f/201304_cfpb_consultations.pdf.
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B. Federal Regulators

    Before proposing a rule under the Federal consumer financial laws, 
including CFPA sections 1022(c) and 1024(b), the Bureau must consult 
with

[[Page 6926]]

appropriate prudential regulators or other Federal agencies regarding 
consistency with prudential, market, or systemic objectives 
administered by such agencies.\224\ In developing this proposal, the 
Bureau consulted with prudential regulators and other Federal agencies 
and considered the input it received.
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    \224\ 12 U.S.C. 5512(b)(2)(B).
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IV. Legal Authority

    The Bureau is issuing this proposal pursuant to its authority under 
the CFPA.\225\
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    \225\ Consumer Financial Protection Act of 2010, title X of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act), Public Law, 111-203, 124 Stat. 376 (2010).
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A. CFPA Sections 1022(b) and (c)

    CFPA section 1022(b)(1) authorizes the Bureau to prescribe rules 
``as may be necessary or appropriate to enable the Bureau to administer 
and carry out the purposes and objectives of the Federal consumer 
financial laws, and to prevent evasions thereof.'' \226\ Among other 
statutes, the CFPA--i.e., title X of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act)--is a Federal consumer 
financial law.\227\ Accordingly, in issuing the proposed rule, the 
Bureau would be exercising its authority under CFPA section 1022(b) to 
prescribe rules that carry out the purposes and objectives of the CFPA 
and prevent evasions thereof. CFPA section 1022(b)(2) prescribes 
certain standards for rulemaking that the Bureau must follow in 
exercising its authority under section 1022(b)(1).\228\ For a 
discussion of the Bureau's standards for rulemaking under CFPA section 
1022(b)(2), see part VII below.
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    \226\ 12 U.S.C. 5512(b)(1).
    \227\ 12 U.S.C. 5481(14) (defining ``Federal consumer financial 
law'' to include the provisions of title X of the Dodd-Frank Act).
    \228\ 12 U.S.C. 5512(b)(2).
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    CFPA sections 1022(c)(1)-(4) authorize the CFPB to prescribe rules 
to collect information from covered persons for purposes of monitoring 
for risks to consumers in the offering or provision of consumer 
financial products or services. More specifically, CFPA section 
1022(c)(1) requires the Bureau to support its rulemaking and other 
functions by monitoring for risks to consumers in the offering or 
provision of consumer financial products or services, including 
developments in the markets for such products or services.\229\ CFPA 
section 1022(c)(2) authorizes the Bureau authorizes the Bureau to 
allocate resources to perform monitoring required by section 1022(c)(1) 
by considering ``likely risks and costs to consumers associated with 
buying or using a type of consumer financial product or service,'' 
``understanding by consumers of the risks of a type of consumer 
financial product or service,'' ``the legal protections applicable to 
the offering or provision of a consumer financial product or service, 
including the extent to which the law is likely to adequately protect 
consumers,'' ``rates of growth in the offering or provision of a 
consumer financial product or service,'' ``the extent, if any, to which 
the risks of a consumer financial product or service may 
disproportionately affect traditionally underserved consumers,'' and 
``the types, number, and other pertinent characteristics of covered 
persons that offer or provide the consumer financial product or 
service.'' \230\ CFPA section 1022(c)(4)(A) authorizes the Bureau to 
conduct monitoring required by section 1022(c)(1) by ``gather[ing] 
information from time to time regarding the organization, business 
conduct, markets, and activities of covered persons and service 
providers.\231\ The Bureau is authorized to gather this information by, 
among other things, requiring covered persons participating in markets 
for consumer financial products and services to file annual or special 
reports, or answers in writing to specific questions, that furnish 
information ``as necessary for the Bureau to fulfill the monitoring . . 
. responsibilities imposed by Congress.'' \232\ The Bureau may require 
such reports to be filed ``in such form and within such reasonable 
period of time as the Bureau may prescribe by rule or order. . . .'' 
\233\
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    \229\ 12 U.S.C. 5512(c)(1).
    \230\ 12 U.S.C. 5512(c)(2)(A)-(F).
    \231\ 12 U.S.C. 5512(c)(4)(A).
    \232\ 12 U.S.C. 5512(c)(4)(B)(ii) (``In order to gather 
information described in subparagraph (A), the Bureau may . . . 
require covered persons and service providers participating in 
consumer financial services markets to file with the Bureau, under 
oath or otherwise, in such form and within such reasonable period of 
time as the Bureau may prescribe by rule or order, annual or special 
reports, or answers in writing to specific questions, furnishing 
information described in paragraph (4), as necessary for the Bureau 
to fulfill the monitoring, assessment, and reporting 
responsibilities imposed by Congress.'').
    \233\ Id.
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    CFPA section 1022(c)(7)(A) further authorizes the Bureau to 
``prescribe rules regarding registration requirements applicable to a 
covered person, other than an insured depository institution, insured 
credit union, or related person.'' \234\ Section 1022(c)(7)(B) provides 
that, ``[s]ubject to rules prescribed by the Bureau, the Bureau may 
publicly disclose registration information to facilitate the ability of 
consumers to identify covered persons that are registered with the 
Bureau.'' \235\ The Bureau interprets section 1022(c)(7)(B) as 
authorizing it to publish registration information required by Bureau 
rule under section 1022(c)(7)(A) so that consumers may identify the 
nonbank covered persons on which the Bureau has imposed registration 
requirements.
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    \234\ 12 U.S.C. 5512(c)(7)(A).
    \235\ 12 U.S.C. 5512(c)(7)(B).
---------------------------------------------------------------------------

    Finally, section 1022(c)(3) authorizes the Bureau to publicly 
release information obtained pursuant to CFPA section 1022(c), subject 
to limitations specified therein.\236\ Specifically, section 1022(c)(3) 
states that the Bureau ``may make public such information obtained by 
the Bureau under [section 1022] as is in the public interest, through 
aggregated reports or other appropriate formats designed to protect 
confidential information in accordance with [specified protections in 
section 1022].'' \237\ Information submitted to the Bureau's registry 
is protected by, among other things, section 1022(c)(8), which states 
that ``[I]n . . . publicly releasing information held by the Bureau, or 
requiring covered persons to publicly report information, the Bureau 
shall take steps to ensure that proprietary, personal, or confidential 
consumer information that is protected from public disclosure under 
[the Freedom of Information Act, 5 U.S.C. 552(b)] or [the Privacy Act 
of 1974, 5 U.S.C. 552a], or any other provision of law, is not made 
public under [the CFPA].'' \238\
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    \236\ 12 U.S.C. 5512(c)(3) & 5512(c)(7)(B).
    \237\ 12 U.S.C. 5512(c)(3)(B).
    \238\ 12 U.S.C. 5512(c)(8).
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B. CFPA Section 1024(b)

    As explained above, section 1024(b) of the CFPA authorizes the 
Bureau to exercise supervisory authority over certain nonbank covered 
persons.\239\ Section 1024(b)(1) requires the Bureau to periodically 
require reports and conduct examinations of persons subject to its 
supervisory authority to assess compliance with Federal consumer

[[Page 6927]]

financial law, obtain information about the activities and compliance 
systems or procedures of persons subject to its supervisory authority, 
and detect and assess risks to consumers and to markets for consumer 
financial products and services.\240\ Section 1024(b)(2) requires that 
the Bureau establish a risk-based nonbank supervision program. In 
particular, section 1024(b)(2) requires that the Bureau exercise its 
supervisory authority over nonbank covered persons based on its 
assessment of risks posed to consumers in the relevant product markets 
and geographic markets, and taking into consideration, as applicable: 
``(A) the asset size of the covered person; (B) the volume of 
transactions involving consumer financial products or services in which 
the covered person engages; (C) the risks to consumers created by the 
provision of such consumer financial products or services; (D) the 
extent to which such institutions are subject to oversight by State 
authorities for consumer protection; and (E) any other factors that the 
Bureau determines to be relevant to a class of covered persons.'' \241\
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    \239\ The nonbank covered persons over which the Bureau has 
supervisory authority are listed in CFPA section 1024(a)(1). They 
include covered persons that: offer or provide origination, 
brokerage, or servicing of loans secured by real estate for use by 
consumers primarily for personal, family, or household purposes, or 
loan modification or foreclosure relief services in connection with 
such loans; are larger participants of a market for consumer 
financial products or services, as defined by Bureau rule; the 
Bureau has reasonable cause to determine, by order, that the covered 
person is engaging, or has engaged, in conduct that poses risks to 
consumers with regard to the offering or provision of consumer 
financial products or services; offer or provide private education 
loans; or offer or provide payday loans. 12 U.S.C. 5514(a)(1).
    \240\ 12 U.S.C. 5514(b)(1), provides: ``The Bureau shall require 
reports and conduct examinations on a periodic basis of persons 
described in subsection (a)(1) for purposes of--(A) assessing 
compliance with the requirements of Federal consumer financial law; 
(B) obtaining information about the activities and compliance 
systems or procedures of such person; and (C) detecting and 
assessing risks to consumers and to markets for consumer financial 
products and services.''
    \241\ 12 U.S.C. 5514(b)(2).
---------------------------------------------------------------------------

    CFPA section 1024(b)(7) in turn identifies three independent 
sources of Bureau rulemaking authority. First, section 1024(b)(7)(A) 
requires the Bureau to prescribe rules to facilitate the supervision of 
nonbank covered persons subject to the Bureau's supervisory authority 
and assessment and detection of risks to consumers.\242\ Second, 
section 1024(b)(7)(B) authorizes the Bureau to require nonbank covered 
persons subject to its supervisory authority to ``generate, provide, or 
retain records for the purposes of facilitating supervision of such 
persons and assessing and detecting risks to consumers.'' \243\ This 
section authorizes the Bureau to require nonbank covered persons 
subject to its supervisory authority to create reports regarding their 
activities for submission to the Bureau. ``Records'' is a broad term 
encompassing any ``[i]nformation that is inscribed on a tangible medium 
or that, having been stored in an electronic or other medium, is 
retrievable in perceivable form,'' or any ``documentary account of past 
events.'' \244\ Section 1024(b)(7)(B) thus authorizes the Bureau to 
require nonbank covered persons subject to its supervisory authority to 
``generate''--i.e., create \245\--reports and then ``provide'' them to 
the Bureau.\246\
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    \242\ 12 U.S.C. 5514(b)(7)(A) (``The Bureau shall prescribe 
rules to facilitate supervision of persons described in subsection 
(a)(1) and assessment and detection of risks to consumers.'').
    \243\ 12 U.S.C. 5514(b)(7)(B) (``The Bureau may require a person 
described in subsection (a)(1), to generate, provide, or retain 
records for the purposes of facilitating supervision of such persons 
and assessing and detecting risks to consumers.'').
    \244\ Record, Black's Law Dictionary (11th ed. 2019); accord, 
e.g., Andrews v. Sirius XM Radio Inc., 932 F.3d 1253, 1259 (9th Cir. 
2019) (citing Black's Law Dictionary's and Webster's Third New 
International Dictionary's definitions of ``record'').
    \245\ See Generate, Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/generate (defining ``generate'' 
as ``to bring into existence'').
    \246\ The Bureau's authority under section 1024(b)(7)(B) to 
require generation of records complements its authority under 
section 1024(b)(1) to ``require reports . . . on a periodic basis'' 
from nonbank covered persons subject to its supervisory authority. 
12 U.S.C. 5514(b)(1).
---------------------------------------------------------------------------

    The third source of authority, CFPA section 1024(b)(7)(C), 
authorizes the Bureau to prescribe rules regarding nonbank covered 
persons subject to its supervisory authority ``to ensure that such 
persons are legitimate entities and are able to perform their 
obligations to consumers.'' \247\ Under this section, the Bureau may 
prescribe substantive rules to ensure that supervised entities are 
willing and able to comply with their legal, financial, and other 
obligations to consumers, including those imposed by Federal consumer 
financial law. The term ``obligations'' encompasses ``anything that a 
person is bound to do or forbear from doing,'' including duties 
``imposed by law, contract, [or] promise.'' \248\ As discussed in the 
Bureau's recent proposal to establish a nonbank registration for 
certain orders, the Bureau construes the phrase ``legitimate entities'' 
as encompassing an inquiry into whether an entity takes seriously its 
duty to ``[c]omply[ ] with the law.'' \249\
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    \247\ 12 U.S.C. 5514(b)(7)(C) (``The Bureau may prescribe rules 
regarding a person described in subsection (a)(1), to ensure that 
such persons are legitimate entities and are able to perform their 
obligations to consumers. Such requirements may include background 
checks for principals, officers, directors, or key personnel and 
bonding or other appropriate financial requirements.'').
    \248\ Obligation, Black's Law Dictionary (11th ed. 2019).
    \249\ Legitimate, Black's Law Dictionary (11th ed. 2019) 
(defining ``legitimate'' as ``[c]omplying with the law; lawful''); 
see also Legitimate, Webster's Second New International Dictionary 
(1934) (defining ``legitimate'' as ``[a]ccordant with law or with 
established legal forms and requirements; lawful''); Legitimate, 
Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/legitimate (defining ``legitimate'' as ``accordant with 
law or with established legal forms and requirements''). See also 
Nonbank Registration--Orders Proposal at 21.
---------------------------------------------------------------------------

    While each of the three subparagraphs of section 1024(b)(7) 
discussed above operates as independent sources of rulemaking 
authority, the subparagraphs also overlap in several respects, such 
that a particular rule may be (and, in the case of this proposal, is) 
authorized by more than one of the subparagraphs. For example, rules 
requiring the generation, provision, or retention of records generally 
will be authorized under both subparagraphs 1024(b)(7)(A) and (B). That 
is so because subparagraph 1024(b)(7)(B) makes clear that the Bureau's 
authority under subparagraph 1024(b)(7)(A) to prescribe rules to 
facilitate supervision and assessment and detection of risks to 
consumers extends to requiring covered persons subject to the Bureau's 
supervisory authority ``to generate, provide or retain records for the 
purposes of facilitating supervision of such persons and assessing and 
detecting risks to consumers.'' \250\
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    \250\ 12 U.S.C. 5514(b)(7)(B); see also, e.g., Barton v. Barr, 
140 S. Ct. 1442, 1453 (2020) (``redundancies . . . in statutory 
drafting'' may reflect ``a congressional effort to be doubly 
sure''); Atlantic Richfield Co. v. Christian, 140 S. Ct. 1335, 1350 
n.5 (2020) (concluding that ``Congress employed a belt and 
suspenders approach'' in statute); Marx v. Gen. Revenue Corp., 568 
U.S. 371, 383-85 (2013) (statutory language is ``not . . . 
superfluous if Congress included it to remove doubt'' about an 
issue).
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V. Section-by-Section Analysis

Part 1092

Subpart A--General
    Proposed subpart A is identical to proposed subpart A in the 
Bureau's separate proposal relating to the registration of certain 
orders.\251\ The Bureau is proposing a common, identical subpart to be 
shared between the two rulemakings due to the commonality of provisions 
regarding authority and purpose, submission and use of registration 
information, and severability. However, the Bureau would consider 
separate or independent subparts if warranted, based on public comments 
received in each rulemaking. The Bureau seeks comment on both 
approaches, i.e., common or separate subparts for the two rules, 
specifically including comments on whether subpart A should remain 
separate from subpart C.
---------------------------------------------------------------------------

    \251\ Nonbank Registration--Orders Proposal. That proposal also 
would establish specific registration requirements in subpart B of 
part 1092.
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Section 1092.100 Authority and Purpose
100(a) Authority
    Proposed Sec.  1092.100(a) would set forth the legal authority for 
proposed 12

[[Page 6928]]

CFR part 1092, including all subparts. Proposed Sec.  1092.100 would 
refer to CFPA sections 1022(b) and (c) and 1024(b),\252\ which are 
discussed in sections II.C and IV of the proposal above.
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    \252\ 12 U.S.C. 5512(b), (c); 12 U.S.C. 5514(b).
---------------------------------------------------------------------------

100(b) Purpose
    Proposed Sec.  1092.100(b) would explain that the purpose of this 
part is to prescribe rules regarding nonbank registration requirements, 
to prescribe rules concerning the collection of information from 
registered entities, and to provide for public release of that 
information as appropriate.
Section 1092.101 General Definitions
    Proposed Sec.  1092.101 would define terms that are used elsewhere 
in proposed part 1092 of the rules. Proposed Sec.  1092.101(a) would 
define the terms ``affiliate,'' ``consumer,'' ``consumer financial 
product or service,'' ``covered person,'' ``Federal consumer financial 
law,'' ``insured credit union,'' ``person,'' ``related person,'' 
``service provider,'' and ``State'' as having the meanings set forth in 
the CFPA, 12 U.S.C. 5481. Some of these terms would be used only in 
subpart B if the Bureau adopts its separate proposal relating to the 
registration of certain orders.\253\
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    \253\ Nonbank Registration--Orders Proposal.
---------------------------------------------------------------------------

    Proposed Sec.  1092.101(b) would define the term ``Bureau'' as a 
reference to the Consumer Financial Protection Bureau.
    Proposed Sec.  1092.102(c) would clarify that the terms 
``include,'' ``includes,'' and ``including'' throughout part 1092 would 
denote non-exhaustive examples covered by the relevant provision.\254\
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    \254\ See, e.g., Christopher v. SmithKline Beecham Corp., 567 
U.S. 142, 162 (2012) (use of ``includes'' indicates that ``the 
examples enumerated in the text are intended to be illustrative, not 
exhaustive'').
---------------------------------------------------------------------------

    Proposed Sec.  1092.101(d) would define the term ``nonbank 
registration system'' to mean the Bureau's electronic registration 
system identified and maintained by the Bureau for the purposes of part 
1092. Proposed Sec.  1092.101(e) would define the term ``nonbank 
registration system implementation date'' to mean, for a given 
requirement or subpart of part 1092, the date(s) determined by the 
Bureau to commence the operations of the nonbank registration system in 
connection with that requirement or subpart. The Bureau currently 
anticipates that the nonbank registration system implementation date 
with respect to proposed subpart C would occur sometime after the 
effective date of the proposed rule and no earlier than January 2024. 
The actual nonbank registration system implementation date would 
depend, in significant part, upon the Bureau's ability to develop and 
launch the required technical systems that will support the submission 
and review of applicable filings. For subpart C, the Bureau also would 
establish an annual registration date as defined in proposed Sec.  
1092.301(f). As discussed in the section-by-section analysis of 
proposed Sec.  1092.301(f), the annual registration date will occur 
after the system implementation date for subpart C.
    In connection with setting both the nonbank registration system 
implementation date and the annual registration date, the Bureau seeks 
comment on how much time entities would need to comply with the 
requirements of part 1092 and to register with the nonbank registration 
system including under subpart C. The Bureau would set these dates 
after considering feedback provided by commenters regarding the time 
registrants would need to implement the requirements of this part 
including its subpart C. In particular, the Bureau would provide 
advance public notice regarding the nonbank registration system 
implementation date with respect to subpart C and the annual 
registration date to enable entities subject to subpart C to prepare 
and submit timely filings to the nonbank registration system.
Section 1092.102 Submission and Use of Registration Information
102(a) Filing Instructions
    Proposed Sec.  1092.102(a) would provide that the Bureau shall 
specify the form and manner for electronic filings and submissions to 
the nonbank registration system that are required or made voluntarily 
under part 1092. The Bureau would issue specific guidance for filings 
and submissions. The Bureau anticipates that its filing instructions 
may, among other things, specify information that filers must submit to 
verify that they have authority to act on behalf of the entities for 
which they are purporting to register. The Bureau proposes to accept 
electronic filings and submissions to the nonbank registration system 
only and does not propose to accept paper filings or submissions.
    Proposed Sec.  1092.102(a) also would state that the Bureau may 
provide for extensions of deadlines or time periods prescribed by the 
proposed rule for persons affected by declared disasters or other 
emergency situations. Such situations could include natural disasters 
such as hurricanes, fires, or pandemics, and also could include other 
emergency situations or undue hardships including technical problems 
involving the nonbank registration system. For example, the Bureau 
could defer deadlines during a presidentially-declared emergency or 
major disaster under the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (42 U.S.C. 5121 et seq.) or a presidentially-
declared pandemic-related national emergency under the National 
Emergencies Act (50 U.S.C. 1601 et seq.). The Bureau would issue 
guidance regarding such situations. The Bureau seeks comment on the 
types of situations that may arise in this context, and about 
appropriate mechanisms for addressing them.
102(b) Coordination or Combination of Systems
    Proposed Sec.  1092.102(b) would provide that in administering the 
nonbank registration system, the Bureau may rely on information a 
person previously submitted to the nonbank registration system under 
part 1092. This proposed section would clarify, for example, that the 
registration process for proposed subpart C may take account of 
information previously submitted, such as in a prior annual 
registration under subpart C or, if applicable, a registration of 
certain orders and related information under subpart B.
    Proposed Sec.  1092.102(b) also would provide that in administering 
the nonbank registration system, the Bureau may coordinate or combine 
systems with State agencies as described in CFPA sections 1022(c)(7)(C) 
and 1024(b)(7)(D). Those statutory provisions provide that the Bureau 
shall consult with State agencies regarding requirements or systems 
(including coordinated or combined systems for registration), where 
appropriate. This proposed section would clarify that the Bureau may 
develop or rely on such systems as part of maintaining the nonbank 
registration system and may also rely on previously submitted 
information. The Bureau seeks comment on the types of coordinated or 
combined systems that would be appropriate and the types of information 
that could be obtained from or provided to State agencies. For example, 
as discussed in part II.C above, some States have begun implementing 
public registries for private student loan agreements. The Bureau 
requests comment on whether the proposed nonbank registration system 
should identify whether a covered form contract also appears in such 
State registries, and whether and how the Bureau's nonbank registration 
should utilize information already collected by State registries in the

[[Page 6929]]

process of registering covered terms and conditions in covered form 
contacts.
102(c) Bureau Use of Registration Information
    Proposed Sec.  1092.102(c) would provide that the Bureau may use 
the information submitted to the nonbank registration system under this 
part to support its objectives and functions, including in determining 
when to exercise its authority under CFPA section 1024 to conduct 
examinations and when to exercise its enforcement powers under subtitle 
E of the CFPA.
    The Bureau proposes to establish the nonbank registration system 
under its registration and market-monitoring rulemaking authorities 
under CFPA section 1022(b)(1), (c)(1)-(4) and (c)(7), and under its 
supervisory rulemaking authorities under CFPA section 1024(b)(7)(A), 
(B), and (C). As discussed in greater detail in part II.C above, the 
Bureau would be able to use the information submitted under the nonbank 
registration system to monitor for risks to consumers in the offering 
or provision of consumer financial products or services, and to support 
all of its functions as appropriate, including its supervisory, 
rulemaking, enforcement, and other functions. Among other things, the 
Bureau may rely on the information submitted under this part as it 
considers whether to initiate supervisory activity at a particular 
entity, in determining the frequency and nature of its supervisory 
activity with respect to particular entities or markets, in 
prioritizing and scoping its supervisory, examination, and enforcement 
activities, and otherwise in assessing and detecting risks to 
consumers. In particular, the Bureau may consider this information in 
developing its risk-based supervision program and in assessing the 
risks posed to consumers in relevant product markets and geographic 
markets and the factors described in 12 U.S.C. 5514(b)(2) with respect 
to particular covered persons, and for enforcement purposes.\255\
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    \255\ See, e.g., 12 U.S.C. 5514(b)(2)(C), (D), and (E) 
(providing that in prioritizing examinations the Bureau shall take 
into account ``the risks to consumers created by the provision of 
such consumer financial products or services,'' ``the extent to 
which such institutions are subject to oversight by State 
authorities for consumer protection,'' and ``any other factors that 
the Bureau determines to be relevant to a class of covered 
persons''). Depending upon the circumstances, the Bureau may 
consider registration under this part to be a risk factor under 
these provisions for those covered persons subject to the proposed 
rule. See also, e.g., 12 U.S.C. 5565(c)(3)(D) and (E) (providing 
that in determining the amount of civil money penalties the Bureau 
shall take into account ``the history of previous violations'' and 
``such other matters as justice shall require'').
    In exercising its authorities under any of these provisions, the 
Bureau may take into account any risks that it identifies in 
connection with a covered person's registration with the nonbank 
registration system and any information submitted under the proposed 
rule.
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    Proposed Sec.  1092.102(c) also would provide that part 1092, and 
registration under that part, would not alter any applicable process 
whereby a person may dispute that it qualifies as a person subject to 
Bureau authority. For example, 12 CFR 1090.103 establishes a Bureau 
administrative process for assessing a person's status as a larger 
participant under CFPA section 1024(a)(1)(B) and (2) and 12 CFR part 
1090. As specified in 12 CFR 1090.103(a), if a person receives a 
written communication from the Bureau initiating a supervisory activity 
pursuant to CFPA section 1024, such person may respond by asserting 
that the person does not meet the definition of a larger participant of 
a market covered by 12 CFR part 1090 within 45 days of the date of the 
communication. Section 1090.103 of part 1090 establishes a process for 
review and determination by a Bureau official regarding the person's 
larger participant status. Section 1090.103(c) of part 1090 provides 
that, in reaching that determination, the Bureau official shall review 
the person's affidavit and related information, as well as any other 
information the official deems relevant.
    Under proposed Sec.  1092.102(c), a person may submit such an 
assertion regarding the person's status as a larger participant under 
12 CFR 1090.103 notwithstanding any registration or information 
submitted to the nonbank registration system under part 1092, including 
any submission of identifying information. Submission of such 
assertions regarding larger participant status to the Bureau under 12 
CFR 1090.103, including the Bureau's processes regarding the treatment 
of such assertions and the effect of any determinations regarding the 
person's supervised status, would be governed by the provisions of 12 
CFR part 1090. The Bureau may use the information provided to the 
nonbank registration system in connection with making any determination 
regarding a person's supervised status under 12 CFR 1090.103, along 
with the affidavit submitted by the person and other information as 
provided in that section. However, the submission of information to the 
nonbank registration system would not prevent a person from also 
submitting other information under 12 CFR 1090.103.
Section 1092.103 Severability
    Proposed Sec.  1092.103 would provide that the provisions of the 
proposed rule are separate and severable from one another, and that if 
any provision is stayed or determined to be invalid, the remaining 
provisions shall continue in effect. This is a standard severability 
clause of the kind that is included in many regulations to clearly 
express agency intent about the course that is preferred if such events 
were to occur. The Bureau has carefully considered the requirements of 
the proposed rule, both individually and in their totality, including 
their potential costs and benefits to covered persons and consumers. In 
the event a court were to stay or invalidate one or more provisions of 
this rule as finalized, the Bureau would want the remaining portions of 
the rule as finalized to remain in full force and legal effect.
Subpart B--Reserved
    Subpart B of part 1092 would be reserved for rules relating to the 
registration of orders. Those rules are the subject of a separate 
proposal.\256\
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    \256\ Nonbank Registration--Orders Proposal.
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Subpart C--Use of Form Contracts To Impose Certain Terms and Conditions 
That Seek To Waive or Limit Consumer Legal Protections
    The Bureau proposes that subpart C of part 1092 specify 
requirements for supervised nonbanks to register in the nonbank 
registration system their identifying information and information about 
certain terms and conditions in form contracts they use that seek to 
waive consumer legal protections or limit private enforcement or 
exercise of consumer rights, defined in proposed Sec.  1092.301(c) as 
covered terms or conditions. The Bureau requests comment on each of the 
provisions of proposed subpart C, including whether they should be 
modified and whether proposed subpart C should include additional 
provisions, and if so, what the modifications or additions should be 
and why.
Section 1092.300 Scope
    Proposed Sec.  1092.300 would describe the scope of subpart C of 
part 1092 in two parts. First, subpart C would require supervised 
nonbanks to collect and submit information to the Bureau's nonbank 
registration system regarding their use of form contracts to impose 
certain terms and conditions that seek to waive or limit consumer legal 
rights and other applicable legal protections. Second, subpart C would 
provide for the Bureau to make this information

[[Page 6930]]

publicly available when permitted by law.
Section 1092.301 Definitions
    Proposed Sec.  1092.301 would define key terms used in subpart C.
301(a) Administrative Information
    Proposed Sec.  1092.301(a) would define the term administrative 
information, for purposes of subpart C, to include contact information 
and other information submitted or collected in the nonbank 
registration system to facilitate administration of the nonbank 
registration system including nonregistration notices submitted to the 
nonbank registration system under proposed Sec.  1092.302(d). Some of 
the information submitted or collected in the nonbank registration 
system would be for purely administrative purposes. For example, 
proposed Sec.  1092.302(a) would require a supervised registrant to 
submit contact information for a person to whom the Bureau could direct 
its questions about registration. In addition, notices by persons that 
they believe in good faith that they are not required to register 
certain information due to not being covered by subpart C also 
generally would be administrative in nature. As discussed in the 
section-by-section analysis in proposed Sec.  1092.302(d) and in the 
impacts analysis in part VII, these notices would help the Bureau to 
understand who is not registering and why, and facilitate guidance the 
Bureau may provide.
    Under proposed Sec.  1092.303, the Bureau would publish information 
collected pursuant to subpart C, subject to certain exceptions in 
proposed Sec.  1092.303(b), including an exception for administrative 
information. Administrative information is separate from identifying 
information, defined in proposed Sec.  1092.301(e), and is separate 
from information regarding the use of covered terms and conditions by 
supervised registrants, collected under proposed Sec.  1092.302(a). 
Information collected for a purely administrative purpose should not be 
made publicly available. The identifying information collected under 
proposed Sec.  1092.302(a) already would facilitate the ability of 
consumers to identify covered persons for purposes of the Bureau's 
authority in CFPA section 1022(c)(7)(B) to publicly disclose 
registration information discussed in part II.C.3 above.\257\ Including 
administrative information with other information the Bureau publishes 
pursuant to proposed Sec.  1092.303 also is unlikely to serve the 
public interest for purposes of the Bureau's authority to publish 
information under CFPA section 1022(c)(3) discussed in part II.C.3 
above.\258\ The publication of administrative information may not in 
all instances be especially useful to external users of the system. 
Administrative information is likely to include information such as 
time and date stamps, contact information, and administrative 
questions. The Bureau may need such information to work with personnel 
at nonbanks and in order to administer the nonbank registration system. 
Even in the case of nonregistration notices, they would not be required 
to include information about the use of covered terms or conditions 
collected under proposed Sec.  1092.302(a). Publishing such information 
would not be in the public interest because it is unclear what use the 
public would have for such information and likely would be 
counterproductive to the goals of ensuring compliance with the 
proposal.
---------------------------------------------------------------------------

    \257\ 12 U.S.C. 5512(c)(7)(B).
    \258\ 12 U.S.C. 5512(c)(3).
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(a) would define the term administrative 
information to clarify the scope of that exception to publication in 
proposed Sec.  1092.303(b). The Bureau seeks comment on the proposed 
definition of administrative information in proposed Sec.  1092.301(a) 
and on the Bureau's proposal not to publish administrative information 
as reflected in proposed Sec.  1092.303(b).
301(b) Covered Form Contract
    The proposal would require supervised registrants to provide 
information to the nonbank registration system relating to covered form 
contracts they use in offering or providing consumer financial products 
or services as relevant to proposed Sec.  1092.301(g). Proposed Sec.  
1092.301(b) would define a covered form contract as any written 
agreement between a covered person and a consumer that has two 
features: (1) It was drafted prior to the transaction for use in 
multiple transactions between a business and different consumers; and 
(2) It contains a covered term or condition as defined in proposed 
Sec.  1092.301(c).
    The Bureau proposes to use the term covered form contract as a 
reference to the overall written agreement that contains a covered term 
or condition. By using this term, the proposal would be more precise as 
to the information the agency would collect, and, as applicable, 
distinguish the contract provision at issue from the contract itself.
    Under proposed Sec.  1092.301(b), the Bureau would limit the 
information collection to information about covered terms or conditions 
contained in written agreements, including paper and electronic 
versions.\259\ The Bureau interprets the term ``written agreement'' as 
including electronic form contracts such as website terms of use that 
govern the offering or provision of consumer financial products or 
services. A given transaction therefore may be subject to multiple 
covered form contracts, such as website terms of use for online 
applications, a transaction agreement for approved applicants, and an 
arbitration agreement that may be provided separately. The Bureau also 
interprets the term ``written agreement'' for purposes of proposed 
Sec.  1092.301(b) as potentially including agreements reached orally 
that are recorded or otherwise documented in writing. For example, as 
Bureau guidance has clarified, phone recordings evidencing assent to a 
standard-form preauthorized payment authorization may be considered a 
written authorization.\260\ However, such a written agreement would not 
necessarily constitute a covered form contract. As described in 
proposed Sec.  1092.301(b)(1), discussed below, a covered form contract 
also must have been drafted prior to the transaction for use in 
multiple transactions.\261\
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    \259\ The Bureau does not propose to collect information about 
oral agreements that have no written component. For such oral 
agreements, it is unclear these are used to seek to waive or limit 
enforcement of applicable legal protections; it also may be 
burdensome for the supervised registrant to generate responsive 
information concerning oral agreements for purposes of the proposed 
rule.
    \260\ See CFPB Compliance Bulletin 2015-06 (Nov. 23, 2015), 
https://files.consumerfinance.gov/f/201511_cfpb_compliance-bulletin-2015-06-requirements-for-consumer-authorizations-for-preauthorized-electronic-fund-transfers.pdf.
    \261\ In addition, as described in proposed Sec.  
1092.301(h)(6), registration would not be required by persons who, 
in the previous calendar year, entered into covered form contracts 
containing any covered term or condition fewer than 1,000 times and 
did not obtain a court or arbitrator decision on the enforceability 
of a covered term or condition.
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(b) is not itself limited to agreements 
between the supervised registrant and the consumer. Rather, proposed 
Sec.  1092.301(b), if the conditions in proposed Sec.  1092.301(b)(1) 
and (2) are also present, could reach any written agreement between a 
consumer and a covered person as that term is defined in the CFPA, and 
without regard to whether the covered person is excluded from 
authorities under CFPA sections 1027 or 1029. While those covered 
persons are not covered by the rule or in some cases subject to the 
authority of the Bureau, the agreements they enter into potentially 
could be subject to the rule when used by a

[[Page 6931]]

supervised registrant. For example, if an agreement meeting the 
definition of covered form contract also contained covered terms and 
conditions under proposed Sec.  1092.301(c) (which must relate to a 
consumer financial product or service described in proposed Sec.  
1092.301(g)), and those covered terms or conditions are also used by a 
supervised registrant, as discussed in the section-by-section analysis 
of proposed Sec.  1092.301(i), then the supervised registrant would be 
required to comply with proposed Sec.  1092.302.
    As discussed in part II, risks to consumers posed by certain 
contractual terms and conditions may be magnified through the use of 
adhesion contracting, or ``take-it-or-leave-it'' non-negotiable 
contracting processes. And many covered form contracts will be entered 
into in this way. The Bureau also recognizes that the definition of 
covered form contract in proposed Sec.  1092.301(b) would cover 
contracts even if they include terms and conditions that may be, in 
some sense, negotiated. For example, even if a consumer and a lender 
bargain over the price of credit, the resulting loan agreement 
typically still would be a covered form contract. Even if the lender 
offers the consumer an opportunity to opt out of a covered term or 
condition as defined in proposed Sec.  1092.301(c), the resulting 
contract typically still would be a covered form contract. As discussed 
in the section-by-section analysis of proposed Sec.  1092.301(b)(1), 
the Bureau is concerned about potential risks to consumers from the use 
of covered terms and conditions that the company drafts, even if they 
are in contracts that appear to include some aspects of consumer 
choice. Such terms, conditions, and choices are defined in advance by 
the company, not the consumer. And, depending on the facts and 
circumstances, these choices may be constrained; for example, some 
negative options may not present meaningful choices.\262\ The Bureau 
therefore is not proposing to expressly limit the definition of a 
covered form contract to contracts that do not reflect any negotiation.
---------------------------------------------------------------------------

    \262\ FTC Enforcement Policy Statement Regarding Negative Option 
Marketing, 85 FR 60822, 60823 (Nov. 4, 2021) (discussing how 
negative option marketing and contracting are ``widespread in the 
marketplace'' and that FTC and States ``regularly bring cases 
challenging a variety of harmful negative option practices'').
---------------------------------------------------------------------------

    However, proposed Sec.  1092.301(b)(1) would limit the covered 
terms or conditions about which the proposal would collect information 
to those that are drafted prior to the transaction for use in multiple 
transactions between a business and different consumers. This component 
of the proposed definition of covered form contract borrows from the 
definition of a ``standard contract term'' from the Restatement.\263\ 
As the Restatement explains, this definition ``focuses on the pre-
drafting factor, which captures a key feature of consumer contracts: 
their multi-transaction application. Pre-drafting also implies that 
there is no negotiation between the business and the consumer over the 
language of those terms.'' Under this approach, even optional terms are 
standard contract terms if drafted in advance by the business ``because 
the method for specifying their content is set up by the business and 
has a multi-transaction application.'' \264\ This limitation on the 
proposed definition of a covered form contract would provide clarity 
and thus reduce potential burden. Contracts which are truly non-
standard--where the business and the consumer can unilaterally modify 
any pre-drafted content of the proposed agreement--would not be covered 
form contracts as defined by the proposal. For example, based on the 
clarification in proposed Sec.  1092.301(b)(1), supervised registrants 
would not be required to collect or submit information about unique 
contracts that consumers specifically drafted or attempted to draft. 
Nor would the proposal cover handwritten modifications by individual 
consumers to covered terms and conditions, because these would not be 
contained in the covered form contract drafted for use in multiple 
transactions. As a result, the information collection requirement under 
proposed Sec.  1092.302(a) would not require supervised registrants to 
track or report on such ad hoc, nonstandard variances.
---------------------------------------------------------------------------

    \263\ Restatement sec. 1(5).
    \264\ Id. sec. 1 cmt. 4.
---------------------------------------------------------------------------

    In addition, based on this component of the definition in proposed 
Sec.  1092.301(b)(1), proposed Sec.  1092.302(a) would collect only 
information on standard terms that businesses draft to use in multiple 
transactions with more than one consumer. Thus, if a business drafted a 
contract prior to a transaction for use by a single consumer to engage 
in multiple transactions, such as a contract to establish an open-end 
credit line for a single consumer that is not the same contract used 
for other consumers, under proposed Sec.  1092.301(b)(2), that contract 
would not be a covered form contract if the business did not draft the 
contract for use in transactions with other consumers as well.
    Further, settlement agreements resolving specific legal actions 
typically would not be covered by proposed Sec.  1092.301(b) for 
several reasons. First, many settlement agreements are drafted for the 
particular claims involved and may be unique to that case; these types 
of settlement agreements would not be drafted for use in multiple 
settlements with different consumer parties within the meaning of 
proposed Sec.  1092.301(b)(1). In addition, for class action 
settlements, members of a class generally are not ``parties'' to the 
settlement agreement.\265\ The Bureau is not proposing to include these 
types of settlement agreements in the registration requirements in 
subpart C because they typically differ, in process and substance, from 
the covered form contracts used to offer the products or services in 
the first place. For example, in formal proceedings, consumers may be 
represented by counsel or others. Indeed, under Federal Rule of Civil 
Procedure 23 and State analogues, the terms of a consumer class action 
settlement must be negotiated at arms-length between the defendant and 
attorneys representing the interests of consumers. Courts review the 
settlement process and terms for compliance with these and other 
requirements.\266\ Under the Class Action Fairness Act, appropriate 
Federal and State regulators also receive information about class 
action settlements proposed in Federal court, including in cases 
removed from State court due to a higher amount in controversy.\267\
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    \265\ See, e.g., Fed. R. Civ. P. 23 (generally distinguishing 
between parties and class members).
    \266\ See, e.g., Fed. R. Civ. P. 23(e)(2) (requiring that the 
court consider, inter alia, that the proposal was ``negotiated at 
arm's length'' and that ``the class representatives and class 
counsel have adequately represented the class''). Almost all States 
have adopted class action procedures analogous to Federal Rule 23. 
See Marcy Hogan Greer, ``A Practitioner's Guide to Class Actions,'' 
at 142 (A.B.A. 2010).
    \267\ 28 U.S.C. 1715 (providing for notification of proposed 
class action settlements to appropriate Federal and State 
officials), codified by Class Action Fairness Act (CAFA), Public Law 
109-2, 119 Stat. 4 (2005).
---------------------------------------------------------------------------

    The Bureau requests comment on the definition of covered form 
contract in proposed Sec.  1092.301(b), including on whether the 
proposal should instead define covered form contracts with reference to 
their negotiability, similar to the definition of that ``form 
contract'' in the Consumer Review Fairness Act: ``a contract with 
standardized terms . . . imposed on an individual without a meaningful 
opportunity for such individual to negotiate the standardized terms.'' 
\268\ However, as discussed above, the Bureau is proposing to cover 
form contracts that may present some element of choice, for which the

[[Page 6932]]

Restatement definition may be a better model.
---------------------------------------------------------------------------

    \268\ 15 U.S.C. 45b(a)(3).
---------------------------------------------------------------------------

301(c) Covered Term or Condition
    As discussed in the section-by-section analysis of proposed Sec.  
1092.301(b) above, for a contract to be a covered form contract, it 
must, among other things, contain a covered term or condition. Proposed 
Sec.  1092.301(c) would define a covered term or condition as a clause, 
term, or condition that expressly purports to establish a covered 
limitation on consumer legal protections, as that term is defined in 
proposed Sec.  1092.301(d), applicable to a consumer financial product 
or service described in proposed Sec.  1092.301(g). In particular, the 
definition would apply to those consumer financial products or services 
offered or provided by covered persons specified in CFPA section 
1024(a), including those supervised under larger participant rules 
adopted under that authority.
    If a term or condition expressly seeks to establish a covered 
limitation on consumer legal protections, it would be covered 
irrespective of its legal validity or enforceability. For example, an 
arbitration agreement in a loan agreement with a servicemember that 
violates the MLA would still be a covered term or condition. At the 
same time, the proposed definition would only cover those terms and 
conditions that expressly attempt to establish the covered limitation. 
If a term or condition does not expressly attempt to establish the 
covered limitation, it would not be covered, even if it may contradict 
or violate an applicable legal protection. For example, an interest 
rate in a loan agreement with a servicemember that violates the MLA 
interest rate cap would not necessarily be a covered term or condition, 
unless it expressly seeks to impose a covered limitation on consumer 
legal protections. As discussed in the section-by-section analysis of 
proposed Sec.  1092.301(d)(7), the Bureau understands that these 
definitions generally would exclude the collection of terms or 
conditions that may constitute implied waivers. For the reasons 
discussed there, however, at this time the Bureau proposes to limit the 
information collection to express waivers.
    In addition, in the context of automobile finance agreements, to 
the extent that a limitation on protections in the sale also purports 
to establish a covered limitation on legal protections the consumer may 
have, including recourse, against a finance company purchasing the 
associated retail installment contract, then that limitation also may 
qualify as a covered term or condition under proposed Sec.  
1092.301(c).
301(d) Covered Limitation on Consumer Legal Protections
    As discussed in part II above, the Bureau is concerned with 
potential risks posed by terms or conditions that seek to waive 
consumer legal protections or limit the ability of consumers to enforce 
or exercise rights. The Bureau is proposing to collect information 
about supervised registrants' use of these terms and conditions. In 
particular, proposed Sec.  1092.301(d) would define eight specific 
types of terms and conditions, each described below, about which the 
nonbank registration system would collect the information described in 
proposed Sec.  1092.302(a). In general, these terms and conditions 
expressly seek to waive applicable legal protections or place express 
limitations on their exercise or enforcement. These terms and 
conditions may extinguish or seek to extinguish certain applicable 
legal protections including obligations of supervised nonbanks under 
Federal consumer financial law. These limitations also may affect when, 
where, or how a consumer may file or participate in a legal action, or 
whether a consumer may file a legal action at all. These limitations 
also may affect the ability of the consumers to assert their rights and 
protections through filing reviews and complaints. As a result, the 
Bureau is concerned that these types of terms and conditions may pose 
potential risks to consumers as described in more detail in part II of 
the proposal above.
    There may be overlap in definitions of the types of covered terms 
and conditions. As a result, some terms and conditions may fall into 
more than one category. The proposal and information collections 
pursuant to proposed Sec.  1092.302(a) would account for that 
possibility. The Bureau requests comment on the proposal's inclusion of 
each term or condition described in each paragraph in proposed Sec.  
1092.301(d), including on the relationship or overlap between each of 
these proposed terms and conditions.
    The Bureau also seeks comment on whether certain definitions of 
covered terms or conditions should be narrowed to apply only when the 
legal protection limited is a Federal consumer financial law. As 
proposed, the definitions in proposed Sec.  1092.301(d), as 
incorporated into the definition of a covered term or condition in 
proposed Sec.  1092.301(c), would apply to any limitation on a consumer 
legal protection applicable to a consumer financial product or service 
described in proposed Sec.  1092.301(g). This approach may be more 
administrable for supervised registrants, avoiding the need for them to 
make determinations about which types of applicable legal protections 
are affected by specific terms and conditions. Some terms and 
conditions, such as arbitration agreements, limits on time, forum, or 
venue for legal actions, and liability limits may apply generally, and 
not be tied to a specific applicable legal protection. Other terms and 
conditions may explicitly affect legal protections other than Federal 
consumer financial law, but also could raise risks to consumers under 
Federal consumer financial law. For example, using unenforceable or 
prohibited terms or conditions (even if only unenforceable or 
prohibited by a law other than Federal consumer financial law) may risk 
deceiving consumers, as discussed in part II above. By collecting 
information about waivers and limitations on all legal protections 
applicable to the consumer financial products and services described in 
proposed Sec.  1092.301(g), the definitions in proposed Sec.  
1092.301(d) would provide an integrated understanding of the regulation 
of a given consumer financial product or service, consistent with the 
monitoring purposes of informing different Bureau functions as 
discussed in part II.C.1 above.
    Proposed Sec.  1092.301(d)(1) would define a covered limitation on 
consumer legal protections to include precluding the consumer from 
bringing a legal action after a certain period of time. Deadlines for 
consumers to file legal actions to enforce legal protections generally 
are set by statute, such as in many cases State laws specifying 
statutes of limitation. There is a risk that terms or conditions may 
seek to set deadlines that are earlier than the default deadline set by 
statutory law. As discussed in part II above, in some cases a contract 
may set a deadline so early that it is unenforceable. But whether or 
not the contractual deadline is enforceable, this type of term or 
condition may pose potential risks to consumer. For example, if the 
consumer would have had more time under the statute of limitations law 
to enforce the applicable legal protection, then the term or condition 
would be taking away that additional time during which the consumer 
could have enforced the applicable legal protection. That loss of time 
to enforce rights may pose potential risks to consumers, raising the 
need for greater public oversight to protect those rights. Proposed 
Sec.  1092.301(d)(1) is not limited, however,

[[Page 6933]]

to terms and conditions that clearly set deadlines earlier than 
applicable law. It may be burdensome for supervised registrants to 
evaluate all potentially applicable statutes of limitation and assess 
whether the deadline set by the contract is earlier than the most 
likely applicable statute of limitation. For example, such an analysis 
may involve review of multiple statutes of limitation potentially under 
the laws of multiple States. Therefore, the Bureau is proposing a 
definition that would be broader and likely simpler for supervised 
registrants to implement. If a contract specifies a deadline, it would 
be a covered limitation for purposes of subpart C, regardless of what 
the underlying limitation would have been absent the contractual 
deadline. The Bureau requests comment on this approach and whether 
proposed Sec.  1092.301(d)(1) should be more limited, and if so, how 
and why, and whether proposed Sec.  1092.301(d)(1) should be expanded, 
and if so, how and way. For example, the Bureau requests comment on 
whether the final rule should limit proposed Sec.  1092.301(d)(1) to 
only terms and conditions that set deadlines that are shorter than 
applicable law, or deadline that often may be unreasonable and 
therefore unenforceable (such as six months or less--the time period 
identified in the Restatement as discussed part II.B.5 above).
    In addition, the Bureau requests comment on whether proposed Sec.  
1092.301(d)(1) should be expanded to cover standard terms and 
conditions that also may have an effect on when a consumer can file a 
legal action, such as terms and conditions that impose pre-filing 
requirements not otherwise specified in the law before a consumer can 
file a legal action. Terms and conditions that impose pre-filing 
requirements may have the effect of shortening the overall time period 
during which the consumer may be eligible for file a legal action 
because they purport to make the consumer ineligible to file a legal 
action until after certain steps are completed. Pre-filing requirements 
in some arbitration agreements also have spurred some consumers to 
claim they are so onerous as to be unconscionable.\269\ In addition, 
the MLA expressly prohibits ``onerous legal notice provisions'' in 
consumer credit contracts subject to the MLA.\270\ For these reasons, 
the Bureau requests comment on the degree of risk that pre-filing 
requirements may pose, including to the ability of consumers to meet 
other deadlines for filing legal action, whether set by a State statute 
of limitations or a covered term or condition in a contract.
---------------------------------------------------------------------------

    \269\ See, e.g., Bielski v. Coinbase, Inc., 2022 WL 1062049 at 
*3 (N.D. Cal. Apr. 8, 2022) (describing virtual currency exchange 
operator's form contract terms and conditions that seek to require 
the consumer to follow specific procedures for engaging in the 
company's informal and formal complaint processes before proceeding 
to arbitration or small claims court), cert granted Coinbase, Inc. 
v. Bielski, 2022 WL 17544994 (U.S. Dec. 9, 2022); Suski v. Marden-
Kane, Inc., 2022 WL 103451 at *1 (N.D. Cal. Jan. 11, 2022) (same).
    \270\ 10 U.S.C. 987(e), implemented at 32 CFR 232.8(c).
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(d)(2) would define a covered limitation on 
consumer legal protections to include specifying a forum or venue where 
a consumer must bring a legal action in court. The Bureau understands 
that State and Federal laws often already specify standards for 
determining where a consumer may file a legal action in court, and that 
it therefore is not legally necessary for a contract to make that 
determination. Thus, to the extent a supervised registrant seeks to set 
a requirement of this nature in a covered form contract, there is a 
risk that requirement may limit the otherwise available legal options 
of the consumer. Because proposed Sec.  1092.301(d)(8) would separately 
identify the existence of arbitration agreements, proposed Sec.  
1092.301(d)(2) would not apply to arbitration agreements. Arbitration 
agreements also identify the forum to act as administrator of the 
arbitration, as well as in some cases a particular venue or place for 
the arbitration to be conducted, if not online. As discussed in the 
section-by-section analysis of proposed Sec.  1092.302(a), the Bureau 
requests comment on whether the nonbank registration system should also 
collect forum or venue requirements for arbitration agreements pursuant 
to proposed Sec.  1092.301(d)(2).
    Proposed Sec.  1092.301(d)(3) would define a covered limitation on 
consumer legal protections to include limiting the ability of the 
consumer to file a legal action seeking relief for other consumers or 
to participate in or seek to participate in a legal action filed by 
others. The Bureau is concerned that, in circumstances where consumers 
likely would not seek legal relief individually, but may claim relief 
in collective actions, potential risks may arise when they are 
prohibited by contract from doing so. For example, there is a risk that 
small-dollar harms affecting larger numbers of consumers may go 
unremedied; and public regulators such as the Bureau may wish to 
prioritize their oversight role to transactions when this risk is 
present. For example, the Bureau could use information indicating that 
private class action relief is cutoff, in conjunction with other 
information used to assess risk, to decide whether to prioritize 
examination of a given supervised nonbank in response to certain 
consumer complaints. This type of information also could inform the 
Bureau's use of its other functions discussed in part II.C above. 
Accordingly, proposed Sec.  1092.301(d)(3) would include limits on 
(including waivers of) the consumer's ability to participate in a legal 
action where one or more parties seek or obtain class treatment 
pursuant to Federal Rule of Civil Procedure 23, any analogous State 
process, or rules providing for class arbitration. Proposed Sec.  
1092.301(d)(3) also would cover limitations on (including waivers of) 
the consumer's ability to participate in legal actions through 
procedures such as representative actions, joinder, intervention, or 
consolidation. A standard term or condition specifying such limits 
would be covered by proposed Sec.  1092.301(d)(3) even if it appears in 
an arbitration agreement described in proposed Sec.  1092.301(d)(8). 
This approach will avoid supervised registrants having to determine 
whether these types of limitations are part of an arbitration 
agreement. This approach also will ensure that the Bureau obtains 
information about these types of limitations on the same basis 
regardless of whether they appear in arbitration agreements, while 
still taking into account the existence of an arbitration agreement.
    On the other hand, the Bureau understands that any arbitration 
agreement--even absent such a limitation--may be construed as limiting 
class actions. For example, the U.S. Supreme Court recently held that 
arbitration agreements generally do not authorize class arbitration 
unless by affirmative consent of the parties.\271\ Therefore, 
arbitration agreements that do not evince affirmative consent of the 
parties to class arbitration also, by their very nature, may limit the 
ability of consumers to participate in class actions filed in court. In 
its experience and expertise, the Bureau has found that it is 
exceedingly rare, if ever the case, that a supervised registrant has 
included a provision in an arbitration agreement expressly authorizing 
class arbitration. Thus, under current law, arbitration agreements 
reported under proposed Sec.  1092.301(d)(8) discussed below often, if 
not always, would not permit class actions, even when the supervised 
registrant does not report the use of an express class waiver under 
proposed

[[Page 6934]]

Sec.  1092.301(d)(3). As a result, the Bureau is not proposing to 
separately collect information on the degree to which arbitration 
agreements contain such an authorization. The Bureau requests comment 
on whether there is data indicating that a significant number of 
supervised registrants use arbitration agreements that do authorize 
class arbitration, and if so, whether the proposed Sec.  1092.302(a) 
should be broadened to require supervised registrants to review their 
arbitration agreements and report whether they contain a class 
arbitration authorization.
---------------------------------------------------------------------------

    \271\ See generally Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 
1410 (2019) (acknowledging that class arbitration can occur on the 
consent of the parties).
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(d)(4) would define a covered limitation on 
consumer legal protections to include limiting liability to the 
consumer in a legal action including by capping the amount of recovery 
or the type of remedy. Just as applicable law generally defines 
statutes of limitation and standards for where a consumer may file a 
legal action, applicable legal protections generally define the scope 
of a firm's liability to the consumer including what remedies are 
available to the consumer in a civil action in court. The Bureau is 
concerned about risks to consumers from terms and conditions that take 
away potentially-available relief. Risks may arise when consumers are 
unable to exercise otherwise available rights to seek consequential 
damages, statutory damages, punitive damages, or other forms of relief 
such as declaratory or injunctive relief, as well as to recover 
attorneys' fees when the law so permits. The Bureau also believes 
proposed Sec.  1092.301(d)(4) would cover liquidated damages clauses 
which set a specific amount, or maximum amount, recoverable to a 
certain type of injury. While liquidated damages clauses may be based 
on estimates made in advance of relief available in the future, they 
nonetheless can serve as a limit on actual relief available. To the 
extent that these types of limitations described in proposed Sec.  
1092.301(d)(4) appear within an arbitration agreement described in 
proposed Sec.  1092.301(d)(8), these types of limitations would be 
separately reportable from the existence of an arbitration agreement as 
a different type of covered term or condition under proposed Sec.  
1092.302(a). This will avoid supervised registrants having to determine 
whether these types of limitations are part of an arbitration 
agreement, and will ensure that the Bureau obtains information about 
these types of limitations on liability on the same basis regardless of 
whether they appear in arbitration agreements.
    Proposed Sec.  1092.301(d)(4) would cover liability limits 
including when they are permitted by law. For example, the Bureau is 
aware that some covered form contracts include a standard term or 
condition that states that ``[t]o the extent permitted by law'' the 
seller has ``no responsibility'' for remedies such as consequential 
damages or lost profits of the consumer. This would be a limit on 
liability to the consumer within the meaning of proposed Sec.  
1092.301(d)(4).\272\
---------------------------------------------------------------------------

    \272\ However, as explained above, coverage of a limitation 
imposed by a term or condition under proposed Sec.  1092.301(d) 
alone does not determine whether that triggers a reporting 
obligation under the proposal. To be a reportable as a covered term 
or condition, the term or condition must affect legal protections 
applicable to consumer financial products and services as relevant 
to proposed Sec.  1092.301(g), and the clause must be used as 
defined in proposed Sec.  1092.301(i) by a supervised registrant as 
defined in proposed Sec.  1092.301(h). Through these integrated 
definitions, proposed subpart C would ensure that the information 
reported has a meaningful nexus to the offering or provision of 
consumer financial products and services when subject to the scope 
of the Bureau's supervisory authority.
---------------------------------------------------------------------------

    However, the Bureau does not anticipate that proposed Sec.  
1092.301(d)(4) generally would cover terms and conditions that allow 
the prevailing party to recover attorney's fees. These provisions do 
not limit the liability of the provider to the consumer, but rather 
expand that liability in certain circumstances, while also potentially 
establishing an obligation on the consumer to pay the attorney's fees 
of the provider in other circumstances. In any event, the Bureau's 2015 
Arbitration Study found that terms and conditions requiring consumers 
to pay the legal fees of the company if it prevails were rare, 
generally used in less than 1% of the agreements sampled.\273\ The 
Bureau requests comment on the prevalence of these provisions, the 
degree to which they alter the underlying legal protections (such as 
laws governing the recovery of attorney's fees), and the degree to 
which they pose a risk of limiting consumer enforcement despite their 
authorizing the consumer to recover legal fees if the consumer 
prevails.
---------------------------------------------------------------------------

    \273\ Arbitration Study sec. 2 Table 14.
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(d)(5) would define a covered limitation on 
consumer legal protections to include waiving a cause of action by the 
consumer, including by stating that a person is not responsible to the 
consumer for a harm or violation of law or that a consumer is 
exclusively responsible for the injury. If a legal protection 
applicable to the offering or providing of a consumer financial product 
or service would hold a supervised registrant accountable for a 
particular injury, there risks to consumers can arise when a term or 
condition takes away that form of accountability. For example, as 
discussed in part II.C. above, some lenders have included terms or 
conditions in form contracts that seek to disclaim responsibility for 
bank fees caused by their payment processing practices. Proposed Sec.  
1092.301(d)(5) therefore would cover waivers of causes of action for 
violation of legal protections. Operating in conjunction with the 
definition of a covered term or condition in proposed Sec.  
1092.301(c), proposed Sec.  1092.301(d)(5) would make these waivers 
reportable under proposed Sec.  1092.302(a) if the waived legal 
protection applies to the offering or provision of a consumer financial 
product or service described in proposed Sec.  1092.301(g).\274\
---------------------------------------------------------------------------

    \274\ See proposed Sec.  1092.301(c) (limiting the definition of 
covered term or condition to those that impose a limitation on a 
legal protection applicable to the offering or provision of a 
consumer financial product or service).
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(d)(6) would define a covered limitation on 
consumer legal protections to include limiting the ability of the 
consumer to engage in certain types of communications about the 
consumer financial products or services offered by the supervised 
registrant. Proposed Sec.  1092.301(d)(6) would cover limitations on 
any written, oral, or pictorial review, assessment, complaint, or other 
similar analysis or statement. Non-disparagement clauses (also referred 
to as so-called gag clauses) generally would fall into this category, 
whether they limit reviews or assessments posted online for the public 
to see, complaints filed with government regulators, or otherwise. The 
term ``limitation'' is broad and would encompass provisions that 
outright prohibit these types of analysis and statements by consumers, 
as well as provisions that impose a penalty for making such analysis or 
statements or that require consumers to grant the business exclusive 
intellectual property rights in the content of their analysis or 
statements.\275\
---------------------------------------------------------------------------

    \275\ See generally 15 U.S.C. 45b(b)(1) (Consumer Review 
Fairness Act listing these three types of invalid contractual 
limitations that impede consumer reviews).
---------------------------------------------------------------------------

    As discussed above in part II.C.2, some consumer complaints may be 
an indicator of violations or risks of violation of applicable legal 
protections. And the Consumer Review Fairness Act separately protects a 
consumer's right to complain, generally prohibiting the use of non-
disparagement terms and conditions in form contracts for the sale of 
goods and services. As a result, these terms or conditions may limit 
consumer protections, such as those afforded under the Consumer Review 
Fairness

[[Page 6935]]

Act or related laws,\276\ limit recourse consumers may have through 
complaints concerning violations of applicable legal protections, or 
both.
---------------------------------------------------------------------------

    \276\ See also CFPB Bulletin 2022-05.
---------------------------------------------------------------------------

    And whether or not a statute expressly prohibits a contract from 
including a term or condition of this type, the term or condition 
generally may have the effect of restricting the flow of information 
about potential concerns with the consumer financial product or 
service--whether through public online review fora, or through consumer 
complaints filed with regulators. Collecting consumer complaints is a 
primary function of the Bureau under CFPA section 1021(c)(2). The 
Bureau relies on consumer complaints for, among other purposes, its 
risk-based supervision program.\277\ Other reviews consumers post may 
qualify as field market intelligence, which the Bureau may consider in 
its risk-based supervision program.\278\ And both consumer complaints 
to the Bureau and publicly posted consumer reviews are information the 
Bureau may consider in its role in monitoring the markets for risks to 
consumers. These contract terms carry the potential to discourage 
consumers from providing this information, which could understate or 
obscure the risk profile of a supervised registrant. It is therefore 
important for the Bureau's supervisory prioritization and examination 
work and for its market monitoring to be able to assess when this may 
be happening.
---------------------------------------------------------------------------

    \277\ See generally CFPB Examination Manual at 11 (describing 
prioritization process).
    \278\ Id.
---------------------------------------------------------------------------

    Notably, the statutory prohibition against non-disparagement 
clauses in the Consumer Review Fairness Act includes certain 
exceptions, generally allowing contractual provisions that prohibit 
disclosure or submission of, or reserve the right to remove trade 
secrets or commercial or financial information obtained from a person 
and considered privileged or confidential, certain personnel and 
medical files, certain information compiled for law enforcement 
purposes, content containing computer viruses and other potentially 
damaging code, and content that is clearly false or misleading, is 
unrelated to the goods or services offered, contains personal 
information or likeness of another person, or is libelous, harassing, 
abusive, obscene, vulgar, sexually explicit, or is inappropriate with 
respect to race, gender, sexuality, ethnicity, or other intrinsic 
characteristic.\279\ The Bureau requests comment on whether proposed 
Sec.  1092.301(d)(6) should be narrowed to explicitly include these 
types of exceptions or whether the nonbank registration system should 
allow supervised registrants to identify when limitations in a term or 
condition covered by proposed Sec.  1092.301(d)(6) are only those that 
would qualify for an exception from the Consumer Review Fairness Act. 
The Bureau preliminarily believes that a more detailed criteria for 
proposed Sec.  1092.301(d)(6) that includes these exceptions could be 
more burdensome for supervised registrants to apply. Under proposed 
Sec.  1092.302(a)(3)(iv)(F), the proposal would collect the text of the 
term containing the limitation. To the extent the limitation fell 
within the statutory exclusions described above, the Bureau may be able 
to identify that when assessing the risk posed by the term.
---------------------------------------------------------------------------

    \279\ 15 U.S.C. 45b(b)(2)-(3).
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(d)(7) would define a covered limitation on 
consumer legal protections to include waiving, whether by extinguishing 
or causing the consumer to relinquish or agree not to assert, any other 
identified consumer legal protection including any specified right, 
defense, or protection afforded to the consumer under Constitutional 
law, a statute or regulation, or common law. This sort of catch-all 
provision would capture other terms or conditions not already covered 
by proposed Sec.  1092.301(d)(1) through (6) that expressly waive or 
expressly attempt to waive an identified legal protection of the 
consumer.
    There are different ways a term or condition could waive or attempt 
to waive a ``consumer legal protection'' for purposes of proposed Sec.  
1092.301(d)(7). A term or condition may waive or attempt to waive an 
identified legal right the consumer might exercise, or a legal 
obligation the supervised registrant owes to the consumer. This could 
include, for example, a waiver of a right to a jury trial, or a waiver 
of a substantive legal protection such as a right to receive a 
disclosure.
    Proposed Sec.  1092.301(d)(7) would explicitly cover express 
waivers that extinguish, or in which a consumer relinquishes, rights or 
other applicable legal protection.\280\ In addition, proposed Sec.  
1092.301(d)(7) would cover a consumer's express agreement not to assert 
rights or other applicable legal protections.\281\ For example, as 
discussed in part II.C.2 above, in 2020 the Bureau resolved an 
enforcement action over a provision in an automobile loan extension 
agreement affecting at least tens of thousands of consumers. The loan 
extension agreement included a term and condition that required the 
consumer to ``agree that [the consumer] will not file for bankruptcy 
protection within 120 days[.]'' \282\ This term did not use the word 
``waive'' or ``waiver'' in its text. However, the express language of 
this term or condition, at least for the 120-day period, purported to 
extinguish the identified protection (bankruptcy protection), which is 
a legal protection. As the Bureau concluded, the agreements ``created 
the net impression consumers could not file for bankruptcy.'' \283\ On 
that basis, the Bureau indicated that the term may be reasonably 
understood to be a ``waiver of an individual's right to file for 
bankruptcy [that] is void as against public policy.'' \284\ Thus 
proposed Sec.  1092.301(d)(7) expressly applies to this type of waiver, 
just as a number of anti-waiver statutes discussed in part II.B 
expressly apply to agreements not to assert rights or protections.
---------------------------------------------------------------------------

    \280\ See, e.g., Waiver, Black's Law Dictionary (11th ed. 2019) 
(common definition of ``waiver'' including ``relinquishment'' of a 
legal right or advantage).
    \281\ See, e.g., id. (common definition of ``waiver'' also 
including ``abandonment'' of a legal right or advantage).
    \282\ In re Nissan Motor Acceptance Corporation, Admin. Proc. 
2020-BCFP-0017 (Consent order filed Oct. 13, 2020), ] 47.
    \283\ Id. ] 49.
    \284\ Id. ] 50.
---------------------------------------------------------------------------

    Proposed Sec.  1092.301(d)(7) refers to waivers of ``other'' 
consumer legal protections to simplify the regulation and reduce burden 
by distinguishing the coverage of proposed Sec.  1092.301(d)(7) from 
the other subparagraphs of proposed Sec.  1092.301(d). As a result, if 
a term or condition already is covered by an earlier category under 
proposed Sec.  1092.301(d)(1) through (6), then it would not be 
necessary for supervised registrants to determine whether the term or 
condition also would be covered by the catch-all.
    In addition, an arbitration agreement would not be per se covered 
by proposed Sec.  1092.301(d)(7). But if an arbitration agreement 
specifies waivers, those waivers may fall separately under proposed 
Sec.  1092.301(d)(1) through (6), as applicable, or otherwise under 
proposed Sec.  1092.301(d)(7). For example, if an arbitration agreement 
classified under proposed Sec.  1092.301(d)(8) discussed below also 
expressly refers to a waiver of a right to a jury trial, the jury trial 
waiver would be separately reportable under proposed Sec.  
1092.301(d)(7).
    Proposed Sec.  1092.301(d)(7) would act as a sort of catch-all, but 
it would not extend to implied waivers, which might arise from a term 
or condition that violates a consumer legal protection but

[[Page 6936]]

does not expressly purport to accomplish a waiver of that legal 
protection. As discussed in the section-by-section analysis of proposed 
Sec.  1092.301(c) above, the Bureau is not seeking in this proposal to 
require supervised registrants to evaluate the legality of all terms 
and conditions for potential implied waivers. The Bureau requests 
comment on that approach. For example, the Bureau requests comment on 
whether proposed Sec.  1092.301(d) should be expanded to cover clauses 
purporting to obtain the agreement of the consumer to a limitation or 
restriction that is inconsistent with the applicable legal protections. 
As discussed in part II above, for example, the Bureau has identified 
instances of agreements containing terms or conditions that purport to 
block the ability of consumers to take specified action. These terms or 
conditions do not necessarily clarify that action may amount to an 
exercise of certain potentially applicable consumer rights--such as a 
right, under certain appellate and agency precedents, to revoke consent 
to receive debt collection calls. The degree to which proposed Sec.  
102.301(d)(7) would cover those terms or conditions will depend in part 
on whether they identify a consumer legal protection that is being 
waived, relinquished, or the consumer is agreeing not to assert.
    For some other agreements, for other reasons, it is unlikely they 
would contain express waivers. For example, agreements to receive 
electronic disclosures and other electronic communications commonly are 
used in the marketplace. In particular, when consumer disclosures 
required by statute, regulation, or other rule must be in writing, the 
consumer may consent to receive electronic disclosures pursuant to the 
process specified in the Electronic Signatures in Global and National 
Commerce (E-Sign) Act.\285\ The E-Sign Act states that it does not 
``limit, alter, or otherwise affect any'' requirement of law ``other 
than a requirement that contracts or other records be written, signed, 
or in nonelectronic form.'' \286\ Because the E-Sign Act expressly 
affects existing legal requirements, the Bureau does not understand an 
agreement that forgoes receipt of a disclosure in nonelectronic form, 
when the agreement complies with the E-Sign Act, would constitute an 
express waiver of a written disclosure right for purposes of proposed 
Sec.  1092.301(d)(7). Rather, the E-Sign Act clarifies that a compliant 
consent agreement ``satisfies the requirement that such information be 
in writing[.]'' \287\ The Bureau requests comment on whether it should 
expand the scope of proposed Sec.  1092.301(d)(7) or otherwise clarify 
that subpart C may cover E-Sign Act consent to receive electronic 
disclosures and communications, and if so, for what types of 
agreements, why, and how.
---------------------------------------------------------------------------

    \285\ 15 U.S.C. 7001 et seq.
    \286\ 15 U.S.C. 7001(b)(1).
    \287\ 15 U.S.C. 7001(c)(1).
---------------------------------------------------------------------------

    And in situations involving legitimate uncertainty over the 
coverage of a particular term or condition under subpart C, supervised 
nonbanks could file a notice of non-registration as described in 
proposed Sec.  1092.302(d). Still, terms and conditions that may be 
characterized as purported implied waivers also can pose risk to 
consumers, including a risk of deceiving consumers about their 
underlying legal rights. Notwithstanding that risk, the Bureau has not 
proposed that subpart C would cover these types of terms and 
conditions. The Bureau's preliminary assessment is that the burden of 
identifying these types of terms and conditions may be relatively 
higher, depending not just on identifying a limitation or restriction 
in the term or condition, but on its relationship to all potentially 
applicable legal protections that are not expressly identified in the 
text of the term or condition. There also may be more uncertainty about 
when a contract condition is inconsistent with an applicable legal 
protection. To the extent that a commenter nonetheless believes these 
types of terms and conditions should be covered, the Bureau requests 
comment on how to clearly define these terms and conditions in a manner 
that could be implemented to allow supervised registrants to detect the 
clauses without significant burden.
    The Bureau also requests comment on whether proposed Sec.  
1092.301(d)(7) is sufficiently clear to identify which terms and 
conditions are covered by it, and whether additional clarifications 
would be useful, and if so, what clarifications.
    Finally, proposed Sec.  1092.301(d)(8) would cover arbitration 
agreements, defined as a term or condition requiring that a consumer 
bring any type of legal action in arbitration. Because these agreements 
require consumers to assert certain privately-actionable legal claims 
only in arbitration, they by definition limit how consumers can bring 
legal action by removing the option of asserting those claims in court.
    The Bureau considered, but is not proposing, covering other types 
of terms and conditions that may, to one degree or another, affect the 
ability of consumers to enforce or exercise applicable legal 
protections. For example, the Bureau notes that the proposal would not 
identify a choice of law provision as itself a covered limitation on 
applicable consumer legal protections. These clauses also can alter the 
rights of consumers, particularly when providers choose laws less 
favorable to the consumer that bear little relation to the transaction. 
Nevertheless, the Bureau believes that requiring registration of all 
uses of choice of law provisions would lack utility, as these clauses 
are nearly universal, and the Bureau understands that they may present 
lower risk in some circumstances, such as when they are used to provide 
clarity and certainty without limiting consumer rights or ability to 
vindicate rights.
    The Bureau proposes that if a provider uses any one or more of the 
covered terms and conditions, then the proposed rule would require the 
supervised registrant to submit data on choice of law provisions 
governing the covered term(s) or condition(s) as discussed in the 
section-by-section analysis of proposed Sec.  1092.302(a). Under this 
approach, if a provider does not use any of the covered terms or 
conditions defined in proposed Sec.  1092.301(d), but does use a choice 
of law provision, then it would not be required to register or submit 
information collected under proposed Sec.  1092.302(a).
    The Bureau believes that this approach strikes the right balance to 
help it monitor for risks to consumers and inform the Bureau's risk-
based supervision program because there is a need to identify and 
understand the use of choice of law clauses in contexts that already 
pose risks to consumers. Conditioning the reporting of a choice of law 
clause on the existence of other terms and conditions defined in 
proposed Sec.  1092.301(d) is appropriate because a provider using a 
choice of law provision that poses significant risks to consumers is 
likely to also use one or more of the other covered terms or conditions 
addressed by the proposed rule. While the other clauses may be very 
common, one purpose of the proposed rule is to understand and track how 
common; by contrast, the Bureau is already confident that choice of law 
clauses are ubiquitous if not universal. The Bureau seeks comment on 
this approach, and whether it should instead require registration of 
choice of law provisions, even when a provider does not use any of the 
covered terms or conditions defined in proposed Sec.  1092.301(d).

[[Page 6937]]

    The Bureau requests comment on its proposed definition in Sec.  
1092.301(d), including on whether modifications or additions to the 
definition are necessary to accomplish the objectives of the proposal.
301(e) Identifying Information
    Proposed Sec.  1092.301(e) would define the term identifying 
information. This term describes the scope of identifying information a 
supervised registrant would be required to submit pursuant to proposed 
Sec.  1092.302(a). Proposed section Sec.  1092.301(e) would limit this 
information to information that is already available to the supervised 
registrant, and which uniquely identifies the supervised registrant. As 
described in proposed Sec.  1092.301(e), this information would 
include, to the extent already available to the supervised registrant, 
the supervised registrant's legal name(s), State of incorporation or 
organization, headquarters and principal place of business addresses, 
and unique identifiers issued by a government agency or standards 
organization. Examples of addresses that entities may be required to 
provide under proposed Sec.  1092.302(a) include addresses used for 
conducting business with consumers, including both physical addresses 
and electronic addresses such as internet website addresses. Examples 
of the identifiers issued by a government agency or standards 
organization that entities may be required to provide under proposed 
Sec.  1092.302(a) include the Nationwide Multistate Licensing System 
and Registry identifier (NMLSR ID), the HMDA Reporter's Identification 
Number (HMDA RID), the Legal Entity Identifier (LEI) issued by a 
utility endorsed by the LEI Regulatory Oversight Committee or endorsed 
or otherwise governed by the Global LEI Foundation (GLEIF, or any 
successor of the GEIF), and a Federal Tax Identification number.\288\
---------------------------------------------------------------------------

    \288\ The Bureau's HMDA Regulation C specifies the collection of 
a LEI or GLEIF for reporters subject to that rule. See 12 CFR 
1003.4(a)(1)(i)(A).
---------------------------------------------------------------------------

    This information will help the Bureau identify supervised 
registrants with specificity, including ensuring that the Bureau can 
relate their submissions to other registries and databases where 
applicable, such as the NMLS, and HMDA submissions. Furthermore, upon 
publication, this information will facilitate the ability of consumers 
to identify covered persons that are registered with the Bureau, as 
discussed in part II.C.3 above.
    The proposal would not require the entity to obtain an identifier. 
Thus, for example, if the nonbank registration system were to ask about 
a particular type of identifier and that type of identifier had not 
been assigned to the supervised registrant, then the Bureau expects 
that the supervised registrant would be able to indicate the identifier 
is not applicable.
    The Bureau seeks comment on these proposed types of identifying 
information, and other types of identifying information that the 
nonbank registration system might collect and publish.
301(f) Annual Registration Date
    Proposed Sec.  1092.301(f) would define the annual registration 
date as the day during the calendar year by which a supervised 
registrant must complete its annual registration required by proposed 
Sec.  1092.302(a). As explained in proposed Sec.  1092.301(f), annual 
registration dates would not occur until after the nonbank registration 
system implementation date defined pursuant to proposed Sec.  
1092.101(e). When the Bureau issues filing instructions as described in 
proposed Sec.  1092.102(a), the Bureau would set the precise timing for 
the annual registration date and any extensions to that date during 
emergencies. Proposed Sec.  1092.301(f) also would provide that the 
Bureau will specify the annual registration date under proposed subpart 
C including the process for filing for an automatic extension of the 
annual registration date for up to 30 days. The Bureau's filing 
instructions under proposed Sec.  1092.102(a) would clarify the process 
for obtaining such an extension. The Bureau seeks comment on the 
process, length, and frequency for automatic extensions under this 
proposed provision.
301(g) Supervised Nonbank
    The proposal generally would apply to nonbank covered persons that 
are subject to supervision by the Bureau under its statutory 
authorities in CFPA section 1024(a). Proposed Sec.  1092.301(g) would 
define the term supervised nonbank by reference to the relevant 
provisions of the CFPA that establish the Bureau's supervisory 
authority over nonbank covered persons in CFPA section 1024(a). For 
clarity, proposed Sec.  1092.301(g) would reiterate, as provided in the 
CFPA, that persons are not supervised nonbanks with respect to 
activities that are excluded from the supervisory authority of the 
Bureau under one or more of the provisions of CFPA section 1027 or 
section 1029.
301(h) Supervised Registrant
    Proposed Sec.  1092.301(h) would define the term supervised 
registrant as those supervised nonbanks that are subject to proposed 
subpart C. The term would cover supervised nonbanks, as defined in 
proposed Sec.  1092.301(g), that are subject to the Bureau's 
supervisory authority under CFPA section 1024(a) and are not 
specifically excluded from coverage of this proposal by one or more of 
the exclusions in the paragraphs in proposed Sec.  1092.301(h). Under 
the proposed definition of ``supervised registrant,'' the Bureau need 
not have previously exercised its authority to require reports from, or 
conduct examinations of, a particular supervised nonbank for that 
entity to qualify as a supervised registrant. A supervised nonbank 
would qualify as a supervised registrant if the Bureau could require 
reports from, or conduct examinations of, that entity because it is a 
covered person described in CFPA section 1024(a)(1). Such an entity 
would be ``subject to supervision and examination'' within the meaning 
of the proposal even if the Bureau has never previously exercised its 
authority to require reports or conduct examinations with respect to 
that entity.
    Proposed Sec.  1092.301(h)(1) and (2) would clarify that certain 
governments, as described in these subparagraphs, would not be covered 
by the proposal. Proposed Sec.  1092.301(h)(1) would clarify that an 
agency of the Federal government, as defined in 28 U.S.C. 2671, would 
not be covered by the proposal. The Bureau has other avenues of 
collaborating with Federal agencies and, out of considerations of 
comity, does not seek to subject other Federal agencies to an 
information collection requirement in this proposal.
    For parity, comity, and other reasons described below, proposed 
Sec.  1092.301(h)(2) also would exclude certain other types of 
governmental bodies. Specifically, proposed Sec.  1092.301(h)(2) would 
exclude a State as defined in CFPA section 1002(27), which includes a 
federally-recognized Indian Tribe.\289\ The Bureau also collaborates 
with State and Tribal regulators and does not seek to subject their 
governments to an information requirement in this proposal. 
Governmental bodies described in proposed Sec.  1092.301(h)(2) 
generally are

[[Page 6938]]

immune from private suit already.\290\ Therefore, the Bureau does not 
have the same concerns about the risk that terms and conditions in form 
contracts would limit availability of suit, given that the law itself 
already limits such suits against these persons.
---------------------------------------------------------------------------

    \289\ In this proposal, when the Bureau uses the term ``Tribe,'' 
it is referring to any federally-recognized Indian Tribe, as defined 
by the Secretary of the Interior under section 104(a) of the 
Federally Recognized Indian Tribe List Act of 1998, 25 U.S.C. 
5131(a).
    \290\ In proposed Sec.  1092.301(h)(2), the Bureau specifically 
identifies a ``Tribe'' as an entity included in the exemption. 
Because sovereign immunity only applies to the sovereign, the Bureau 
believes that an entity that is eligible for the sovereign immunity 
conferred upon a Tribe would be considered the ``Tribe'' for 
purposes of proposed Sec.  1092.301(h)(2).
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    There may be some uncertainty about when a particular supervised 
nonbank is a State (including for purposes of the CFPA, a Tribe) and 
thus enjoys the sovereign immunity from private suit typically 
conferred upon a State (including a Tribe). Such an entity could 
register under the proposal, since, as clarified in proposed Sec.  
1092.102(c), registration is without prejudice to the ability of the 
entity to dispute that it is subject to the Bureau's authority over it. 
Or, if the entity has a good faith basis to believe it is a State 
(including a Tribe), such as by virtue of enjoying its sovereign 
immunities, it could voluntarily file with the nonbank registration 
system a notice of nonregistration as described in proposed Sec.  
1092.302(d). At the same time, courts have found that immunities are 
not available to some providers of consumer financial products or 
services subject to the Bureau's supervisory authority, notwithstanding 
their claims to have a nexus with a State or a Tribe.\291\ In those 
circumstances, the entities could face private enforcement, and covered 
terms or conditions purporting to limit private enforcement would pose 
the types of risks to consumers as described in this proposal.\292\ 
Therefore, the Bureau is not proposing an exemption for all State or 
Tribe-affiliated businesses, regardless of whether they are part of the 
State (including a Tribe). The Bureau requests comment on this 
approach.
---------------------------------------------------------------------------

    \291\ See, e.g., Great Plains Lending, LLC v. Department of 
Banking, 259 A.3d 1128, 1134 (Conn. 2021) (holding that Great Plains 
Lending, LLC, had established sovereign immunity, but that there was 
insufficient evidence to conclude that another lender formerly known 
as American Web Loan, Inc., had sovereign immunity, and remanding on 
that issue); Solomon v. American Web Loan, 375 F.Supp.3d 638, 660 
(E.D. Va. 2021) (holding that American Web Loan did not share 
tribe's sovereign immunity).
    \292\ Solomon v. American Web Loan, Inc., Case No. 17cv0145 
(E.D. Va.) (Final Approval Order for Class Action Settlement July 9, 
2021), https://www.awlsettlement.com/ (last visited Dec. 6, 2022).
---------------------------------------------------------------------------

    The Bureau also requests comment on whether the exemption in 
proposed Sec.  1092.301(h)(2) should be limited in some way. For 
example, although State and Tribal governments generally have sovereign 
immunity from private suit, that immunity may be waived by the 
government itself or in some cases by law, such as a clear statement in 
a Federal statute.\293\ The Bureau requests information on how common 
it is for waivers of sovereign immunity to occur in the provision of 
supervised consumer financial products or services, and whether the 
exemption in Sec.  1092.301(h)(2) should not apply when the sovereign 
immunity has been waived.
---------------------------------------------------------------------------

    \293\ See, e.g., Michigan v. Bay Mills Indian Cmty., 572 U.S. 
782, 790 (2014) (citing C&L Enters, Inc. v. Citizen Band Potawatomi 
Tribe of Okla., 532 U.S. 411 (2001)).
---------------------------------------------------------------------------

    In addition, for clarity and administrability, proposed Sec.  
1092.301(h)(2) would not subject State and Tribal governments to a 
partial registration requirement. However, the Bureau requests comment 
on whether the Bureau should finalize a different approach, under which 
a State or a Tribe should be required to register covered terms or 
conditions that are not expressly framed as limitations on private 
suit. Such terms could include, for example, outright waivers of legal 
protections that do not establish a private right of action in the 
first place or non-disparagement clauses impeding exercise of rights. 
Even when entities are not subject to private suit in the first place, 
these terms or conditions may pose risks to consumers.
    The Bureau also requests comment on whether the exclusions in 
proposed Sec.  1092.301(h) should be broadened to include other 
governments, and if so, which ones and why. The Bureau understands the 
local governments do not enjoy the same degree of sovereign immunity as 
States and Tribes.
    Proposed Sec.  1092.301(h)(3) would clarify that the proposal would 
not cover nonbank persons who are subject to the Bureau's supervisory 
authority solely in either of two capacities. First, proposed Sec.  
1092.301(h)(3)(i) would clarify that the proposal would not cover 
nonbank persons who are subject to the Bureau's supervisory authority 
solely under CFPA section 1024(e), section 1025(d), or section 1026(e), 
which describe the Bureau's supervisory authority over service 
providers to supervised persons. The Bureau is prioritizing in this 
proposal the registration of nonbank covered persons subject to its 
supervisory authority under CFPA section 1024(a). The Bureau believes 
that it can achieve the anticipated benefits described above without 
extending its coverage to entities solely supervised as service 
providers subject to supervision under CFPA section 1024. Registering 
entities solely supervised as service providers may introduce 
complexity and would add burden and broaden the scope of the nonbank 
registration system in a manner the Bureau is not prepared to do at 
this initial stage of nonbank registration rulemaking. In any event, if 
a person is a service provider to a supervised person and also is 
itself supervised under CFPA section 1024(a), then the proposal already 
would cover that person. For example, the proposal would apply to a 
larger participant in the consumer debt collection market including 
when the debt collector is acting as a service provider to a payday 
lender or a credit card issuer.
    Second, proposed Sec.  1092.301(h)(3)(ii) would clarify that the 
proposal would not cover an entity that is subject to the Bureau's 
supervisory authority solely in its capacity as an entity supervised 
for a period of two years or less pursuant to an order issued by the 
Bureau pursuant to 12 U.S.C. 5514(a)(1)(C). For example, proposed Sec.  
1092.301(h)(3)(ii) would exclude a person supervised by the Bureau 
solely based on a consent agreement by which an entity may voluntarily 
consent to the Bureau's supervisory authority as described in 12 CFR 
part 1091. The Bureau already will have identified such an entity, 
likely will have plans to examine it under that order based on its 
determination that the entity's conduct poses risks to consumers, and 
the Bureau may obtain information about its covered terms and 
conditions through the normal examination process. At the same time, 
given the limited duration of such an order, if the proposed rule were 
to apply to it, it may only be subject to registration for one annual 
registration date. For these reasons, the registration information for 
such an entity may be less useful to the Bureau's risk-based non-bank 
supervision program. Collection of that information also would generate 
only a discrete amount of information about a single entity, typically 
in a market not otherwise generally supervised and subject to the 
proposal. For these reasons, the Bureau is not proposing to cover these 
entities under this proposed rule. However, the Bureau requests comment 
on this approach, including whether the final rule should not include 
this exemption, should include an exemption for all such orders even 
when they result in supervisory authority for a longer period of time, 
or should include a provision that would allow such an order itself to 
subject the entity to the rule, whether in whole or in part (for 
example,

[[Page 6939]]

registration but not publication), which determinations would be made 
in the orders themselves on an order-by-order basis. For example, under 
that alternative, if an order that established supervisory authority 
for a two-year period were renewed for another two-year period, then if 
the original order did not subject the entity to the rule, the renewal 
order could do so.
    Proposed Sec.  1092.301(h)(4) would exclude natural persons from 
the requirements of proposed subpart C. Many supervised nonbanks are 
not natural persons. However, some natural persons may fall within the 
scope of the provisions of CFPA section 1024(a), including those that 
broker mortgages. For example, a natural person may act in the capacity 
as sole proprietor of a sole proprietorship that is not incorporated as 
a distinct legal entity. Such a natural person could qualify as being 
subject to the Bureau's supervisory authority, which applies to 
supervised covered persons, a term defined in CFPA section 1002(6) by 
reference to ``any person'' which, under CFPA section 1002(19) includes 
an ``individual.'' The Bureau does not believe, however, that 
individual natural persons typically would be likely to enter into a 
significant number of covered form contracts with consumers. Such 
persons might qualify for the exclusion from subpart C under proposed 
Sec.  1092.301(h)(5) for persons with receipts of less than $1 million, 
or for the exclusion under proposed Sec.  1092.301(h)(6) for persons 
with de minimis levels of use of covered terms and conditions. Yet 
there still may be burden involved in analyzing the regulation and 
assessing eligibility for these exclusions. The Bureau requests comment 
on this exclusion, including any data on whether natural persons enter 
into large numbers of covered form contracts containing covered terms 
or conditions and have receipts of over $1 million from offering or 
providing these consumer financial products or services.
    Proposed Sec.  1092.301(h)(5) would exclude supervised nonbanks 
with less than $1 million in annual receipts resulting from offering or 
providing all consumer financial products and services as relevant 
under proposed Sec.  1092.301(g). For purposes of this exclusion, 
proposed Sec.  1092.301(h)(5)(i) would clarify that the term ``annual 
receipts'' has the same meaning as that term has in 12 CFR 1090.104(a), 
including the provisions of that definition at 12 CFR 1090.104(a)(i) 
regarding receipts, 12 CFR 1090.104(a)(ii) regarding period of 
measurement, and 12 CFR 1090.104(a)(iii) regarding annual receipts of 
affiliated companies.
    In addition, for purposes of this exclusion, proposed Sec.  
1092.301(h)(5)(ii) would clarify that receipts that count toward 
determining larger participant status under a larger participant rule 
would count toward this exclusion, even if the person ultimately did 
not qualify as a larger participant. This clarification would address 
the example of a person offering or providing both consumer mortgages, 
private student loans, or payday loans, on the one hand, and consumer 
financial products or services identified in a larger participant rule, 
on the other hand. In that example, even if the person did not meet the 
threshold for larger participant status under the larger participant 
rule, the receipts from offering or providing the consumer financial 
product or service covered by the larger participant rule still would 
count as receipts for purposes of the exclusion in this proposal.
    Under this proposed definition, the exclusion would be based on the 
receipts resulting from offering or providing all consumer financial 
products and services as relevant under proposed Sec.  1092.301(g), 
including such receipts from affiliated companies as defined in the 
Bureau's regulations at 12 CFR 1090.101. The receipts test in proposed 
Sec.  1092.301(h)(5) does not refer to when the underlying consumer 
contract that generated the receipt was entered into, or whether the 
underlying consumer contract that generated the receipt was a covered 
form contract or included a covered term or condition. Therefore, if a 
supervised nonbank earned receipts in the previous calendar year from a 
consumer financial product or service as relevant under proposed Sec.  
1092.301(g) originally offered or provided in prior years, those 
receipts still would count toward the threshold. In addition, if a 
supervised nonbank earned receipts in the previous calendar year from 
consumer financial products or services as relevant under proposed 
Sec.  1092.301(g) that were not subject to covered terms and conditions 
in covered form contracts, those receipts still would count toward the 
threshold.
    The Bureau is proposing the exemption in proposed Sec.  
1092.301(h)(5) for two reasons. First, consumer financial product and 
service providers with significantly lower levels of receipts generally 
may pose lower risks because they engage with fewer consumers, obtain 
less money from those consumers, or both. Second, the information 
collection burdens on entities with receipts of $1 million or less, on 
a relative basis, generally would be higher than such burdens on larger 
entities.\294\
---------------------------------------------------------------------------

    \294\ See 12 U.S.C. 5514(b)(2)(A), (B) (requiring the Bureau to 
take into consideration ``the asset size of the covered person'' and 
``the volume of transactions involving consumer financial products 
or services in which the covered person engages''). Furthermore, 
while the Bureau does not believe that it needs to rely on its 
authority under 12 U.S.C. 5512(b)(3) to exempt classes of covered 
persons from rules in proposing this small-entity exclusion. The 
Bureau believes that the exclusion would be warranted as an exercise 
of its section 1022(b)(3) exemption authority, to the extent that 
provision was applicable. See 12 U.S.C. 5512(b)(3). As under 12 
U.S.C. 5514(b)(2), an entity-size-based exclusion accords with 12 
U.S.C. 5512(b)(3)(B)(i) and (ii), which instruct the Bureau to 
consider ``the total assets of the class of covered persons'' and 
``the volume of transactions . . . in which the class of covered 
persons engage'' in issuing exemptions. 12 U.S.C. 5512(b)(3)(B)(i)-
(ii). In addition, given the relatively limited scope of the harm to 
consumers that entities with annual receipts not exceeding $1 
million would generally be able to cause, the Bureau does not 
believe that the factor articulated in 12 U.S.C. 5512(b)(3)(B)(iii) 
(``existing provisions of law which are applicable to the consumer 
financial product or service and the extent to which such provisions 
provide consumers with adequate protection'') warrants not proposing 
the proposed small-entity exclusion.
---------------------------------------------------------------------------

    The Bureau requests comment on this approach, including whether the 
exemption in proposed Sec.  1092.301(h)(5) should apply on a fiscal-
year basis, as an alternative to the proposed calendar-year basis or as 
an additional basis for exemption, and why or why not. The calendar-
year measurement generally would align with the period used to define 
reporting obligations under proposed Sec.  1092.302(a). However, the 
Bureau notes that receipts calculations for larger participant 
determinations in the debt collection and consumer reporting markets 
are on a fiscal-year basis, as provided for in part 1090. The Bureau 
also requests comment on whether the proposed exemption should be 
automatically adjusted for inflation, such as every five years or at 
some other interval.
    Proposed Sec.  1092.301(h)(6) would exclude supervised nonbanks 
that, together with their affiliates, engaged in no more than a de 
minimis level of use of covered terms or conditions in the previous 
calendar year. In general, risks to consumers from covered terms and 
conditions may be greater for covered terms and conditions used more 
frequently, such as in more transactions or with more consumers. 
Relatedly, as discussed in the section-by-section analysis of the 
definition of a covered form contract in proposed Sec.  1092.301(b)(1), 
the proposal would focus on risks related to terms and conditions in 
form contracts used repeatedly in multiple transactions. The Bureau 
also recognizes the burdens of the information collection discussed in 
more detail in parts VII, VIII, and IX. By

[[Page 6940]]

not proposing to collect information about supervised nonbanks' 
relatively infrequent use of covered terms and conditions, the proposal 
seeks to balance that burden in light of the potentially lower risks 
from infrequent use. For these reasons, proposed Sec.  1092.301(h)(6) 
would exclude from the definition of supervised registrant those 
supervised nonbanks engaged in no more than a de minimis level of use 
of covered terms or conditions.
    Under proposed Sec.  1092.301(h)(6), if a supervised registrant 
meets two conditions, its use of covered terms and conditions would 
qualify as de minimis. First, the supervised registrant must not have 
entered into covered form contracts containing any covered term or 
condition 1,000 or more times during the previous calendar year. 
Proposed Sec.  1092.301(i)(1) describes the ways in which a supervised 
registrant would enter into a covered form contract for purposes of 
subpart C. This test would count the number of times the supervised 
registrant entered into covered form contracts in the previous calendar 
year, for consumer financial products and services as relevant under 
proposed Sec.  1092.301(g).\295\ Entering into covered form contracts 
for a consumer financial product or service subject to a larger 
participant rule would count toward this threshold even if the person 
did not qualify as a larger participant. In addition, regardless of how 
many covered terms and conditions are contained in the covered form 
contract, each time the supervised registrant enters into the covered 
form contract would count only once toward the 1,000-use cutoff for 
this component of the proposed de minimis threshold. As a result, if a 
supervised registrant entered into only one covered form contract, that 
covered form contract contained multiple covered terms or conditions, 
and the supervised registrant entered into the contract 999 or fewer 
times, it would satisfy this component. As noted in the section-by-
section analysis of proposed Sec.  1092.301(c), some transactions may 
be governed by multiple covered form contracts. For that reason, the 
Bureau seeks comment on whether this component of the proposed 
exclusion should be revised to be based on the number of times the 
supervised registrant entered into all form contracts for the same 
consumer financial product or services. The Bureau also requests 
comment on whether to adopt a different threshold for what is a de 
minimis number of times for a supervised registrant to enter into a 
covered term or condition.
---------------------------------------------------------------------------

    \295\ This would include activity subject to an order under CFPA 
section 1024(a)(1)(C) that is not excluded by proposed Sec.  
1092.301(h)(3)(ii), because that activity falls within the 
definition of covered term or condition in proposed Sec.  
1092.301(c). Proposed Sec.  1092.301(c) covers the described terms 
or conditions when they apply to a consumer financial product or 
service ``described in'' proposed Sec.  1092.301(g). When a 
supervised registrant's consumer financial product or service is 
specified in an order issued under CFPA section 1024(a)(1)(C), then 
for the supervised registrant, that consumer product or service 
would be one that is ``described in'' proposed Sec.  1092.301(g) for 
purposes of the definition in proposed Sec.  1092.301(c).
---------------------------------------------------------------------------

    Second, the supervised registrant must not have received, as a 
party to a legal action, court or arbitrator decision(s) ruling on the 
enforceability of a covered term or condition in the previous calendar 
year. Such decisions could include orders or opinions terminating, 
dismissing, staying, deferring, suspending, restricting, limiting 
liability for a claim filed by the consumer pursuant to a covered term 
or condition in a covered form contract. As discussed in the section-
by-section analysis of proposed Sec.  1092.301(i)(2) below, 
administrative tribunals are less likely to be charged with ruling on 
the enforceability of a contract term; for that reason, proposed Sec.  
1092.301(h)(6)(ii) would not cover administrative decisions.
    The Bureau requests comment on whether a de minimis use exclusion 
is appropriate, and if not, why not. The Bureau also requests comment 
on its proposed levels of use to define de minimis use. For the 
component of the threshold related to decisions in legal actions, the 
Bureau requests comment on whether the final rule should adopt a higher 
threshold, or a different threshold for individual and putative or 
certified class actions, and if so, what the threshold(s) should be and 
why. The Bureau is not proposing a different threshold for these 
different types of cases. Even decisions in individual legal actions 
may have precedential, authoritative, or persuasive impact beyond the 
individual case, whether for other courts, arbitrators, or the public. 
For that reason, such decisions may have impact beyond those consumers 
who are party to an individual legal action or potential members of a 
class action.
    Proposed Sec.  1092.301(h)(7) would exclude supervised nonbanks 
whose use of covered terms or conditions in covered form contracts in 
the previous calendar year was limited to entering into contracts for 
residential mortgages in a form made publicly available on the internet 
required for insurance or guarantee by a Federal agency or purchase by 
the Federal National Mortgage Association, the Federal Home Loan 
Mortgage Corporation (or its successors), or the Government National 
Mortgage Association. This exclusion would not apply if the supervised 
nonbank used covered terms or conditions for consumer financial 
products or services as relevant to proposed Sec.  1092.301(g) that 
were different from or in addition to any covered terms and conditions 
that appeared in these published form contracts. In addition, this 
exclusion would not apply if the person obtained a court or arbitrator 
decision in the previous calendar year regarding the enforceability of 
a covered term or condition in a covered form contract as described in 
proposed Sec.  1092.301(i)(2).
    The Bureau is proposing this exclusion because, as discussed in the 
impacts analysis in part VII, these standard federally-adopted 
contracts are publicly-available on the internet websites of Federal 
agencies or enterprises overseen by Federal agencies and are in general 
use throughout the market for first-lien mortgages on site-built homes 
that are insured, guaranteed, or purchased by these Federal agencies or 
enterprises supervised by Federal agencies. Covered terms and 
conditions may appear in these covered form contracts. However, the 
Bureau and the general public already have access to these contracts on 
the websites of these Federal agencies or the enterprises they oversee. 
The Bureau already can use that information as part of its market 
monitoring and risk assessments. It therefore does not propose to 
require registration from supervised nonbanks whose sole use of covered 
terms or conditions consists of entering into those contracts. The 
exemption in proposed Sec.  1092.301(h)(7) would not apply, however, if 
the supervised nonbank obtained a court or arbitrator decision 
enforcing a covered term in such a covered form contract. The Bureau 
and the public do not have general knowledge of all such decisions, and 
the value in collecting information about them from a risk monitoring 
and assessment perspective therefore is similar to the value of 
registering decisions related to covered terms and conditions in other 
covered form contracts. In addition, if the supervised nonbank uses 
covered terms and conditions contained in covered form contracts, other 
than the contracts described in proposed Sec.  1092.301(h)(7), then the 
entity would not be eligible for this exemption. For entities not 
eligible for an exemption in proposed Sec.  1092.301(h), the Bureau is 
not proposing a blanket exclusion for the

[[Page 6941]]

contracts described in proposed Sec.  1092.301(h)(7) because the 
incremental burden from registering an additional contract (compared to 
the burden of registering overall) should not be significant, 
particularly as the nonbank registration system can streamline how it 
collects information about supervised registrants' use of these type of 
standard form contracts that have widespread market usage.
    Finally, proposed Sec.  1092.301(h)(8) would clarify that the 
proposal would not cover a person who is a covered person solely by 
virtue of being a related person as defined in CFPA section 
1002(25).\296\ Under CFPA section 1002(25), certain persons are 
``deemed to mean a covered person for all purposes of any provision of 
Federal consumer financial law[.]'' \297\ However, CFPA section 
1022(c)(7)(A) excludes related persons from the type of covered persons 
covered by Bureau rules regarding registration issued under CFPA 
section 1022(c)(7) authority. As discussed in part II.C and part IV 
above, the Bureau is proposing this rule in part under separate 
authorities under CFPA sections 1022 and 1024. However, for clarity, 
the Bureau is not proposing to cover persons who are not subject to its 
CFPA section 1022(c)(7)(A) authority. Therefore, it is proposing to 
exclude related persons in this rule, to the extent that they are not 
covered persons for any other reason than being deemed covered persons 
pursuant to CFPA section 1002(25). Similar to the operation of the 
exclusion for related persons in the Bureau's recent proposal for 
registration of certain nonbank orders,\298\ this exclusion generally 
would not apply to a supervised nonbank who offers or provides consumer 
financial products or services described in CFPA section 1024(a)(1) (as 
recited in proposed Sec.  1092.301(g)), even if it also happens to be a 
related person for other reasons.
---------------------------------------------------------------------------

    \296\ 12 U.S.C. 5481(25).
    \297\ 12 U.S.C. 5481(25)(B).
    \298\ See Nonbank Registration--Orders Proposal, proposed Sec.  
1092.201(d)(1).
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301(i) Use of a Covered Term or Condition
    The proposal would collect information about supervised 
registrants' use of covered terms and conditions in covered form 
contracts. Supervised registrants may use terms and conditions in 
different ways. Supervised registrants may typically use covered terms 
and conditions by placing them in contracts between the consumer and 
the supervised registrant. In other circumstances, supervised 
registrants may seek to enforce covered terms and conditions in a 
covered form contract that they did not enter into as a party. For 
example, as discussed in part II, under some legal precedents, a larger 
participant debt collector or student loan servicer may seek to enforce 
a covered term or condition in a loan agreement between the consumer 
and the creditor.
    The enforcement of covered terms and conditions may signal risk to 
consumers that is different than the risks presented by placing the 
covered terms or conditions in the covered form contract. Namely, the 
degree to which a covered term or condition dissuades or chills private 
enforcement of an applicable legal protection depends on whether there 
are in fact instances of non-compliance with the applicable legal 
protection that could lead to private enforcement. If a consumer files 
a legal action, then that may indicate that a consumer is claiming 
there are such instances. If a court or arbitrator then enforces the 
covered term or condition, then that decision on its face restricts the 
ability of the consumer to enforce an applicable legal protection when 
they have determined they would do so. In addition, as discussed in the 
section-by-section analysis of proposed Sec.  1092.301(d)(6) above, a 
non-disparagement clause covered by proposed Sec.  1092.301(d)(6) may 
similarly chill public comment or complaint about a supervised 
registrant's practices, which in turn may make potential violations or 
risks of violations of applicable legal protections more difficult to 
uncover. Accordingly, proposed Sec.  1092.301(i) would define the term 
``use'' in this context to include both entering into a contract that 
contains the covered terms or conditions and obtaining decisions about 
the enforceability of covered terms and conditions.
    First, as described in proposed Sec.  1092.301(i)(1), a supervised 
registrant would use a covered term or condition for purposes of 
subpart C if it ``enters into'' a covered form contract containing the 
covered term or condition. Proposed Sec.  1092.301(i)(1) would list the 
covered examples of this type of use. The examples in proposed Sec.  
1092.301(i)(1) include providing a new consumer financial product or 
service, acquiring or purchasing a consumer financial product or 
service, or adding a covered term or condition to a consumer financial 
product or service, as described in more detail in proposed Sec.  
1092.301(i)(1).\299\
---------------------------------------------------------------------------

    \299\ This proposed definition and related examples would not 
reach terms or conditions affecting all goods and services. The 
definition of covered term and condition in proposed Sec.  
1092.301(c) reaches only limitations applicable to those consumer 
financial products and services subject to the Bureau's supervisory 
authority listed in proposed Sec.  1092.301(g).
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    Proposed Sec.  1092.301(i)(1)(iii) would clarify that one way a 
supervised nonbank would enter into a covered form contract is to 
acquire a consumer financial product or service that is subject to a 
covered form contract. That would be the case even if the seller is not 
subject to the Bureau's supervisory authority. For example, a larger 
participant automobile finance lender would enter into a covered form 
contract for purposes of proposed Sec.  1092.301(i)(1)(iii) when it 
acquires a covered retail installment sales form contract from an 
automobile dealer excluded from supervisory authority of the Bureau 
under CFPA section 1029(a).
    In addition, proposed Sec.  1092.301(i)(1)(v) would clarify that 
another way a supervised registrant may enter into a covered form 
contract is to add a covered form contract to a pre-existing consumer 
financial product or service. For example, a loan servicer or debt 
collector may engage in servicing or collection of a debt originated 
under a consumer contract that the servicer or debt collector had not 
entered into at the time of origination of the loan. But as part of its 
servicing or debt collection activities, the servicer or debt collector 
may enter into an agreement with the consumer such as for a payment 
plan, a payment authorization, a debt modification or settlement, or 
some other type of agreement. If the agreement is a covered form 
contract, then the servicer or debt collector has entered into that 
covered form contract for purposes of proposed Sec.  1092.301(i)(1).
    Second, as described in proposed Sec.  1092.301(i)(2), subpart C 
would cover an additional type of use of covered terms or conditions--
obtaining decisions by a court or arbitrator on the enforceability of a 
covered term or condition. This type of ``use'' could affect a 
supervised registrant's obligations under the proposal in two ways. 
First, this type of use would affect a supervised registrant's 
eligibility for the de minimis exclusion from subpart C, as discussed 
in the section-by-section analysis of proposed Sec.  1092.301(h)(6) 
above. In addition, when the supervised registrant is not eligible for 
the de minimis exclusion, the Bureau would collect certain limited 
information about this type of use as described in proposed Sec.  
1092.302(a)(4).
    Proposed Sec.  1092.301(i)(2) would define the type of event that 
would be

[[Page 6942]]

the subject of information collection under proposed Sec.  
1092.302(a)(4). The Bureau seeks to define an event or events that 
would be a meaningful indicator of potentially significant risk to a 
consumer who has asserted a claim in a legal action (or in the case of 
non-disparagement clauses, faces a claim against them), while also 
defining an event or events that supervised registrants could ascertain 
without incurring significant burdens. Court or arbitrator decisions to 
enforce or not enforce a covered term or condition would be both a 
notable event in the supervised registrant's administration of covered 
terms or conditions, and a relatively definitive indicator of risk 
posed by those terms or conditions. The section-by-section analysis of 
proposed Sec.  1092.302(a)(4) below explains the value of this 
information from a risk monitoring and assessment perspective.
    Many decisions covered by proposed Sec.  1092.301(i)(2) are not 
readily available to the public, such as through electronic legal 
research. Decisions in individual arbitrations generally are 
confidential, and decisions in lawsuits filed in court are not always 
searchable. Some court decisions may be publicly available such that 
the Bureau and the public could conduct legal research to determine 
when covered terms and conditions were enforced. However, the 
supervised registrant is in the best position to know and to readily 
access decisions in the legal actions brought against or by them.
    The Bureau is not proposing to define ``use'' more broadly. For 
example, proposed Sec.  1092.301(i)(2) would not cover steps taken by 
the supervised registrant to enforce covered terms or conditions, such 
as through filing a pleading that a court or arbitrator either has not 
decided or has rejected. Based on the narrower definition in proposed 
Sec.  1092.301(i)(2), which would cover only decisions on such 
requests, proposed Sec.  1092.302(a)(4) would pose a lower information 
collection burden than if it were collecting information about the 
broader range of attempts at enforcement (such as motions practice) 
regardless of whether the motion resulted in a decision. Supervised 
registrants would not need to review all pleadings in a legal action to 
identify responsive information. Instead, supervised registrants would 
need to be aware of the decisions of the court or arbitrator.
    In addition, proposed Sec.  1092.301(i)(2) would not cover 
administrative decisions. While courts and arbitrators may generally 
apply State common law of contracts to rule on enforceability of terms, 
administrative agencies may be less likely to serve that general role 
of applying State common law of contracts to rule on enforceability of 
covered terms and conditions. The Bureau seeks comment on this 
approach, including on the likelihood that administrative decisions may 
have a bearing on the enforceability of covered terms and conditions.
Section 1092.302 Registration and Submission of Information Regarding 
Use of Covered Terms and Conditions
302(a) Requirements To Register and Annually Submit Information to the 
Nonbank Registration System
    Proposed Sec.  1092.302(a) would establish requirements for 
supervised registrants to annually register in the nonbank registration 
system and provide information about their use of covered terms and 
conditions in covered form contracts. Proposed Sec.  1092.302(a) would 
require that, each calendar year by the annual registration dates, 
supervised registrants must identify themselves or update their 
identifying information and administrative information in the nonbank 
registration system. Proposed Sec.  1092.302(a)(1) and (2) would 
require the supervised registrant to specify the supervised products as 
relevant to proposed Sec.  1092.301(g) for which the supervised 
registrant used covered terms or conditions in the previous calendar 
year and the States or other jurisdictions where it offered those 
products or services. Proposed Sec.  1092.302(a)(3) and (4), would 
further require that supervised registrants provide information to the 
nonbank registration system about their use of those covered terms and 
conditions by providing standardized data.
    The Bureau requests comment on the general requirements of proposed 
Sec.  1092.302(a), including the requirement to register and update 
registration information annually. The Bureau requests comment on 
whether registration and registration updates should be required or 
permitted more or less often, and if so, why and in what circumstances. 
For example, the Bureau requests comment on whether, and if so, why and 
when supervised registrants should be required or allowed to update the 
registry upon a change in their identifying information, such as a 
result of a merger or acquisition, or a change in their use of a 
previously-registered covered term or condition or a change in use of a 
form contract containing covered terms or conditions. To the extent 
such updates are permitted or required, the Bureau also requests 
comment on how and when the updates should be published pursuant to 
proposed section Sec.  1092.303 below.
    The Bureau also requests comment on whether the nonbank 
registration system should include pre-completed selections for 
standard form contracts that have widespread market usage. For example, 
as discussed in the section-by-section analysis of proposed Sec.  
1092.301(h)(7), some mortgage lenders using certain form contracts for 
federally-related mortgages may be required to register in 
circumstances where exclusions in proposed Sec.  1092.301(h) do not 
apply. Because the form contracts are widely accessible on Federal 
agency and government-sponsored enterprise websites, the Bureau may be 
able to pre-populate answers to the questions posed by the nonbank 
registration system for these contracts. That would reduce the 
incremental burden of registering any covered terms or conditions in 
these contracts. The Bureau requests comment on what other covered form 
contracts may be in such widespread usages that would be amenable to 
similar burden-reducing information collection methods. The Bureau 
requests commenters provide examples of these covered form contracts.
    In addition, the Bureau requests comment on the benefits and 
burdens involved in identifying the States or other jurisdictions where 
the supervised registrant offered the consumer financial products or 
services identified pursuant to proposed Sec.  1092.302(a)(1). In 
addition, the Bureau requests comment on whether the final rule should 
clarify what qualifies as a State where the consumer financial product 
or service is offered. The Bureau does not believe significant 
uncertainty on this issue is likely. If, for example, an online lender 
in one State offers loans to consumers in the State where it is located 
as well as to consumers in other States, for purposes of subpart C, the 
lender presumably would be offering or providing loans in all of these 
States where the loans would be available.
    Proposed Sec.  1092.302(a)(3) would collect additional types of 
data more specifically related to each of the covered terms and 
conditions contained in covered form contracts entered into by the 
supervised registrant. Proposed Sec.  1092.302(a)(3) would require the 
supervised registrant to identify which consumer financial products and 
services identified pursuant to proposed Sec.  1092.302(a)(1) are 
affected by each covered term or condition, and in which States listed 
pursuant to proposed Sec.  1092.302(a)(2). Proposed Sec.  
1092.302(a)(3) also would require the supervised registrant to provide 
six

[[Page 6943]]

additional types of data on its use of the covered term or condition.
    First, proposed Sec.  1092.302(a)(3)(i) would collect brand name 
and trade names the supervised registrant used to provide the 
supervised consumer financial product or service. Second, proposed 
Sec.  1092.302(a)(3)(ii) would collect the legal names of any persons, 
other than a consumer and the supervised registrant, that typically 
entered into the applicable covered form contract such as other named 
parties. The information described in proposed Sec.  1092.302(a)(3)(i) 
and (ii) would help the Bureau to more clearly identify the products 
and services and other covered persons to which the information 
collected relates.
    Absent the data collected by proposed Sec.  1092.302(a)(3)(i), the 
remaining data collected under proposed Sec.  1092.302(a) may be 
associated only with corporate entity names that may be difficult to 
match to other information related to a brand name or trade name. Thus, 
the data collected by proposed Sec.  1092.302(a)(3)(i) would facilitate 
use of the data for the Bureau's market monitoring and supervisory 
purposes as described in part II.C.
    Absent the data collected by proposed Sec.  1092.302(a)(3)(ii), the 
Bureau may have greater difficulty identifying when the remaining data 
collected under proposed Sec.  1092.302(a) is partially duplicative of 
information provided by other supervised registrants. For example, if a 
nonbank lender covered by subpart C registers terms and conditions in a 
covered form contract to which an unaffiliated loan broker or loan 
servicer covered by subpart C is also a party, then without the 
information collected by proposed Sec.  1092.302(a)(3)(ii), the Bureau 
may be unable to identify that the terms and conditions registered 
relate to the same agreement.
    Furthermore, the Bureau anticipates that publication of this 
information under proposed Sec.  1092.303 would similarly help other 
regulators and the public to more clearly identify the products and 
services to which the information collected relates.
    Third, proposed Sec.  1092.302(a)(3)(iii) would collect information 
on each category of covered limitation on consumer legal protections 
that is included in the covered form contract. Because each of the 
types of covered limitations listed in proposed Sec.  1092.301(d) may 
pose different risks, it would be useful to collect information about 
which types of covered terms or conditions the supervised registrant 
used. This information also would identify situations where a 
supervised registrant is using multiple types of covered terms or 
conditions for a given consumer financial product or service, which may 
shed light on distinct risks or magnify risks.
    Fourth, for each type of covered limitation on consumer legal 
protections described in proposed Sec.  1092.301(d)(1) through (7) 
contained in the covered form contract, proposed Sec.  
1092.302(a)(3)(iv) would collect certain information about the 
limitation. For limitations described in proposed Sec.  1092.301(d)(1) 
(precluding the consumer from bringing a legal action after a certain 
period of time), proposed Sec.  1092.301(d)(2) (specifying a forum or 
venue where a consumer must bring a legal action in court), and 
proposed Sec.  1092.301(d)(3) (limiting the ability of the consumer to 
file a legal action seeking relief for other consumers or to seek to 
participate in a legal action filed by others), supervised registrants 
may be able to provide specific information about the limitations' 
content in a more standardized form, without incurring significant 
burdens. By collecting the standardized information described below, 
the Bureau also would be able to monitor and assess risks posed by 
these limitations and compare limitations across consumer financial 
products and services in a more efficient manner. Because the risks 
posed by these terms or conditions vary not just by their type or 
combination, but also by their content, collecting information about 
their content would facilitate closer monitoring and more careful risk 
assessment.
    Accordingly, for limitations described in proposed Sec.  
1092.301(d)(1) (precluding the consumer from bringing a legal action 
after a certain period of time), proposed Sec.  1092.302(a)(3)(iv)(A) 
would collect the specified time period, within ranges specified by the 
Bureau, for the consumer to bring a legal action. For limitations 
described in proposed Sec.  1092.301(d)(2) (specifying a forum or venue 
where a consumer must bring a legal action in court), proposed Sec.  
1092.302(a)(3)(iv)(B) would collect the name and, as applicable, place, 
of the forum or venue for the consumer to bring a legal action. For 
limitations described in proposed Sec.  1092.301(d)(3) (limiting the 
ability of the consumer to file a legal action seeking relief for other 
consumers or to seek to participate in a legal action filed by others), 
proposed Sec.  1092.302(a)(3)(iv)(C) would collect information about 
what type of legal action the consumer is prohibited from filing and, 
as applicable, what type of participation the consumer is prohibited 
from engaging in vis-[agrave]-vis legal action filed by others. This 
could include specifying, for example, whether the consumer is 
prohibited from engaging or participating in joinder, intervention, 
representative action, a class action, or some combination of these or 
others.
    For limitations described in proposed Sec.  1092.301(d)(4) 
(limiting liability to the consumer in a legal action, including by 
capping the amount of recovery or type of remedy), proposed Sec.  
1092.301(d)(5) (waiving a cause of legal action by the consumer, 
including by stating a person is not responsible to the consumer for a 
harm or violation of law), proposed Sec.  1092.301(d)(6) (limiting the 
ability of the consumer to make any written, oral, or pictorial review, 
assessment, complaint, or other similar analysis or statement 
concerning the offering or provision of consumer financial products or 
services by the supervised registrant), and proposed Sec.  
1092.301(d)(7) (waiving any other identified consumer legal protection, 
including any specified right, defense, or protection afforded to the 
consumer under Constitutional law, a statute or regulation, or common 
law), an efficient, low-burden way to collect relevant information to 
monitor and assess the risk posed by the term or condition would be for 
the supervised registrant to submit the text of the relevant contract 
term or condition. For contracts stored electronically, the supervised 
registrant could type or electronically paste the text quickly into the 
nonbank registration system. For contracts not stored electronically, 
the supervised registrant could type the text in their nonbank 
registration system submission or potentially submit an image that 
contains or can be converted to readable text. For these types of 
covered limitations on consumer legal protections, collection of the 
covered term or condition itself would pose a lower burden on 
supervised registrants than requiring the supervised registrant to 
describe or otherwise characterize the limitation. The latter approach 
could call upon the supervised registrant to make burdensome legal 
judgments about the scope of what may be a complex legal provision, for 
example. By contrast, the Bureau would be better able to monitor and 
assess risks posed by these limitations when it can review their text.
    Proposed Sec.  1092.302(a)(3)(iv) would not propose to collect 
information about the contents of an arbitration agreement covered by 
proposed Sec.  1092.301(d)(8). There is substantial information 
available about the generalized risks posed by arbitration agreements, 
including those discussed in part II and the section-by-section 
analysis of proposed Sec.  1092.301(d)(8) above. These risks include 
that class actions are not

[[Page 6944]]

available and decisions in individual arbitration generally are not 
public. These risks remain in particular after the Bureau's 2017 
rulemaking to address them was voided by a joint resolution of Congress 
signed by the President.\300\ The Bureau therefore believes at this 
time that it would be unnecessary to impose additional information 
collection burdens because the baseline risks posed by arbitration 
agreements described above (as distinct from any other covered terms or 
conditions that they may contain) are unlikely to vary. And to the 
extent an arbitration agreement contains one of the limitations 
described in proposed Sec.  1092.301(d)(1)-(7), supervised registrants 
already would provide information about that limitation separately.
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    \300\ See 82 FR 55500 (Nov. 22, 2017) (discussing Congressional 
Review Act revocation of Bureau's 2017 Arbitration Agreements rule), 
https://www.federalregister.gov/documents/2017/11/22/2017-25324/arbitration-agreements.
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    The Bureau requests comment on this approach. For example, the 
Bureau notes that some arbitration agreements may allow consumers to 
obtain judicial review of the validity of the arbitration agreement 
itself, while others may contain a delegation provision requiring that 
only the arbitrator may decide the validity of the arbitration 
agreement. In addition, some arbitration agreements could specify 
unusual administrators. The Bureau requests comment on whether it 
should collect information about whether reported arbitration 
agreements contain such delegation clauses, and about the identity of 
the arbitration administrator, including information about the 
potential value and burdens of such information collection.
    Fifth, proposed Sec.  1092.302(a)(3)(v) would collect information 
about the State or other jurisdiction identified in any choice of law 
provisions in the covered form contract, as applicable. The applicable 
law specified in the covered form contract may be important contextual 
information for assessing the risk posed by the covered form contract 
and the covered terms or conditions in the covered form contract. For 
example, as discussed in part II above, some laws prohibit or void 
certain contract terms, while others do not. By collecting information 
about the chosen law, the Bureau can assess whether a contract term or 
condition may be prohibited by that law, or if the supervised 
registrant may have selected a law that has the effect of avoiding a 
prohibition or limitation on the term or condition that exists under a 
different law.
    Sixth, proposed Sec.  1092.302(a)(3)(vi) would collect information 
necessary for the Bureau identify and obtain form contracts provided by 
form providers to supervised registrants. Proposed Sec.  
1092.302(a)(3)(vi) would collect the name of the form contract provider 
and other information necessary to identify the form contract, such as 
the complete copyrighted name including any form number and date of the 
contract. The information collected pursuant to proposed Sec.  
1092.302(a)(3)(vi) would help the Bureau to identify and obtain these 
agreements. The Bureau could use these agreements to simplify 
registration of terms and conditions contained in those contracts. As 
discussed above, the Bureau may be able to prepopulate the nonbank 
registration system with information about certain form contracts used 
by multiple market participants. To the extent the Bureau is able to 
obtain a specific form contract and prepopulate the nonbank 
registration system with information about that contract, and the 
supervised registrant uses that contract without modification, the 
Bureau requests comment on whether the final rule should permit 
supervised registrants to simply identify their use of that contract 
pursuant to proposed Sec.  1092.302(a)(3)(vi), as an alternative to 
providing the specific information about that contract required by 
proposed Sec.  1092.302(a)(3)(iii)-(v).
    In addition, by identifying those terms and conditions that are 
contained in form provider contracts, the Bureau could more efficiently 
identify supervised registrants that use potentially unique or outlier 
terms and conditions. Accordingly, the information collected pursuant 
to proposed Sec.  1092.302(a)(3)(vi) also would facilitate the Bureau's 
monitoring of risks to consumers and assessment of risks for 
prioritization of its risk-based supervision program.
    Finally, the Bureau requests comment on whether it should publish 
the name of the form provider and the citation to the specific form 
contract, pursuant to proposed Sec.  1092.303.
    Proposed Sec.  1092.302(a)(4) would obtain information about the 
degree to which supervised registrants obtained court or arbitration 
rulings during the previous year regarding the enforceability of 
covered terms or conditions. In particular, pursuant to proposed Sec.  
1092.302(a)(4), the nonbank registration system would ask basic 
questions, such as binary questions about whether courts or arbitrators 
issued decisions ruling on the enforceability of a covered term in 
legal actions by consumers, as defined in proposed Sec.  
1092.301(i)(2). The information collected would further assist the 
Bureau in monitoring and assessing risks, by informing judgments about 
whether the terms or conditions are lawful and hence enforceable.
    If a supervised registrant received one or more such decisions, 
proposed Sec.  1092.302(a)(4) also would require the supervised 
registrant to identify which type of covered term or condition was at 
issue in the decision, and whether the ruling enforced or declined to 
enforce the covered term or condition. This information would clarify 
the type of risk posed by the decision. In the case of a ruling 
declining to enforce the covered term or condition, this could indicate 
that the term was unenforceable in that case, posing a risk that 
consumers may have been misled to believe otherwise. By contrast, a 
ruling enforcing a covered term or condition could be a concrete 
indication that claims a consumer affirmatively asserted in court or 
arbitration were being limited by a term or condition found to be 
lawful in that case.
    In many cases, information about decisions collected under proposed 
Sec.  1092.302(a)(4) would relate to claims filed by the consumer as 
described in proposed Sec.  1092.301(i)(2). However, proposed Sec.  
1092.302(a)(4) also would apply to certain actions the supervised 
registrant brought against the consumer. In particular, if a supervised 
registrant used a non-disparagement term or condition described in 
proposed Sec.  1092.302(d)(6) to obtain a decision on its 
enforceability from a court or arbitrator, then that decision also 
would be subject to proposed Sec.  1092.302(a)(4).
    The Bureau requests comment on how the legal departments or legal 
function of supervised registrants track the legal actions filed 
against or by supervised registrants and the decisions courts or 
arbitrators issue in those legal actions. The Bureau considered 
proposing to require supervised registrants to quantify the number of 
times they attempted to enforce covered terms or conditions. However, 
the Bureau is concerned that to identify such a number, legal staff at 
supervised registrants may need to review the pleadings in all legal 
actions filed against or by them in a calendar year. Proposed Sec.  
1092.302(a)(4) therefore takes a more limited approach to avoid this 
higher burden on supervised registrants.
    The Bureau requests comment on whether proposed Sec.  
1092.302(a)(4) also should require the supervised registrant to 
identify the citation for or court issuing each decision ruling on the 
enforceability of a covered term or condition. For example, this could 
help

[[Page 6945]]

the Bureau to locate the relevant decisions as well as to identify 
multiple decisions in the same case, such as different decisions on 
appeal over time. The Bureau also requests comment on whether similar 
information should be collected related to arbitration decisions and, 
in the case of any confidential arbitration decisions, whether such 
information should be excluded from information the Bureau would 
publish under proposed Sec.  1092.303. Finally, the Bureau requests 
comment on whether proposed Sec.  1092.302(a)(4) should be expanded to 
require or allow supervised registrants to report when decisions are 
pending appeal or the like.
    The Bureau also requests comment on whether proposed Sec.  
1092.302(a)(4) should be expanded to require a supervised registrant to 
identify any orders registered under rules for subpart B that the 
Bureau is separately proposing \301\ when the order refers to the use 
of a covered term or condition in a covered form contract as a basis 
for a finding of a violation of law covered by subpart B. For example, 
if an order is not issued by a court or arbitrator, then it would not 
already be covered by the information collection in proposed Sec.  
1092.302(a)(4). Thus, the Bureau seeks comment on whether proposed 
Sec.  1092.302(a)(4) should be expanded to cover agency orders, and if 
so, whether exclusions in proposed Sec.  1092.301(h) should be 
similarly adjusted to account for agency orders.
---------------------------------------------------------------------------

    \301\ See Nonbank Registration--Orders Proposal.
---------------------------------------------------------------------------

    Finally, the Bureau requests comment on whether proposed Sec.  
1092.302(a) more broadly should identify additional or different 
categories of information to be collected by the nonbank registration 
system, including but not limited to the text of the standard covered 
terms or conditions used by the supervised registrant beyond those 
described in proposed Sec.  1092.301(c)(4) through (7), the text of the 
covered form contract in which covered terms or conditions appear, or 
both. Such additional or different categories also could relate to the 
contracting process, such as whether the supervised registrant uses an 
electronic contracting process pursuant to the E-Sign Act requirements, 
including those discussed in the section-by-section analysis of 
proposed Sec.  1092.301(d)(7) above.
302(b) Supervised Registrant's Collection and Reporting of Information; 
Scope of Initial Registration; Corrections to Registration Information
    Proposed Sec.  1092.302(b) would set forth certain standards 
related to the information supervised registrants must collect and 
report pursuant to this subpart.
    Proposed Sec.  1092.302(b)(1) would clarify that for the period 
while a supervised registrant qualifies as a supervised registrant, it 
must collect the information necessary to comply with the reporting 
requirements in proposed Sec.  1092.302(a). For periods when persons 
are not supervised registrants, the rule would not place requirements 
on those persons. For example, a debt collector that is not a larger 
participant would not be required to collect information about its use 
of covered form contracts. If that debt collector later becomes a 
larger participant in the market for consumer debt collection and also 
is not eligible for an exclusion from the definition of supervised 
registrant in proposed Sec.  1092.301(h), then the debt collector would 
be subject to proposed Sec.  1092.302(b)(1) at the time it becomes a 
supervised registrant. Similarly, under proposed Sec.  1092.302(b)(1), 
upon exit from the Bureau's supervisory authority, a person would no 
longer be required to collect the information covered by proposed 
subpart C. The Bureau requests comment on proposed Sec.  1092.302(b)(1) 
including on whether it should include a similar requirement to retain 
records used to submit registration information under subpart C, and if 
so, for how long.\302\
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    \302\ See 12 U.S.C. 5514(b)(7)(A)-(C) (provisions, discussed in 
part IV above, authorizing the Bureau to prescribe rules to 
facilitate supervision and assessing and detecting risks to 
consumers, as well as to ensure that supervised nonbanks ``are 
legitimate entities and are able to perform their obligations to 
consumers). See also 12 U.S.C. 5512(b)(1) (provision, discussed in 
part IV above, authorizing Bureau to prescribe rules as necessary or 
appropriate to enable the Bureau to administer and carry out the 
purposes and objectives of the Federal consumer financial laws and 
to prevent evasions thereof). See, e.g., Nonbank Registration--
Orders Proposal (proposed Sec.  1092.203(e) (relying on these 
authorities to propose a record retention requirement in connection 
with registration of certain orders in Bureau's nonbank registration 
system); CFPB Final Rule, Debt Collection Practices (Regulation F), 
85 FR 76734, 76859 (Nov. 30, 2020) (relying on these authorities to 
impose a record retention requirement in connection with debt 
collection rule).
---------------------------------------------------------------------------

    Proposed Sec.  1092.302(b)(2) would clarify that supervised 
registrants do not need to collect or report information related to 
periods that predate when they become subject to subpart C, as 
determined by the effective date of the rule.\303\ Proposed Sec.  
1092.302(b)(2) would provide examples. For example, proposed Sec.  
1092.302(b)(i) would clarify that, for registrations providing 
information about activities in the calendar year that includes the 
effective date, supervised registrants would satisfy the requirements 
of proposed Sec.  1092.302(a) by submitting information that relates to 
the portion of that calendar year after the effective date. Therefore, 
the Bureau anticipates that, in the first year when it accepts 
registrations (assuming that is in the calendar year after the 
effective date), the information provided may relate to only a portion 
of the previous calendar year. This approach would afford supervised 
registrants advance time to prepare to collect the information they 
will need to report. In addition, to the extent that supervised 
registrants do not want to report certain contract terms or conditions, 
they would have the option of updating their contracts before the 
effective date of the subpart. For example, if a supervised registrant 
had a covered form contract that included a waiver of rights that is 
prohibited by an anti-waiver provision of a statute, the supervised 
registrant could fix that non-compliant contract provision before it 
becomes subject to mandatory reporting under proposed subpart C. As 
discussed in the analysis of impacts of the proposal in part VII, some 
supervised registrants would have an incentive to make such corrections 
before the effective date.
---------------------------------------------------------------------------

    \303\ The nonbank registration system implementation date 
defined in proposed Sec.  1092.101(e) is a separate date that serves 
a different function. The nonbank registration system implementation 
date would define when the filing process begins, and not 
necessarily the time period to which those filings relate.
---------------------------------------------------------------------------

    Proposed Sec.  1092.302(b)(2)(ii) would provide another example, 
where a nonbank became a larger participant in the middle of the 
calendar year before the annual registration date. This could happen, 
for example, for participants in debt collection or consumer reporting 
markets where the larger participant test is based on receipts during 
the fiscal year, if the supervised registrant's fiscal year is not the 
calendar year. In that case, as described in proposed Sec.  
1092.302(b)(2)(ii), its submission of data required by proposed Sec.  
1092.302(a) would only need to cover the period between the date it 
became a larger participant under the applicable test in part 1090 and 
the end of the calendar year.
    Proposed Sec.  1092.302(b)(3) would provide that supervised 
registrants that are affiliates of one another will make their 
submissions either jointly or in combination, as set forth in filing 
instructions the Bureau issues under proposed Sec.  1092.102(a). As 
noted in proposed Sec.  1092.101(a), the term ``affiliate'' has the 
meaning in CFPA section 1002(1): ``any person that controls, is 
controlled by, or is under common control with another

[[Page 6946]]

person.'' \304\ Proposed Sec.  1092.302(b)(3) would further clarify 
that for subpart C, the term ``control,'' for purposes of determining 
who is an affiliate, would have the meaning set forth in part 1090 of 
the Bureau's regulations.\305\ The Bureau believes those definitions 
may facilitate compliance by establishing a standard for what 
constitutes ``control''--one that has been in place for several years 
in the Bureau's larger participant rules.
---------------------------------------------------------------------------

    \304\ 12 U.S.C. 5481(1).
    \305\ See 12 CFR 1090.101 (paragraph (2) of the definition of 
``affiliated company'' defining three types of control).
---------------------------------------------------------------------------

    The Bureau anticipates the possibility of joint or combined 
submissions because that may be the most efficient manner to register 
supervised registrants that have affiliates. It is necessary for the 
Bureau's monitoring and supervision risk assessment to understand the 
scope of an enterprise involved in supervised markets. That information 
affects, among other things, the entity or entities the Bureau may 
choose to examine. Rather than requiring each affiliate to make a 
separate registration, proposed Sec.  1092.302(b)(3) envisions 
registering a group of affiliated entities at once or at least in 
combination. The alternative could be more burdensome. Not only would 
each affiliate have to register separately, but each affiliate would 
have to submit duplicative information--namely, the identity all its 
affiliates.
    Proposed Sec.  1092.302(b)(4) would clarify that a supervised 
registrant must correct an information submission within 30 days of 
when it becomes aware of or has reason to believe that the submitted 
information was and remains inaccurate. Proposed Sec.  1092.302(b)(4) 
would clarify that the process for making corrections will be described 
in the filing instructions the Bureau issues pursuant to proposed Sec.  
1092.102(a). Proposed Sec.  1092.302(b)(4) also would clarify that the 
Bureau may direct a supervised registrant to correct errors or other 
non-compliant submissions to the nonbank registration system. Under 
proposed Sec.  1092.302(b)(4), the Bureau could direct corrections at 
any time and in its sole discretion.
    With respect to the potential for errors in submissions to the 
nonbank registration system, the Bureau also requests comment on 
whether subpart C should provide that a supervised registrant would not 
violate the requirements of proposed subpart C as a result of an error 
in collecting or reporting information, if the error was unintentional 
and occurred despite the maintenance of procedures reasonably adapted 
to avoid such an error. For example, there is a bona fide error 
provision in another information reporting system the Bureau 
administers under Regulation C.\306\ The Bureau also proposed a similar 
provision in its small business lending data reporting proposal.\307\ 
The Bureau is not proposing a similar exception here because, unlike 
data collected under Regulation C and the Bureau's small business 
lending data reporting proposal, the data collected under Sec.  
1092.302 of this proposal generally would not be as complex, extensive, 
or statistical, and thus less prone to error. In addition, even in the 
absence of such a provision, supervised registrants may still have 
sufficient incentives to establish compliance systems both to avoid 
violations and to mitigate risks associated with any inadvertent 
violations that do occur.\308\ However, the Bureau requests comment on 
whether this type of provision would provide incentives for supervised 
registrants to establish procedures to comply with the requirements of 
proposed subpart C, and/or would reduce burden on supervised 
registrants by reducing the risk of penalties in the event of 
inadvertent errors. The Bureau also requests comment on what types of 
bona fide errors, if any, might be likely to occur often.
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    \306\ 12 CFR 1003.6(b).
    \307\ 86 FR 56356, 56503-04 (Oct. 8, 2021) (section-by-section 
analysis of proposed 12 CFR 1002.112(b)).
    \308\ See, e.g., CFPB Bulletin 2020-01, Responsible Conduct: 
Self-Assessing, Self-Reporting, Remediating, and Cooperating (Mar. 
6, 2020) (identifying self-assessment factors that Bureau considers 
when determining how to resolve violations of law via supervisory 
and enforcement tools).
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302(c) Notification by a Previously-Supervised Registrant That It Is No 
Longer Covered by This Subpart
    Under proposed Sec.  1092.302(c), the nonbank registration system 
would accept notification from previously-registered supervised 
registrants that they are no longer covered by proposed subpart C. The 
notifications would be voluntary since the Bureau is not seeking, 
through proposed subpart C, to impose information reporting 
requirements on entities who are no longer supervised by the Bureau.
    Some supervised nonbanks may exit supervised markets, ceasing to be 
supervised nonbanks. If a person is no longer a supervised nonbank, 
then under the proposed rule it would not be required to register or 
update its registration when it is not a supervised nonbank. For 
example, an entity that is not a supervised registrant as of the annual 
registration date would not be required to report information 
concerning the previous calendar year, even if it was a supervised 
registrant for some or all of that time period. However, some 
supervised nonbanks that registered previously may wish to update the 
nonbank registration system so that it is clear that they are no longer 
offering the consumer financial product or service that led them to 
register or that they are no longer a larger participant in the 
relevant market. Proposed Sec.  1092.302(c) would provide a means of 
doing so. Such notices also would facilitate the Bureau's 
administration of the nonbank registration system by clarifying the 
reasons why an entity is no longer registering under proposed subpart 
C. Absent the notification described in proposed Sec.  1092.302(c), 
there may be uncertainty over whether a previously-registered 
supervised registrant failed to comply with the annual update 
requirements in proposed Sec.  1092.302(a).
    The Bureau seeks comment on whether to require the notice described 
in proposed Sec.  1092.302(c), and if so, why, in what circumstances.
302(d) Notification by Certain Persons of Non-Registration Under This 
Subpart
    Under proposed Sec.  1092.302(d), the nonbank registration system 
would accept voluntary notifications of non-registration from persons 
who have a good-faith basis to believe that they are not a supervised 
registrant, or that certain contracts or terms or conditions are not 
covered by subpart C. Notices filed under proposed Sec.  1092.302(d) 
also would be defined as administrative information under proposed 
Sec.  1092.301(a) and therefore not subject to publication under 
proposed Sec.  1092.303(b). Proposed Sec.  1092.302(d) would clarify 
that the person would be required to comply with the registration 
requirements of proposed Sec.  1092.302 promptly if the person becomes 
aware of facts or circumstances that would not permit it to continue 
representing that it has a good faith basis to believe that it is not a 
supervised registrant or that the contract or terms or conditions in 
question are covered by this subpart.
    The Bureau is proposing Sec.  1092.302(d) for several reasons. 
First, while determining whether a company qualifies as a ``supervised 
registrant'' should be straightforward in most cases, some persons may 
be uncertain about whether they are a supervised registrant. Similarly, 
when supervised registrants offer multiple products or services with 
multiple contracts, it should be straightforward in most cases to

[[Page 6947]]

determine which products or services are for consumer financial product 
or service as relevant under Sec.  1092.301(g). However, some 
supervised registrants may be uncertain about whether some of their 
products or services are consumer financial products or services 
described in proposed Sec.  1092.301(g). Finally, it should be 
straightforward in most cases to determine which terms or conditions 
are covered terms or conditions as defined in proposed Sec.  
1092.301(c), including whether they impose limitations described in 
proposed Sec.  1092.301(d). However, some supervised registrants may be 
uncertain about whether some of their terms or conditions are covered 
terms or conditions.
    Even when persons in these circumstances have a good faith basis to 
believe they are not a supervised registrant, or that certain products 
and services they offer or provide are not consumer financial products 
or services described in proposed Sec.  1092.301(g), or that certain 
terms or conditions in their form contracts are not required to be 
registered, the Bureau considered whether to propose that they annually 
register if they did not want to incur the risk of violating the 
requirements of subpart C. But that approach could impose burden on 
persons who ultimately are not supervised registrants or who ultimately 
are not using covered terms or conditions contained in covered form 
contracts. The Bureau therefore proposes an alternative option for 
these persons. Rather than facing the burden of registration, such an 
entity could elect to file a notice under proposed Sec.  1092.302(d).
    When a person makes a non-frivolous filing under proposed Sec.  
1092.302(d) stating that it has a good faith basis to believe that it 
is not a supervised registrant or that it uses a contract or terms or 
conditions that are not covered by subpart C, the Bureau would not 
bring an enforcement action against that person based on the person's 
failure to comply with proposed Sec.  1092.302 unless the Bureau has 
first notified the person that the Bureau believes the person does in 
fact qualify as a supervised registrant or that its contract or terms 
or conditions are covered by subpart C and has subsequently provided 
the person with a reasonable opportunity to comply with proposed Sec.  
1092.302.
    Notices filed under proposed Sec.  1092.302(d) also may reduce 
uncertainty by the Bureau about why certain entities are not 
registering or are not registering certain terms or conditions under 
subpart C. These notices also may provide the Bureau with information 
about how market participants are interpreting the scope of subpart C, 
about the potential need for the Bureau to instruct certain 
unregistered entities to register or to instruct certain registered 
entities to register additional terms or conditions, and about the 
potential need for guidance or rulemaking clarifying the scope of 
subpart C.
    The Bureau requests comment on proposed Sec.  1092.302(d) including 
on whether the final rule for the nonbank registration system should 
specify information that a filer must provide to describe its good 
faith basis to believe subpart C does not apply. For example, the 
Bureau requests comment on whether the filer should provide information 
that supports its determination, such as any court decisions or an 
affidavit, as well as any information that may contradict its position, 
such as a court decision holding that the entity is not outside the 
scope of subpart C.
    The Bureau has considered an alternative to proposed Sec.  
1092.302(d) under which entities that do not file such a notice with 
the Bureau still could avoid penalties for non-compliance with proposed 
Sec.  1092.302 if in fact they could establish a good faith belief that 
they did not qualify as supervised registrants subject to proposed 
Sec.  1092.302. Under this alternative, entities would maintain such 
good faith belief so long as the Bureau had not made clear that 
proposed Sec.  1092.302 would apply to them. The Bureau seeks comment 
on whether it should finalize this alternative instead. It also seeks 
comment on whether, if it finalized this alternative, entities would 
require additional guidance on the circumstances pursuant to which an 
entity could no longer legitimately assert a good faith belief that 
proposed Sec.  1092.302 would not apply to its conduct. While the 
Bureau anticipates that such circumstances would certainly include 
entity-specific notice from the Bureau that proposed Sec.  1092.302 
applies, the Bureau does not believe such notice should be required to 
terminate a good faith defense to registration. Among other 
circumstances, the Bureau anticipates that at least formal Bureau 
interpretations of (for example) subpart C or the provisions of CFPA 
section 1024(a)(1) would generally suffice to terminate such 
belief.\309\
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    \309\ 12 U.S.C. 5514(a)(1).
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    The Bureau also seeks comment on whether it should decline to 
finalize proposed Sec.  1092.302(d) and on whether it should not adopt 
the potential alternative to that provision.
Section 1092.303 Publication of Information Regarding Supervised 
Registrants' Use of Covered Terms and Conditions
303(a) Publication of Information Collected Under This Subpart
    In proposed Sec.  1092.303(a), the Bureau proposes to publish and 
maintain a publicly-available source of identifying information about 
supervised registrants and information about covered terms and 
conditions that supervised registrants use. This could occur, for 
example, on the Bureau's publicly-available internet website. Under 
proposed Sec.  1092.303(a), the Bureau would make this information 
available to the public on a periodic basis within a timeframe it 
determines in its discretion.
    The Bureau has preliminarily determined that publication of 
supervised registrants' identifying information would facilitate the 
ability of consumers to identify covered persons that are registered 
with the Bureau.\310\
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    \310\ 12 U.S.C. 5512(c)(7)(B).
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    In addition, the Bureau preliminarily believes that publication of 
additional information about supervised registrants and their use of 
covered terms and conditions would be in the public interest.\311\ 
Proposed Sec.  1092.303(a) would formally align the proposed nonbank 
registration system with the Federal government's emphasis on making 
government data available to and usable by the public, by default, to 
the greatest extent possible.\312\ It also would provide supervised 
registrants, other regulators, and the general public with clarity as 
to the public availability of data collected under proposed subpart C.
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    \311\ 12 U.S.C. 5512(c)(3)(B).
    \312\ See, e.g., Open, Public, Electronic and Necessary 
Government Data Act, in title II of Public Law 115-435 (Jan. 14, 
2019); Office of Management & Budget, M-19-18, Federal Data 
Strategy--A Framework for Consistency (June 4, 2019), https://www.whitehouse.gov/wp-content/uploads/2019/06/M-19-18.pdf (last 
visited Dec. 7, 2022).
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    Further, the Bureau has preliminarily determined that making the 
data collected publicly available would further the rationale of the 
proposal--namely, enhancing oversight of and awareness of supervised 
registrants' use of covered terms and conditions in covered form 
contracts, as discussed in part II.C.3 above. Regulators at all levels 
of government (not just the Bureau) could use the information the 
Bureau makes publicly available to set priorities. Researchers could 
analyze the

[[Page 6948]]

information the Bureau makes publicly available to gain valuable 
insight into the issues addressed in the nonbank registration system. 
For example, they could produce reports that may inform consumers and 
the public more broadly of potential risks posed by covered terms and 
conditions, or otherwise use the public data to promote private 
innovation. The public registry could broadly inform public debate 
about use of contracts of adhesion in consumer finance markets and 
beyond and help ground that debate in data. The public registry also 
could enable education of consumers about which consumer financial 
products and services contain covered terms or conditions that the 
consumers may or may not want. The Bureau requests comment on how 
industry may use the published information, such as by better 
understanding the terms or conditions used by other firms.
    Finally, publication may help to promote government accountability 
by making public certain information that the Bureau can use to 
prioritize its resources. Publication also would help the public to 
understand the impact of the Bureau's nonbank registry initiative more 
broadly.
    The Bureau seeks comment on potential costs and benefits of making 
data from the nonbank registry system publicly available on a periodic 
basis. In particular, the Bureau seeks comment on whether it should not 
finalize the provisions in proposed Sec.  1092.303, whether it should 
not publicize some of the information collected pursuant to proposed 
Sec.  1092.302 (beyond administrative information or information not 
permitted to be disclosed by law), or whether there may be approaches 
to publishing the information that would mitigate confusion about the 
registry. CFPA section 1022(c)(7) recognizes that it may be in the 
public interest for consumers to know who is registered with the 
Bureau. However, there may be some uncertainty over the degree to which 
consumers would use the publicized information and, when they do, over 
how consumers could interpret such information. For example, consumers 
might view a supervised nonbank's registration in the Bureau's nonbank 
registration system as an indicator that their covered terms and 
conditions pose a substantial risk. (On that note, the Bureau requests 
comment about whether to not publish information on certain terms or 
conditions to the extent the risk they may pose to consumers is 
negligible or de minimis, and if so, which covered terms may meet that 
standard in which circumstances and how the Bureau would assess whether 
the risk is at such a level.) Or consumers may misunderstand 
registration to mean that registered entities are ``legitimate,'' that 
registration itself serves as an endorsement by the Bureau, or that all 
registered entities are regularly examined by the Bureau. While 
registration might indicate that the entity is complying with subpart 
C, it would not in and of itself establish the entity's legitimacy or 
serve as a Bureau endorsement in any way. And, as discussed in part 
II.C.2, there are many more nonbanks subject to the Bureau's 
supervisory authority than are regularly examined by the Bureau--a fact 
that consumers may not appreciate. Moreover, proposed subpart C would 
not constitute a licensing system or an authorization by the Bureau for 
the supervised registrant to engage in offering of supervised consumer 
financial products or services. For these reasons, the Bureau continues 
to evaluate the possibility that publishing information collected under 
proposed subpart C has the potential to create confusion, which, to the 
extent it occurs, is unlikely to serve the public interest. If the 
Bureau finalizes proposed Sec.  1092.303, it would consider options for 
publishing the information in a manner that mitigates this risk.
303(b) Scope of Information Released Publicly by the Bureau
    Proposed Sec.  1092.303(b) would require the Bureau to publish 
information collected by proposed subpart C by default.
    However, proposed Sec.  1092.303(b) would clarify that, consistent 
with CFPA section 1022(c)(8), the Bureau would not publish information 
protected from public disclosure under Exemption 4 of the Freedom of 
Information Act (FOIA), 5 U.S.C. 552(b)(4). CFPA section 1022(c)(8) 
states that ``[i]n . . . publicly releasing information held by the 
Bureau, or requiring covered persons to publicly report information, 
the Bureau shall take steps to ensure that proprietary, personal, or 
confidential consumer information that is protected from public 
disclosure under [the FOIA, 5 U.S.C. 552(b)] or [the Privacy Act of 
1974, 5 U.S.C. 552a], or any other provision of law, is not made public 
under [the CFPA].'' While much of the information submitted to the 
nonbank registry under proposed subpart C would not be legally 
protected from public disclosure, some of the information may be 
confidential commercial information subject to Exemption 4 of the 
FOIA.\313\
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    \313\ Information subject to publication under proposed Sec.  
1092.303 appears unlikely to be subject to legal protections from 
public disclosure, other than perhaps the information protected by 
FOIA Exemption 4. The Bureau requests comment on whether additional 
legal protections may apply to information the Bureau proposes to be 
included in the public registry.
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    Exemption 4 protects from disclosure ``trade secrets and commercial 
or financial information obtained from a person and [that is] 
privileged or confidential.'' \314\ Courts construe data to be 
``commercial information'' where the submitter has a ``commercial 
interest'' in them.\315\ The Bureau therefore believes that information 
submitted to the nonbank registry system that describes supervised 
registrants' ongoing business operations is likely to qualify as 
``commercial information.'' Furthermore, courts have interpreted 
information to be ``confidential'' under Exemption 4 if it is 
customarily and actually kept private by the submitter.\316\ Some of 
the information submitted to the nonbank registry may meet this 
standard and therefore be protected by Exemption 4.
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    \314\ 5 U.S.C. 552(b)(4).
    \315\ See Pub. Citizen Health Research Group v. FDA, 704 F.2d 
1280, 1290 (D.C. Cir. 1983).
    \316\ See Food Marketing Institute v. Argus Leader Media, 139 S. 
Ct. 2356, 2363 (2019).
---------------------------------------------------------------------------

    The Bureau requests comment on whether institutions customarily and 
actually keep private information collected under proposed Sec.  
1092.302, including any information collected under proposed Sec.  
1092.302(a) such as information about arbitrator decisions described by 
proposed Sec.  1092.302(a)(4), and information about certain affiliate 
relationships that may be collected pursuant to proposed Sec.  
1092.302(b)(3). Where applicable, the Bureau asks that such comments 
address each category of information listed in proposed Sec.  1092.302 
with specificity, including descriptions of practices related to how 
each category is (or is not) maintained and/or protected from 
disclosure.
    If the Bureau determines that information submitted to the nonbank 
registry may be protected from disclosure by FOIA Exemption 4, the 
Bureau instead would publish the data in an aggregated format that does 
not directly or indirectly identify the source of the information.\317\ 
The Bureau believes that publication of this data is in the public 
interest, for the same reasons as described above, even if the

[[Page 6949]]

data is published in aggregated form to protect confidentiality.
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    \317\ See 12 CFR 1070.41(c) (``The CFPB may, in its discretion, 
disclose materials that it derives from or creates using 
confidential information to the extent that such materials do not 
identify, either directly or indirectly, any particular person to 
whom the confidential information pertains.'').
---------------------------------------------------------------------------

    Because the Bureau is relying in part on its supervisory authority 
in CFPA section 1024 to require submission of information to the 
nonbank registration system, information collected under the proposed 
rule could be construed to be ``confidential supervisory information'' 
as defined in the Bureau's confidentiality rules at 12 CFR 1070.2(i). 
The public release of information required by proposed Sec.  
1092.303(b) would be authorized by the Bureau's confidentiality rules 
at 12 CFR 1070.45(a)(7). That provision permits the Bureau to disclose 
confidential information ``[a]s required under any other applicable 
law.'' The Bureau does not believe that the information proposed to be 
published under Sec.  1092.303(b) would raise the concerns generally 
addressed by the Bureau's general restrictions on disclosure of 
confidential supervisory information. For example, after accounting for 
any confidential business information protected by FOIA Exemption 4 and 
excluding administrative information as defined in proposed Sec.  
1092.301(a), disclosure of the remaining information would not reveal 
institutions' proprietary or privileged information; would not impede 
the confidential supervisory process; and would not present risks to 
the financial system writ large. The Bureau's alternative for 
information subject to FOIA Exemption 4--to publish it in a format that 
does not directly or indirectly identify the source of the 
information--is consistent with how the Bureau treats confidential 
information generally, including confidential supervisory 
information.\318\
---------------------------------------------------------------------------

    \318\ See id.
---------------------------------------------------------------------------

    Proposed Sec.  1092.303(b) also would clarify that the Bureau would 
not publish administrative information, as defined in proposed Sec.  
1092.301(a). The proposal defines that term to include contact 
information and other information submitted or collected in the nonbank 
registration system to facilitate administration of the nonbank 
registration system, including nonregistration statements filed under 
proposed Sec.  1092.302(d). The purposes for this information are 
limited--for example, so the Bureau can contact the supervised 
registrant with questions about the registration. As also discussed in 
the section-by-section analysis of proposed Sec.  1092.301(a), the 
proposal would not publicize this information because the Bureau does 
not believe publication would be of use to the general public. 
Therefore, the Bureau preliminarily concludes that release of 
administrative information would not be in the public interest. The 
Bureau seeks comment on its proposal not to publish administrative 
information, including whether the release of administrative 
information would be in the public interest.
    Finally, proposed Sec.  1092.303(b) would clarify that the Bureau 
retains discretion not to publish information that has been corrected 
or is subject to correction, as well as information that is not 
required to be submitted under subpart C or is otherwise not in 
compliance with part 1092. For example, the Bureau does not believe it 
would be in the public interest to publish or continue to publish 
previously published inaccurate information for which it has received 
or issued a correction notice as described in proposed Sec.  
1092.302(b)(4). In addition, persons could submit unauthorized or 
inadvertent filings, or filings regarding terms and conditions that 
would not require registration under the proposal, or other inaccurate 
or inappropriate filings. The Bureau believes it would require 
flexibility not to publish such information to maintain the accuracy 
and integrity of the nonbank registration system and the data that 
would be published by the Bureau.

VI. Proposed Effective Date of Final Rule

    The Administrative Procedure Act generally requires that rules be 
published not less than 30 days before their effective date.\319\ The 
Bureau proposes that, once issued, the final rule for this proposal 
would be effective 30 days after it is published in the Federal 
Register. However, as described in the proposal, registration would be 
required by an annual registration date that comes at a later time, 
after the nonbank registration system implementation date, which is 
likely to be no earlier than January 2024. The Bureau seeks comment on 
the proposed effective date including whether it should be at a 
different time, and if so, when and why.
---------------------------------------------------------------------------

    \319\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------

VII. Dodd-Frank Act Section 1022(b)(2) Analysis

A. Overview

    In developing the proposed rule, the Bureau has considered the 
potential benefits, costs, and impacts of the proposed rule as required 
by section 1022(b)(2) of the Consumer Financial Protection Act 
(CFPA).\320\ The Bureau requests comment on the preliminary analysis 
presented below as well as submissions of additional data and analysis 
that could help refine the Bureau's analysis of the benefits, costs, 
and impacts. In developing the proposed rule, the Bureau has consulted, 
or offered to consult with, the appropriate prudential regulators and 
other Federal agencies, including regarding consistency with any 
prudential, market, or systemic objectives administered by such 
agencies as required by CFPA section 1022(b)(2)(B). The Bureau also has 
consulted with State agencies and Tribal governments \321\ as required 
by CFPA sections 1022(c)(7)(C) and 1024(b)(7)(D).
---------------------------------------------------------------------------

    \320\ Specifically, CFPA section 1022(b)(2)(A) calls for the 
Bureau to consider the potential benefits and costs of a regulation 
to consumers and covered persons, including the potential reduction 
of access by consumers to consumer financial products or services; 
the impact on depository institutions and credit unions with $10 
billion or less in total assets as described in CFPA section 1026; 
and the impact on consumers in rural areas.
    \321\ CFPA section 1002(27) defines ``State'' to include ``any 
federally recognized Indian Tribe, as defined by the Secretary of 
the Interior under section 104(a) of the Federally Recognized Indian 
Tribe List Act of 1994 (25 U.S.C. 479a-1(a)).''
---------------------------------------------------------------------------

    The Bureau is proposing this rule to establish a registration 
system for supervised nonbanks that use form contracts to impose 
covered terms and conditions. The purposes of this nonbank registration 
system would be to support monitoring of risks to consumers in the 
offering or provision of consumer financial products and services, to 
facilitate supervision of nonbanks and assess and detect risks to 
consumers as authorized by CFPA section 1024(b), and to publicly 
release the information collected in the public interest, as authorized 
by CFPA section 1022(c). The registration system for nonbanks that use 
certain standard terms and conditions in consumer contracts would 
increase transparency and oversight in areas where certain standard 
terms and conditions limit private enforcement and increase 
transparency for the public when consumers are waiving rights.
    The policy embodied in the proposed rule can be broken into three 
parts.
    First, under the proposed rule, subject to certain exclusions, 
supervised nonbanks that use covered terms and conditions would be 
required to register annually using a nonbank registration system 
established by the Bureau. As part of the registration process, these 
supervised registrants would be required to submit three separate types 
of information: identifying information, administrative information, 
and information related to their use of covered contract terms and 
conditions.
    Second, the Bureau would use information acquired through the

[[Page 6950]]

nonbank registration system to facilitate the Bureau's monitoring 
functions and supervisory processes.
    Third, the Bureau would publish each of the types of nonbank 
registration information, except for administrative information, on its 
website and potentially in other forms, to the maximum extent permitted 
by applicable law.
    We analyze these three parts separately below.

B. Data Limitations and the Quantification of Benefits, Costs, and 
Impacts

    The discussion below relies on information that the Bureau has 
obtained from other regulatory agencies and publicly available sources, 
as well as Bureau expertise. These sources form the basis for the 
Bureau's consideration of the likely impacts of the proposed rule. The 
Bureau provides its best estimates of the potential benefits and costs 
to consumers and covered persons of this proposal, given available 
data. However, as discussed further below, the data with which to 
quantify the potential costs, benefits, and impacts of the proposed 
rule generally are limited.
    In light of these data limitations, the analysis below generally 
provides a qualitative discussion of the benefits, costs, and impacts 
of the proposed rule. General economic principles and the Bureau's 
expertise in markets for consumer financial products and services, 
together with the limited data that are available, provide insight into 
these benefits, costs, and impacts. The Bureau requests additional data 
or studies that could help quantify the benefits and costs to consumers 
and covered persons of the proposed rule.

C. Baseline for Analysis

    In evaluating the potential benefits, costs, and impacts of the 
proposed rule, the Bureau takes as a baseline the current legal 
framework regarding the use of covered terms and conditions. Under the 
baseline legal framework, supervised nonbanks are subject to certain 
prohibitions and restrictions on the use of covered terms and 
conditions, including explicit statutory and regulatory restrictions, 
as well as a prohibition on UDAAPs, as discussed in part II above. 
Supervised nonbanks also are not obliged to annually register with the 
Bureau. Nor are they required by rule to provide information to the 
Bureau concerning their use of covered terms and conditions.\322\ Much 
of the information that would be acquired by the Bureau as a result of 
the proposed rule is not in the Bureau's possession or available from 
any other source. As a result, it is not used currently by the Bureau 
to monitor, assess, or address the risks to consumers presented by 
covered terms and conditions. Furthermore, much of this information is 
not currently published by the Bureau and therefore is not available to 
other regulators or the general public.\323\
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    \322\ Some nonbanks may be required to provide sample contracts 
as a part of examination by the Bureau. The Bureau's examination 
procedures generally describe how contracts are sampled. For 
individual exams, information requests vary and may not include all 
contracts covered by this rule. Furthermore, in contrast to the 
proposed rule, any information on contracts obtained through 
examinations is confidential and generally is not made publicly 
available in non-aggregated form.
    \323\ Part II.C above discusses examples of Bureau supervisory 
or enforcement matters that identified risks from the use of covered 
terms and conditions at certain supervised nonbanks. These are made 
public through Supervisory Highlights or the public enforcement 
actions the Bureau brings.
---------------------------------------------------------------------------

    A few nonbanks currently are required to report their entire 
contract, including any covered terms and conditions, under State laws 
which govern one supervised market--private student loan origination--
in a few states.\324\ In addition, in the mortgage lending market, most 
residential mortgages for site-built homes are either eligible for 
purchase by government-sponsored enterprises or for insurance by 
Federal agencies \325\ that generally require the use of standard-form 
promissory notes that are published on websites for a commercial 
audience.\326\ For these firms, the costs, benefits, and impacts of the 
proposed rule will generally be smaller than described below.
---------------------------------------------------------------------------

    \324\ There are general requirements in Colorado, Maine, and 
Louisiana for private student lenders to provide model loan 
agreements that regulators make or will make publicly-accessible. In 
addition, Illinois has adopted legislation to collect these 
agreements.
    \325\ CFPB 2021 Mortgage Market Trends Report at Table 1 
(reporting fewer than 10% of total 2021 originations for 1-4 family 
residential mortgages were not conventional conforming or FHA/VA/
FSA/RHS-insured), https://files.consumerfinance.gov/f/documents/cfpb_data-point-mortgage-market-activity-trends_report_2022-09.pdf.
    \326\ See, e.g., Fannie Mae Selling Guide B8-3-01, Notes for 
Conventional Mortgages (09/02/2020) & Fannie Mae Legal Documents 
(July 2021), https://singlefamily.fanniemae.com/fannie-mae-legal-documents (last visited Dec. 7, 2022).; HUD Single Family Mortgage 
Promissory Notes, https://www.hud.gov/program_offices/housing/sfh/model_documents (last visited Dec. 7, 2022).
---------------------------------------------------------------------------

D. Coverage of the Proposed Rule

    This proposed rule would affect nonbank covered persons subject to 
the supervisory authority of the Bureau under 12 U.S.C. 5514(a), and 
not excluded from the supervisory authority of the Bureau pursuant to 
12 U.S.C. 5517 or 12 U.S.C. 5519 (defined in proposed Sec.  1092.301(g) 
as supervised nonbanks). Supervised nonbanks that may be covered by the 
rule may offer or provide several types of consumer financial products 
and services. Subject to the foregoing statutory exclusions, supervised 
nonbanks include any nonbank covered person that:
    (1) Offers or provides a residential mortgage-related product or 
service as described in 12 U.S.C. 5514(a)(1)(A);
    (2) Offers or provides any private educational consumer loan as 
described in 12 U.S.C. 5514(a)(1)(D);
    (3) Offers or provides any consumer payday loan as described in 12 
U.S.C. 5514(a)(1)(E);
    (4) Is a larger participant in any market as defined by rule in 
part 1090 pursuant to 12 U.S.C. 5514(a)(1)(B); \327\ or
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    \327\ Under current Bureau regulations, larger participant 
markets include: consumer reporting, consumer debt collection, 
student loan servicing, international money transfers, and 
automobile financing.
---------------------------------------------------------------------------

    (5) Is subject to an order issued by the Bureau pursuant to 12 
U.S.C. 5514(a)(1)(C).
    The Bureau seeks comment on any other entities that may be affected 
by the proposed rule.
    All Bureau-supervised nonbanks in the markets described above that 
use covered terms and conditions potentially would be affected by the 
proposed rule, except for persons excluded by proposed Sec.  
1092.301(h). Among other exclusions, proposed Sec.  1092.301(h) would 
exclude natural persons, persons (together with affiliates) with less 
than $1 million in annual receipts from the offering or provisions of 
the consumer financial products or services described above, persons 
(together with affiliates) using covered terms in no more than a de 
minimis manner, and persons whose sole use of covered terms and 
conditions is in publicly-available residential mortgage contracts 
required for insurance, guarantee, or purchase by Federal agencies or 
Federal government-

[[Page 6951]]

sponsored enterprises.\328\ Many of the costs, benefits, and impacts of 
the proposed rule will not be applicable to entities that both do not 
enter into contracts containing covered terms or conditions, and do not 
enforce these terms or conditions appearing in contracts of 
others.\329\
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    \328\ The proposed de minimis exemption has two components: 
entering into covered form contracts containing covered terms and 
conditions less than 1,000 times in the previous calendar year and 
not obtaining a court or arbitrator decision on the enforceability 
of covered of terms and conditions (whether enforcing or rejecting 
enforcement). Proposed Sec.  301(h) also includes exemptions for a 
Federal agency, a State (including a Tribe), persons supervised 
solely as service providers under Bureau supervisory authorities, 
and persons to the extent they meet the definition of ``related 
person'' in 12 U.S.C. 5481(25).
    \329\ In general, supervised nonbanks not using covered terms or 
conditions will need to understand the rule and verify that they are 
exempt. This will generally be a one-time cost, as nonbanks are able 
to verify that future contracts do not include covered terms or 
conditions in the normal course of business.
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    The Bureau seeks comment on any other entities that may be affected 
by the proposed rule.
    Under existing law, there is no system or central registry that 
comprehensively identifies nonbanks that are subject to the Bureau's 
supervisory authority. Furthermore, as discussed above, supervised 
nonbanks currently are not required to register with the Bureau 
regarding their use of covered terms or conditions. Without 
comprehensive information on the number of supervised nonbanks, 
including the number of supervised nonbanks using covered terms or 
conditions in covered form contracts, the Bureau cannot precisely 
estimate the number of entities that will be affected by the proposed 
rule. Moreover, the Bureau cannot precisely estimate the number of 
consumers or accounts that will be affected by the proposed rule.
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[[Page 6952]]

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[[Page 6953]]

    Table 1 presents the best estimate available to the Bureau of the 
number of affected entities under the proposed rule.\330\ The estimate 
is based on the most recent Economic Census data.\331\ Table 1 presents 
entity counts for the 6-digit North American Industry Classification 
System (NAICS) codes that generally include the markets supervised by 
the Bureau, including counts for entities with more than $1 million in 
revenue reported in the 2017 Economic Census. The markets defined by 
NAICS codes are broader than the markets supervised by the Bureau.\332\ 
Moreover, Table 1 counts an unknown number of entities active in 
markets over which the Bureau exercises larger participant supervisory 
authority, but which are not supervised because they are not larger 
participants under existing Bureau rules in part 1090, generally 
because they fall below a size threshold. Although some supervised 
nonbanks may fall outside the NAICS codes listed in Table 1, the Bureau 
believes their number to be small. In particular, the Bureau believes 
that the number of these supervised nonbanks is smaller than the number 
of entities counted in Table 1 that are not subject to the Bureau's 
supervisory authority. As such, the Bureau considers the estimates in 
Table 1 to be an upper bound on the number of currently-supervised 
nonbanks potentially covered by the proposed rule.\333\ The Bureau 
seeks comment on NAICS codes not included in Table 1 that include a 
significant number of entities affected by the proposed rule.
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    \330\ The number of entities in the ``total'' row in Table 1 is 
less than the sum of the rows above it because some NAICS codes 
appear in multiple markets, for example, ``Other Activities Related 
to Credit Intermediation'' appears three times.
    \331\ These entity counts include only firms operating for the 
entire year, for which there are reliable estimates of annual 
receipts. See U.S. Census Bureau, ECN Core Statistics Economic 
Census: Establishment and Firm Size Statistics for the U.S., 
Selected Sectors: Sales, Value of Shipments, or Revenue Size of 
Firms for the U.S. (2017), https://data.census.gov/table?d=ECN+Core+Statistics+Economic+Census:+Establishment+and+Firm+Size+Statistics+for+the+U.S.&tid=ECNSIZE2017.EC1700SIZEREVFIRM.
    \332\ The full definitions of each of the 2017 NAICS codes in 
Table 1 can be identified at https://www.census.gov/naics/.
    \333\ That is, any undercounting of impacted entities outside 
the NAICS codes listed in Table 1 is likely to be more than offset 
by an overcounting due to the broader delineation of markets defined 
by NAICS codes relative to the larger participant markets.
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    In addition, the penultimate row of Table 1 presents an estimate of 
the number of nonbanks that would be subject to the Bureau's 
supervisory authority pursuant to orders the Bureau may issue in the 
future.\334\
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    \334\ Currently, the Bureau estimates that very few entities are 
subject to supervision solely due to a pre-existing consent order. 
However, the Bureau has recently announced plans to use this 
authority and anticipates that the number of entities in this 
category will increase. Given that orders generally remain in force 
for two to five years, and the proposal includes an exemption for 
such orders with a duration of two years or less, it is unlikely 
that more than 25 entities would be covered in any given year. See 
Consumer Financial Protection Bureau, CFPB Invokes Dormant Authority 
to Examine Nonbank Companies Posing Risks to Consumers (Apr. 25, 
2022), https://www.consumerfinance.gov/about-us/newsroom/cfpb-invokes-dormant-authority-to-examine-nonbank-companies-posing-risks-to-consumers/.
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    As noted above, Table 1 likely over-estimates the number of current 
larger participants subject to the Bureau's supervisory authority. In 
any event, any nonbank covered persons not currently subject to the 
Bureau's supervisory authority that become subject to its authority 
pursuant to a future larger participant rule generally would incur the 
same costs the Bureau describes and estimates below on a per-entity 
basis. Similarly, the benefits described below generally would increase 
as more entities become subject to the registration requirement and 
provide information about the covered terms and conditions in their 
specific form contracts.
    Given that some supervised nonbanks may not use covered terms and 
conditions, Table 1 is likely to overestimate the number of entities 
subject to the registration requirements of the proposed rule. The 
Bureau does not have sufficient data to precisely estimate the number 
of supervised nonbanks that use covered terms and conditions, which is 
one problem the proposed rule seeks to remedy. However, based on 
available information, the Bureau believes that the use of covered 
terms and conditions is widespread, although prevalence of specific 
terms may vary widely by market.\335\ The Bureau seeks any additional 
input or data on this issue.
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    \335\ There has been some variance in the use of arbitration 
agreements across markets. See Consumer Financial Protection Bureau, 
Arbitration Study (Mar. 2015), https://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
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    Some nonbanks that the Bureau has not previously examined may not 
know if they are subject to the Bureau's supervisory jurisdiction. The 
Bureau anticipates that nonbanks facing legitimate uncertainty about 
their status as supervised nonbanks under the proposed rule will choose 
to notify the Bureau on a confidential basis that they are not 
registering, due to the low burden of providing that basic information 
and the specific option to do so described in proposed Sec.  
1092.302(d). Unfortunately, no information exists on the number of 
unsupervised nonbanks facing legitimate uncertainty over whether they 
are subject to Bureau supervision. However, such nonbanks still are 
most likely to be in the Economic Census industries defined by the 
NAICS codes listed in Table 1, and therefore accounted for in the 
analysis. The Bureau seeks comment or data on the extent and impact of 
potential uncertainty regarding a nonbank's status (such as whether it 
is a larger participant) and registration requirements, and on 
alternatives which might reduce the impact of this uncertainty.

E. Potential Benefits and Costs to Consumers and Covered Persons

    This section describes the benefits and costs to consumers and 
covered persons that the Bureau expects to occur if the proposed rule 
is adopted. Each of the three components of the rule, described above, 
is analyzed in detail separately.
    The Bureau anticipates that the primary benefit of the proposed 
rule is increased compliance by those entities using covered terms and 
conditions to avoid complying with underlying law including Federal 
consumer financial laws regulating the supervised registrant's business 
practices (apart from the use of covered terms and conditions, 
discussed separately below). The proposed rule would incentivize firms 
to comply through at least two mechanisms. First, the proposed registry 
would enable the Bureau to better target its limited monitoring, 
supervision, and enforcement resources to entities posing a risk of 
violation of Federal consumer financial law. Upon publication of the 
information collected in the registry, other public regulators, 
including those who have a shared role in enforcing Federal consumer 
financial law, also could use the information to calibrate the 
prioritization of their resources. Consumers would benefit from 
increased compliance as a result of this public scrutiny in 
circumstances where consumers' ability to protect themselves through 
private enforcement is impeded.
    Second, a public registry of covered terms and conditions contained 
in covered form contracts will increase compliance by helping public 
regulators to detect terms or conditions prohibited by law. As 
discussed in part II.B above, some provisions of law expressly prohibit 
certain covered terms and conditions, expressly render certain

[[Page 6954]]

covered terms and conditions void and unenforceable, or both. As also 
illustrated by some of the examples discussed in part II.C above, other 
provisions of law, such as the CFPA's prohibition against UDAAPs, also 
may prohibit or limit the use of certain covered terms and conditions. 
Although such illegal terms generally are unenforceable, they still 
sometimes may be used. The Bureau does not possess data on the 
frequency of use of such terms, but as discussed in part II above, 
these terms and conditions are in fact used today. And when used in 
prohibited circumstances such as those generally described in part II 
above, these terms and conditions likely still have a chilling effect 
on consumers' ability to enforce or exercise their rights or otherwise 
protect their interests. As discussed in more detail below including in 
part VII.E.2, the Bureau believes that supervised nonbanks currently 
using prohibited covered terms and conditions often would remove them 
from their contracts, thus benefitting consumers.
    The primary costs of the proposed rule would affect supervised 
nonbanks that use covered terms or conditions. These entities would 
incur the cost of time spent by employees to read and understand the 
requirements of the proposed rule, and then gather and submit the 
required registration information. This would include locating and 
identifying information sought by the proposed rule about the 
supervised nonbanks' use of covered terms and conditions in covered 
form contracts regarding the offering or provision of consumer 
financial products or services in markets the Bureau supervises. This 
information would include standardized data regarding certain covered 
terms and conditions (i.e., limitations on time, place, forum, or venue 
for filing legal action, on filing actions seeking relief for other 
consumers, on participation in legal action filed by others, and 
arbitration agreements) and the text of other covered terms and 
conditions (liability limits, waivers of causes of action, non-
disparagement clauses, and other waivers). This information also would 
include a limited amount of additional information about each form 
contract--the States in which the contract is used, the legal names of 
any persons other than a consumer and the supervised registrant that 
typically entered into the covered form contract, and any governing law 
specified in the contract. If the terms or conditions are contained in 
a form contract from a form provider, the name of the provider and 
citation to the contract also would be collected. Finally, the 
supervised nonbank would need to locate any court and arbitrator 
decisions on enforcement of these terms and conditions and report about 
the frequency and results of these decisions. As discussed below, 
covered supervised nonbanks may also bear some indirect costs related 
to increased incentives to comply with laws specifically governing the 
use of covered terms and conditions.
    If finalized as proposed, the rule would affect supervised nonbanks 
as long as it is in effect. However, the costs, benefits, and impacts 
of any rule are difficult to predict far into the future. Therefore, 
the analysis below of the benefits, costs, and impacts of the proposed 
rule is most likely to be accurate for the first several years 
following implementation of the proposed rule.
1. Registration and Submission of Information Regarding Covered Terms 
and Conditions Contained in Covered Form Contracts
    This section VII.E.1 discusses the costs and benefits to consumers 
and covered persons of the first part of the rule outlined in part 
VII.A above: registration and submission of information regarding 
covered terms and conditions contained in covered form contracts.
Costs
    To precisely quantify the costs to covered persons, the Bureau 
would need representative data on the operational costs that supervised 
nonbanks incur to locate, identify, gather, and submit registration 
information regarding their use of covered terms and conditions in 
covered form contracts. Given that no such registry currently exists, 
the Bureau does not believe that data on this specific type of 
reporting cost are likely to be available from any source. The Bureau 
has made reasonable effort to gather data on reporting costs, 
generally, and the discussion below uses this information to quantify 
certain likely costs of the proposed rule. The Bureau believes that the 
following discussion of the costs of registration and submission of 
information regarding covered terms or conditions in covered form 
contracts accounts for most elements of cost, given the extent of 
available data. However, these calculations may not fully quantify the 
costs to covered persons, especially given the potential for wide 
variation in use of covered terms or conditions in covered form 
contracts by supervised nonbanks across a diverse set of industries. 
The Bureau requests comment on any additional impacts as well as 
information that would inform its cost estimates.
    In general, the costs would fall into four subcategories: the cost 
of understanding the proposed rule, the cost of identifying covered 
terms and conditions in covered form contracts that the nonbanks enter 
into, the cost of identifying and reporting on the nature of court and 
arbitrator decisions on the enforceability of covered terms and 
conditions, and the cost of entering all the related information, as 
well as the nonbank's identifying information and administrative 
information,\336\ into the registration system. If a supervised nonbank 
does not directly enter into agreements with consumers and did not 
obtain arbitrator or court decisions on the enforceability of a covered 
term or condition--which may be the case for some servicers or debt 
collectors--then its costs in the second and subsequent categories 
would be limited to the time needed to confirm that fact.
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    \336\ The cost of entering required administrative information, 
such as contact information, would be minimal and generally is 
accounted for below as part of the cost of entering related 
identifying information.
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    The first step to register as required by the proposed rule is to 
read the filing instructions and understand the requirements of the 
proposed rule as reflected in the filing instructions. The Bureau 
anticipates issuing guidance in the filing instructions to assist with 
this step, and that supervised nonbanks will generally not read the 
final rule in its entirety. Based on the Bureau's experience, this will 
generally take roughly 60 minutes for a typical firm. Some firms may 
have higher costs. For example, as part of the time to understand the 
registration requirements, some nonbanks may take time to analyze 
whether they are supervised by the Bureau or otherwise exempt from the 
proposed rule. Some of these nonbanks may be permitted to notify the 
Bureau that they believe in good faith they are not supervised or 
eligible for an exclusion from the definition of supervised registrant. 
These nonbanks, to the extent they may use covered terms or conditions, 
may consult an in-house attorney on whether they have a good faith 
basis to file a notice of non-registration.\337\ The Bureau requests 
comment on which types of consumer financial products and services over 
which there would be such uncertainty as to coverage by the proposed 
rule, as well as the costs of

[[Page 6955]]

determining whether to file such a notice and of filing the notice.
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    \337\ And if they file such a notice, the cost of that would be 
less than the cost of full registration in steps 4 and 5 of Table 2 
discussed below.
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    The second step requires supervised registrants to identify certain 
information regarding covered terms and conditions in each of their 
covered form contracts for the offering or provision of consumer 
financial products or services in Bureau-supervised markets. These 
covered terms and conditions appear in contracts in standardized 
language, and therefore often can be identified relatively quickly by 
skimming or searching, without reading the contract in its entirety. 
Based on comments it receives on the proposal or other feedback, the 
Bureau also may issue guidance documents to assist with this step. The 
time involved in identifying required information is likely to depend 
on how firms maintain information regarding their use of consumer 
contracts, and the Bureau therefore expects the burden to decline as 
firms gain experience with the registration process and adapt their 
record-keeping practices to more efficiently track the information 
required by the proposed rule. The Bureau also is proposing to collect 
information on firms' use of covered terms and conditions in contracts 
purchased from third-party providers. Although the Bureau believes the 
burden of identifying and submitting information on covered terms and 
conditions already would be small, if the Bureau allowed simplified 
reporting of common purchased contracts,\338\ some firms may choose to 
minimize their burden by purchasing their contracts instead of writing 
them in house. In addition, in the years following the first year of 
registration, supervised registrants will need to identify only 
information needed to update their existing registration--i.e., any new 
covered form contracts that contain covered terms or conditions, any 
new or amended covered terms or conditions in previously-registered 
covered form contracts, or removals or modifications of previously-
registered covered terms or conditions. The time needed to do that will 
be shorter than in the first year of registration. Therefore, the 
Bureau assesses that, on average, this step will take less than 45 
minutes per contract each year for supervised registrants using ten or 
fewer contracts, and less than 30 minutes per contract each year for 
supervised registrants using more than ten contracts. Some firms may 
use uncommon covered terms and conditions that cannot be readily 
identified or determined to be covered for purposes of registration. 
For such firms, this step may take additional time, including in 
circumstances where the firm ultimately decides it has a good faith 
basis to determine the term or condition is not covered and thus may 
instead file a voluntary notice of non-registration of that term or 
condition under proposed Sec.  1092.302(d). The Bureau requests comment 
on the types and specific examples of covered terms and conditions that 
might be difficult to detect or determine coverage and on steps the 
Bureau could take to reduce this burden.
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    \338\ As discussed in the section-by-section analysis of 
proposed Sec.  1092.302(a)(3)(vi), the Bureau requests comment on 
this option.
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    The third step requires supervised registrants to identify whether 
courts or arbitrators have issued decisions on the enforceability of 
covered terms or conditions, such as by ruling on requests to enforce 
these covered terms and conditions. If, during the previous calendar 
year, supervised registrants know they did not receive a court decision 
of this type, such as a decision dismissing, staying, or capping 
liability for a claim filed by the consumer on the basis of a covered 
term or condition, or ruling on a request to enforce a non-
disparagement clause, they can answer no. If supervised registrants are 
aware of any covered court or arbitrator decisions, then they can 
answer yes. The Bureau believes that most supervised registrants retain 
records of legal action and can readily ascertain whether or not they 
had any covered court or arbitrator decisions. Furthermore, the Bureau 
believes that the majority of registrants will not have any covered 
court or arbitration decisions and will be able to complete this step 
in under 20 minutes. Registrants with covered decisions will be 
required to compile those decisions and identify the presence or 
absence of language related to covered terms or conditions contained in 
covered form contracts. For decisions that would be covered, supervised 
registrants must note what product or service and term or condition was 
at issue in the decision, and how the court or arbitrator ruled (i.e., 
to enforce the term or condition or not). The Bureau assesses that this 
is likely to take less than 120 minutes. Therefore, the Bureau assesses 
that, on average, supervised registrants will require less than 70 
minutes to find and consult the relevant records to complete this 
step.\339\ Large entities may have more complex legal activities and 
may be more likely to have qualifying court or arbitrator decisions and 
the Bureau therefore assesses that this step will take 140 minutes for 
firms with 250 or more separate contracts.
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    \339\ Under the conservative assumption that at least 50% of 
registrants do not have covered court or arbitration decisions in a 
given calendar year, we compute this as: 0.5*20 + 0.5*120 = 70 
minutes, or twice that amount for large, complex firms.
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    Finally, supervised registrants must submit the information they 
have gathered to the online registration system. There would be a one-
time cost of creating an account to register in the nonbank 
registration system, which would involve, among other steps, verifying 
the identity of the individual performing the registration for the 
supervised registrant as well as their authority to act on behalf of 
the supervised registrant for purposes of the nonbank registration. For 
supervised registrants already registered with the Bureau, for example 
through the Consumer Response Company Portal, the time involved should 
be minimal. For entities that have not already been verified, this 
process may take significantly more time. The burden of verification 
will depend on the exact policies and procedures laid out in the filing 
instructions and cannot be precisely estimated at this time. However, 
the Bureau expects that, on average, this step will take under five 
hours of employee time to complete. Registrants may occasionally need 
to reverify, for example due to reorganization or employee turnover. 
The Bureau expects that, on average, registrants will not need to go 
through the verification process more than once every five years. 
Therefore, the amortized annual burden of verification is likely to be 
less than 60 minutes on average.
    Each year during periodic registrations, there would be a cost for 
providing or updating basic identifying information for the supervised 
registrant, including information about any affiliate relationships 
with other supervised registrants, and for providing or updating 
information regarding the covered terms and conditions. Submitting this 
information is likely to take less than 60 minutes for most firms, and 
up to 90 minutes for large, complex firms. In addition, the Bureau 
estimates that once the relevant information on each covered form 
contract is gathered, inputting this information into the registration 
system is likely to take less than roughly 20 minutes per contract. 
These estimates include time supervised registrants likely would spend 
to verify that the registration is complete and accurate. Proposed 
Sec.  1092.302(b)(4) would require correction of incorrect registration 
information, but it is uncertain how often errors would occur. The 
Bureau requests comment on that

[[Page 6956]]

issue, and also seeks comment and data on how a possible bona fide 
error provision discussed in the section-by-section analysis of 
proposed Sec.  1092.302(b)(4) may affect the procedures established to 
ensure the accuracy of information submitted, and the related expected 
costs.
    The Bureau requests comment, data, or other information that would 
help inform its estimates of the time required to complete the tasks 
described above.
    The Bureau assesses the average hourly base wage rate for each 
reporting requirement at $43.60 per hour. This is the mean hourly wage 
for employees in four major occupational groups assessed to be most 
likely responsible for the registration process: Management ($59.31/
hr); Legal Occupations ($54.38/hr); Business and Financial Operations 
($39.82/hr); and Office and Administrative Support ($20.88/hr).\340\ 
The average hourly wage of $43.60 is multiplied by the private industry 
benefits factor of 1.42 to get a fully loaded wage rate of $61.90/
hr.\341\ The Bureau includes these four occupational groups in order to 
account for the mix of specialized employees that may assist in the 
registration process. The Bureau assesses that the registration process 
will generally be completed by office and administrative support 
employees that are generally responsible for the registrant's paperwork 
and other administrative tasks. Employees specialized in business and 
financial operations or in legal occupations are likely to provide 
information and assistance with the registration process. Senior 
officers and other managers are likely to review the registration 
information before it is submitted and may provide additional 
information. The Bureau requests any information that would inform its 
estimate of the average hourly compensation of employees required to 
register under the proposed rule.
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    \340\ See U.S. Bureau of Labor Statistics, National Occupational 
Employment and Wage Estimates United States (May 2021), https://www.bls.gov/oes/current/oes_nat.htm.
    \341\ As of March 2022, the ratio between total compensation and 
wages for private industry workers is 1.42. See U.S. Bureau of Labor 
Statistics, Employer Costs for Employee Compensation: Private 
industry dataset, (March 2022), https://www.bls.gov/web/ecec/ecec-private-dataset.xlsx.
[GRAPHIC] [TIFF OMITTED] TP01FE23.003

    The direct registration cost for a given supervised nonbank will 
depend on its complexity in general and, most importantly, on the 
number of different covered form contracts it uses. Table 2 presents 
the estimated direct registration cost for supervised nonbanks at three 
different levels of complexity, based on the assumptions described 
above. For supervised nonbanks covered by exclusions to the rule in 
proposed Sec.  1092.301(h), they would only need to complete step 1 in 
Table 2 to ascertain that fact. For other supervised nonbanks that 
complete steps 2 and 3 without identifying covered terms and conditions 
in covered form contracts they enter into or decisions on enforcement 
of covered terms, they would not need to complete steps 4 or 5.
    The total direct cost of registration depends on how many 
supervised nonbanks fall into each of the three representative 
categories of contract complexity. For illustrative purposes, Table 3 
reports estimates of how many of the estimated number of supervised 
nonbanks reported in Table 1 may fall into each category, based on 
their total revenue as reported in the Economic Census. The Bureau 
believes that revenue is a reasonable and transparent indicator of the 
number of contracts used by supervised nonbanks, and therefore 
appropriate for estimating the average time burden and cost of 
registration. However, some supervised nonbanks with relatively low 
revenue may use many covered form contracts, or vice versa. The Bureau 
requests any information that could inform its estimates of the 
distribution of registration costs across supervised nonbanks.
    The Bureau has considered the possibility that covered nonbanks 
pass on some or all of the costs described above to consumers. As 
described below, the nature of these costs makes it unlikely that 
consumers will bear a

[[Page 6957]]

significant portion of the direct costs of registration under the 
proposed rule. According to standard theory of the firm, profit-
maximizing firms will fully absorb any one-time costs or fixed costs, 
unless these costs are sufficiently large that it is no longer 
profitable to offer a given product or service. Firms may pass on, 
fully or in part, an increase in their variable cost to consumers 
through higher prices.\342\ Therefore, consumers could experience 
modestly higher prices if registration costs depend on the number of 
times a given contract is used. However, because the registration costs 
very likely do not depend on the number of times a given covered form 
contract is used, the Bureau considers these costs to be fixed costs at 
the product or service level. Therefore, the Bureau believes that the 
provisions of the proposed rule requiring registration and submission 
of information regarding covered terms and conditions will not lead to 
increased prices for consumers.
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    \342\ Fixed costs are defined as costs required to provide a 
product or service and which do not depend on the number of 
consumers or accounts, or on the size or volume of transactions. 
Variable costs are defined as costs which change as the quantity of 
the good or service provided by the firm changes.
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    The Bureau also has considered the degree to which the proposed 
rule may induce supervised nonbanks to discontinue certain products or 
services due to the cost of registering and submitting information 
regarding covered terms and conditions contained in covered form 
contracts. That outcome is not the rationale or stated goal of the 
rule, but the Bureau is considering the extent of its likelihood here. 
Given the small fixed costs associated with these provisions, as 
described above, a firm or product line would need to be on the 
threshold of unprofitability for the proposed rule to induce exit. The 
Bureau believes there are very few, if any, firms with over $1 million 
in revenues for which the proposed rule would be a decisive factor in 
their exit decision. Therefore, the proposed rule is unlikely to lead 
to a significant reduction in the offering of specific products and 
services. However, the Bureau does not have adequate information with 
which to quantify the identity or number of products or services that 
could or might be discontinued as a result of this proposed rule, and 
therefore cannot quantify the resulting impact, if any, on consumers.
    If it is cheaper to remove a given covered term or condition than 
to maintain it, then profit maximization implies that the firm will 
remove that covered term or condition from its contracts. As a result, 
under the proposed rule, if the cost of registering a given covered 
term or condition minus the benefits of maintaining it in a covered 
form contract for a particular product or service exceeds a firm's 
costs of removing the term from supervised nonbanks' contracts, profit 
maximization implies that the firm will remove that term from its 
contracts.\343\ To the extent that any covered terms or conditions 
removed by supervised registrants were disadvantageous to consumers, 
consumers will benefit and some supervised registrants may be impacted. 
To quantify these impacts, the Bureau would need information regarding 
the costs and benefits to supervised nonbanks of including covered 
terms and conditions in their contracts. In its 2017 arbitration 
agreement rule, which did not take effect, the Bureau found that many 
firms often view the benefits of arbitration agreements to 
significantly exceed their costs.\344\ Similar data on the costs and 
benefits to firms from other covered terms and conditions is not 
available. The costs of removing covered terms and conditions are 
discussed in part VII.E.2 below and should be considered an upper bound 
on the costs described here, because supervised nonbanks always have 
the option to register contracts instead of removing covered terms and 
conditions.
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    \343\ That is, if (cost of registration)--(benefits of contract 
term) > (cost of removing term).
    \344\ 82 FR at 33397.
    [GRAPHIC] [TIFF OMITTED] TP01FE23.004
    
Benefits
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    \345\ The Economic Census provides firms counts for revenue 
ranges. Here, firms with $1-10MM in revenue are assumed to be 
``simple,'' with 10 different contracts on average. Firms with over 
$100MM in revenue are assumed to be ``complex'' with 250 different 
contracts on average. In addition to the Economic Census data, the 
Bureau assumes that the estimated 25 nonbanks subject to supervision 
due to orders are large and therefore complex. For details burden 
and cost estimates, see Table 2.
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    When separated out from the monitoring and supervisory uses 
(analyzed separately in part VII.E.2 below) and the publication 
provision (analyzed separately in part VII.E.3 below), the registration 
and information submission provision alone is unlikely to provide any 
benefits for affected firms.
    For consumer financial services and products offered by supervised 
nonbanks, the main benefit derived from registration under the proposed 
rule is the Bureau's enhanced monitoring and supervision based on the 
information collection regarding covered terms and conditions contained 
in covered form contracts. This consumer protection activity by the 
Bureau via this proposed rule and its beneficial effects for consumers 
are described in detail in the following part VII.E.2.
2. Use of Information for Bureau's Market Monitoring and Supervision 
Processes
    The Bureau can use the information collected under the proposal for

[[Page 6958]]

monitoring and supervisory processes. The publication component, while 
a monitoring process, is discussed separately in part VII.E.3 below.
Costs
    The costs to covered persons of the Bureau's use of information 
collected under the proposal through its monitoring and supervisory 
processes may differ depending on the degree to which any covered terms 
and conditions that supervised nonbanks use are prohibited by law, 
including Federal consumer financial law (whether enumerated consumer 
laws and implementing regulations discussed in part II.B or the 
prohibition against UDAAPs such as in the examples discussed in part 
II.C). Most of these costs can be grouped into two categories, each of 
which relates to changes in the probability of supervision by the 
Bureau. First, as discussed below, some firms may face incentives to 
modify the covered terms and conditions in their covered form contracts 
in response to the proposed rule. Firms choosing to modify their 
covered terms and conditions in their covered form contracts face a 
direct paperwork cost of modifying their form contracts, as well as 
potential impacts from changes to their form contracts. For example, to 
the extent supervised nonbanks use prohibited covered terms and 
conditions, there may be specific impacts from these firms' 
discontinuing use of prohibited covered terms and conditions in covered 
form contracts they enter into with consumers in the future. Second, 
some nonbanks may experience costs from an increased likelihood of 
examination by the Bureau due to the Bureau's use of the information 
collected under the proposed rule. As discussed below, this increase 
likely would be at least partially offset by forgone examinations of 
other supervised nonbanks.
    With respect to the first category of cost--of removing prohibited 
covered terms and conditions, in addition to the prohibition against 
UDAAPs, Federal, State, and Tribal laws include a number of express 
prohibitions of the use of a number of covered terms and 
conditions.\346\ Despite these express prohibitions and the prohibition 
against UDAAPs, the Bureau and other regulators have identified 
violations of some of these prohibitions linked to contract terms and 
conditions purporting to waive consumer protections and limit their 
exercise or enforcement by consumers. Although these types of 
prohibited contract terms and conditions generally are unenforceable, 
the fact that some supervised nonbanks include them in their contracts 
strongly suggests that these entities obtain some economic benefit from 
them. For example, such terms may deter consumers from pursuing 
remedies by deceiving them into believing that they no longer have the 
right purported to be waived or limited.
---------------------------------------------------------------------------

    \346\ For examples, see the discussion in parts II.A and II.C of 
the preamble.
---------------------------------------------------------------------------

    Under the proposed rule, supervised nonbanks would be required to 
register covered terms and conditions, including any covered terms or 
conditions that are expressly prohibited or whose use may constitute 
UDAAPs. The Bureau believes that supervised nonbanks currently using 
prohibited covered terms or conditions in their form contracts 
generally would choose to remove them (from the form contracts for 
future use) prior to registration. Under the proposal (see proposed 
Sec.  1092.302(b)(2)(i)), if a supervised registrant removes a covered 
term or condition before the effective date of the final rule, a 
supervised registrant would not be required to register that term or 
condition. This impact may impose two types of costs on supervised 
nonbanks. First, supervised nonbanks will lose any benefits they were 
obtaining from the use of prohibited covered terms or conditions. 
Second, supervised nonbanks may incur administrative costs to identify 
and remove any prohibited covered terms or conditions from their form 
contracts slated for future use. Supervised nonbanks may accomplish the 
removal directly to form contracts they draft and periodically update, 
or through implementing updated form contracts they purchase from form 
providers who periodically update their form contracts based on changes 
in law.\347\ The Bureau does not have any systematic data with which to 
estimate the prevalence of prohibited covered terms and conditions, and 
therefore cannot fully quantify either of these costs. At baseline, 
these terms and conditions already are prohibited, whether explicitly 
or under UDAAP. Thus, firms already have an incentive not to use them. 
Regardless of their prevalence, prohibited covered terms and conditions 
generally are unenforceable, and only of value to the firms using them 
to the extent they mislead consumers into believing otherwise and thus 
chill consumers' enforcement or exercise of rights. Therefore, the 
Bureau believes the impact of no longer using prohibited covered terms 
and conditions on supervised nonbanks is likely to be small.
---------------------------------------------------------------------------

    \347\ As noted in the discussion of benefits of this second 
component of impact, the Bureau believes that existing widely-used 
form provider contracts, in general, are unlikely to contain 
expressly prohibited covered terms or conditions.
---------------------------------------------------------------------------

    Covered terms and conditions that are not expressly prohibited by 
law, or that are not per se prohibited (such as where the presence of a 
UDAAP may depend on facts and circumstances beyond the text of the term 
or condition), also may be indicators of risk to consumers and use of 
these covered terms and conditions also may inform the Bureau's 
supervision priorities. The Bureau therefore also considers the impact 
of nonbanks' incentives to modify the covered terms or conditions 
contained in their covered form contracts in response to changes in the 
probability of examination by the Bureau. The impact of changes to 
Bureau supervision, and examination prioritization in particular, is 
discussed below. As discussed below, given Bureau resource constraints 
and the high number of supervised nonbanks, the baseline likelihood of 
examination in a given year is low for the average supervised nonbank. 
Examination priorities depend on many factors other than use of covered 
terms and conditions and it is unlikely that a supervised nonbank could 
significantly decrease their likelihood of examination, in absolute 
terms, by modifying their covered terms or conditions in their covered 
form contracts.\348\ For most supervised nonbanks, the cost of the 
examination process is primarily the employee time necessary to respond 
to the Bureau's information requests and is unlikely to exceed roughly 
$35,000.\349\ Therefore, the incentive for a typical supervised nonbank 
to modify their contracts in order to manipulate their probability of 
examination is relatively weak.
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    \348\ The Bureau does not currently have access to the 
information that would be collected by the proposed rule, and 
therefore has not developed policies or procedures for incorporating 
this information into its examination priorities. To the extent that 
the relationship between use of covered terms and conditions and the 
Bureau's examination priorities is not public, supervised nonbanks' 
incentives to influence the Bureau's priorities by modifying their 
contracts will be further weakened.
    \349\ See, e.g., CFPB, Final Rule Defining Larger Participants 
of the Automobile Financing Market and Definition Certain Automobile 
Leasing Activity as a Financial Product or Service, 80 FR 37496, 
37520 (June 30, 2015) (estimating cost of examination for larger 
participant automobile finance company would be $27,611, or $33,834 
when adjusted for inflation using the 2022Q3 GDP Implicit Price 
Deflator).
---------------------------------------------------------------------------

    Some subset of supervised nonbanks engaged in activities that, if 
supervised, likely would lead to enforcement may have stronger 
incentives to modify their

[[Page 6959]]

contracts. These incentives may be particularly high if such supervised 
nonbanks are unknown to the Bureau at baseline, as they may face a 
relatively larger increase in the probability of examination upon 
registration. In theory, such firms could choose to avoid this 
increase, and the prospect of increased public oversight generally, by 
removing all covered terms and conditions from their contracts. 
However, it is uncertain whether these firms would act on the 
incentive, for example, by removing their arbitration agreements. Such 
a move essentially would trade an increased risk of public oversight 
for an increased risk of private enforcement including class actions. 
And firms engaged in activities likely to lead to enforcement may be 
equally concerned about creating new exposure to class actions. The 
Bureau requests comment on supervised nonbanks' incentives to modify 
the covered terms or conditions in their covered form contracts in 
response to the proposed rule including, where relevant, specific 
examples of covered terms and conditions that firms may modify and a 
description of what modifications may occur and why.
    For the unknown share of supervised nonbanks that may choose to 
review and modify the covered terms or conditions contained in their 
covered form contracts for future use, the Bureau assesses the cost to 
be less than 5 hours per contract. This process would involve a mix of 
managerial, legal, business, and administrative employees, with an 
average fully loaded hourly wage of $61.90, calculated as described 
above. Therefore, the cost for supervised nonbanks using expressly 
prohibited covered terms and conditions could range from $3,095 for a 
firm using 10 contracts containing such terms to $77,375 for a firm 
using 250 contracts. The Bureau believes this would be a one-time cost 
because, after the effective date of the final rule, supervised 
nonbanks may simply choose to refrain from including expressly 
prohibited covered terms and conditions in their new contracts. 
Amortized over the first five years of the rule, the cost of changing a 
form contract would range from approximately $620.00 to $15,500 
annually. To quantify the total impact, the Bureau would need 
information on how many supervised nonbanks would have a strong 
incentive to modify their form contracts, generally because they 
contain prohibited covered terms and conditions.\350\ The Bureau also 
would need to know how many supervised nonbanks draft their own form 
contracts, as opposed to purchasing them from third parties. Form 
contract providers appear less likely to use prohibited terms and 
conditions, and, if that is so, would be less likely to have an 
incentive to modify their contracts as a result of the proposed rule. 
Furthermore, the form contract providers would bear the cost of these 
modifications. To the extent that these costs are passed through to 
supervised nonbanks as higher prices, the impact on any individual 
business that is a customer of the form contract provider is likely to 
be negligible. The Bureau seeks comment or data on the use of form 
contracts purchased from third parties. In particular, the Bureau seeks 
information on the prevalence of third-party form contracts in 
different markets and for supervised nonbanks of different sizes.
---------------------------------------------------------------------------

    \350\ As discussed above, some supervised nonbanks also may have 
an incentive to modify or remove covered terms and conditions that 
are not expressly prohibited. For example, a supervised nonbank may 
believe that modifying or removing a specific term or condition 
would lead to decreased likelihood of Bureau supervision.
---------------------------------------------------------------------------

    With respect to the second category of cost--the direct costs of 
monitoring and examination by the Bureau that may specifically result 
from the proposed rule, pursuant to its authorities under CFPA section 
1022, as discussed in part II.C.1 above, the Bureau may consider both 
risks and costs to consumers, and consumer understanding of risks, as 
factors in allocating its monitoring resources. A major purpose of the 
proposed rule is to use the nonbank registration system to facilitate 
the Bureau's monitoring and supervisory processes. The information 
collected under the proposed rule will have at least two distinct 
effects on supervised nonbanks' costs related to Bureau supervision and 
enforcement. First, the Bureau would use the registration information 
to prioritize markets or entities where applicable legal protections 
are often waived, or where private enforcement or exercise of consumer 
rights is weakened, by the use of covered terms and conditions. Second, 
the registry of supervised nonbanks independently would improve the 
Bureau's ability to determine which nonbanks are subject to its 
supervisory authority. To the extent a nonbank would not have been 
examined but for the adoption of the proposed rule, the costs of an 
examination of that nonbank could be similar to the costs estimated in 
the Bureau's larger participant rules, adjusted for inflation.\351\ 
However, most supervised nonbanks would not go from no likelihood of 
examination to definitely being examined as a result of the proposed 
rule. Rather, for a given supervised nonbank, the examination cost 
resulting from the proposed rule generally would be the cost of an 
examination multiplied by the marginal change in probability of an 
examination. The Bureau cannot quantify the change in likelihood of 
such an examination without the information collected by the proposed 
rule and the opportunity to develop and test methods for incorporating 
this information into Bureau decision making. However, the Bureau 
conducts a limited number of supervisory actions per year. A modest 
increase in the number of actions due to increased efficiency will not 
noticeably change the probability that any given entity is supervised. 
Individual supervised nonbanks may experience larger changes in the 
probability of supervisory action due to improvements in how the Bureau 
prioritizes supervision. Therefore, the cost of any exam conducted due 
to the rule generally would be offset by other, lower-priority exam 
work not conducted. That is, to the extent that the costs of 
supervisory action are similar across entities, the proposed rule would 
reallocate the costs of being examined across supervised nonbanks but 
is unlikely to increase significantly the overall costs to all 
supervised nonbanks of being examined.
---------------------------------------------------------------------------

    \351\ See, e.g., CFPB, Final Rule Defining Larger Participants 
of the Automobile Financing Market and Definition Certain Automobile 
Leasing Activity as a Financial Product or Service, 80 FR 37496, 
37520 (June 30, 2015) (estimating cost of examination for larger 
participant automobile finance company would be $27,611).
---------------------------------------------------------------------------

    The Bureau has considered the possibility that supervised nonbanks 
would pass through some of the costs described above to consumers, 
generally by raising prices. Although the Bureau lacks sufficient data 
to quantify the extent to which consumers may ultimately bear some of 
the impacts on firms discussed above, economic theory and available 
evidence suggest that the impact on consumers is likely to be small. As 
discussed in part VII.E.1. above, firms generally are only able to pass 
increased costs through to consumers if those costs vary depending on 
the number of units sold. Although the incentive to modify a contract 
may depend on the number of times it is used, many of the costs 
described above are paid for each covered form contract, regardless of 
the number of times the covered form contract is used, and therefore 
are unlikely to be passed through to consumers. Because firm size is 
taken into account in the Bureau's examination prioritization, costs

[[Page 6960]]

associated with the probability of supervision arguably are variable 
costs that could be passed through to consumers. However, as discussed 
above, the proposed rule does not increase the total resources 
available to the Bureau for supervision and will generally reallocate 
the costs of examination across supervised nonbanks. Because firms pass 
through decreases as well as increases in marginal cost to consumers, 
this implies that prices for consumers are unlikely to increase on net. 
Consumers' ability to substitute towards firms offering lower prices 
will further mitigate any increase in consumer prices related to the 
costs described in this section.
Benefits
    The Bureau does not have data on the prevalence of covered waivers 
and other covered terms and conditions that are expressly prohibited by 
Federal, State, and Tribal laws, or on the prevalence of covered terms 
and conditions that may constitute UDAAPs. As against that baseline, 
which the Bureau lacks data to quantify, the Bureau believes that the 
proposed rule will significantly reduce the use of prohibited covered 
terms and conditions. Even when they are generally unenforceable, 
covered terms and conditions still harm consumers by chilling private 
action because many consumers are unaware that such covered terms and 
conditions are prohibited. For example, when a consumer complains about 
a particular practice or harm, a firm using a prohibited covered waiver 
may incorrectly claim that the consumer waived their rights and thus 
has no rights to enforce. In light of what the covered waiver states 
and the likelihood of the firm standing behind it if a consumer 
complains, a reasonable consumer may believe that they have waived 
their rights, and not pursue further action.
    As discussed above, the Bureau believes that the obligation to 
register covered terms and conditions will significantly reduce the use 
of prohibited covered terms and conditions. Although the Bureau has 
documented examples of the use of prohibited covered waivers and other 
covered terms and conditions, the Bureau is unaware of any systematic 
data that would enable it to estimate the prevalence of prohibited 
covered terms or conditions or their harm to consumers. Therefore, the 
Bureau cannot quantify the benefit from incentivizing firms to remove 
prohibited covered terms and conditions from their contracts. The 
Bureau requests any additional information that would improve its 
understanding of this benefit.
    Some firms may be using prohibited covered terms or conditions 
unintentionally, for example because they have purchased a contract 
from a vendor. Because such firms did not choose to include expressly 
prohibited covered terms or conditions in their contracts, the legal 
risks associated with using them may exceed the benefits. Such firms 
may therefore benefit from the proposed rule, as any advantages lost by 
removing prohibited covered terms and conditions (which the form 
provider may do, or the supervised registrant may do by modifying the 
form contract or using a different contract) are outweighed by the 
benefit of reduced legal risk. The Bureau does not have systematic data 
on the unintentional use of prohibited covered terms and conditions, or 
on the expected benefits or costs of using prohibited covered terms and 
conditions. Therefore, the Bureau cannot quantify this benefit. Because 
form providers typically review developments in the law and update 
their form contracts accordingly, and market the form contracts as 
legally tested and updated, the likelihood of a prohibited covered term 
or condition in a form contract furnished by a form contract provider 
may be relatively low.
    Covered terms and conditions that are not prohibited also may 
deprive consumers of legal rights or other legal protections or 
undermine those legal rights or other legal protections by placing 
limits on how consumers enforce them (e.g., by limiting the timing, 
venue, forum, or recovery for legal actions, or ability to file 
complaints) or complain about matters related to potential 
noncompliance with them.\352\ By extinguishing or diminishing the 
adequacy of applicable consumer legal protections, these covered terms 
and conditions weaken firms' incentives to comply with applicable legal 
protections including Federal consumer financial law. Therefore, the 
Bureau believes that markets or firms where these covered terms and 
conditions are more prevalent likely are relatively riskier for 
consumers. The proposed rule will allow the Bureau to target its 
monitoring, supervision, enforcement, and other resources to riskier 
markets and firms. The possibility of such increased supervision as 
well as its reality will increase firms' incentives to comply with 
applicable legal protections including Federal consumer financial law 
and reduce harm to consumers.
---------------------------------------------------------------------------

    \352\ There may be relatively few situations where contractual 
limitations on complaints are not prohibited by law. See CFPB 
Bulletin 2022-05 (describing likelihood that contractual limits on 
complaints will constitute UDAAPs).
---------------------------------------------------------------------------

    Because their use is not generally prohibited in supervised markets 
outside of certain mortgage agreements and lending to servicemembers as 
discussed in part II above, arbitration agreements may be a common 
example of covered terms or conditions generally not prohibited by law. 
As discussed in the Bureau's section 1022(b) analysis of the provisions 
of its 2017 final rule (which did not take effect) that would have 
prohibited use of arbitration agreements from blocking class actions, 
arbitration agreements (which often may be enforceable under the 
Federal Arbitration Act) pose a risk of reducing deterrence for 
violation of, and thereby increasing noncompliance with, Federal 
consumer financial law and other applicable legal protections.\353\
---------------------------------------------------------------------------

    \353\ 82 FR at 33410.
---------------------------------------------------------------------------

    Apart from data about the prevalence of arbitration agreements 
discussed in part II.C.2 above, the Bureau does not have systematic 
data on the use of covered terms and conditions that are not expressly 
prohibited by law, the relationship between these covered terms and 
conditions and risky or potentially illegal activity, the resulting 
harm to consumers, or the extent to which risky or potentially illegal 
activity would be deterred by changes to Bureau prioritization. 
Therefore, the Bureau is unable to quantify this benefit.
    In addition to enhancing the Bureau's process for prioritizing 
supervision of individual entities, the information collected by the 
proposed rule will improve the Bureau's general understanding of the 
role of covered terms and conditions in supervised markets and their 
effects on consumers. The proposed rule would give the Bureau high-
quality information on the use of covered terms and conditions in 
several significant markets in which the Bureau monitors for risks to 
consumers. The proposed registry would improve the Bureau's monitoring 
for potential risks to consumers arising from the use of specific 
covered terms and conditions, their use at specific types of firms, and 
broader patterns in the use of covered terms and conditions. Such 
monitoring, in turn, would help inform the Bureau's other functions, 
including not only its supervisory function, but also its consumer 
education, market research, and enforcement functions. Through exercise 
of those functions, the Bureau may identify and publicize linkages from 
the use of particular

[[Page 6961]]

covered terms and conditions, or patterns of use of covered terms and 
conditions, and specific benefits or harms to consumers (whether 
through the use of covered terms and conditions that are prohibited by 
applicable legal protections, or through the undermining of applicable 
legal protections by the use of covered terms and conditions 
generally). Those activities likely would improve the functioning of 
the broader market for consumer financial products and services. 
Because market participants typically benefit from well-functioning 
markets, the proposed rule is likely to have positive effects on both 
consumers and supervised nonbanks. The Bureau does not have data to 
quantify these benefits.
    Because the proposed rule would not require entities to register if 
they do not use covered terms and conditions, and the proposal would 
not require entities to submit information about their revenues or 
volume of activity in the supervised markets, the Bureau would need 
additional data on non-users to precisely estimate the prevalence of 
covered terms and conditions overall or within a given market. However, 
the proposed rule still would provide a valuable source of information 
on questions of interest to the Bureau and the general public. For 
example, in part due to lack of comprehensive data, the Bureau does not 
have good estimates of how consumers value covered terms and 
conditions. Similarly, precisely how market concentration and 
competition between firms impacts use of covered terms and conditions 
offered to consumers is generally poorly understood. The proposed rule 
will provide evidence that will shed light on these and other 
questions, which may inform or precipitate future Bureau publications 
or policy initiatives. For example, as the Bureau learns more about the 
effects of certain covered terms and conditions, it may issue guidance 
to improve consumers' understanding of their rights and ability to make 
informed decisions about the contracts they enter into or about their 
rights under contracts they already entered into. Firms using covered 
terms and conditions in covered form contracts also may benefit from a 
better understanding of how these terms and conditions are used and how 
they are perceived by consumers. Without the data to be collected by 
the proposed registry, the Bureau cannot anticipate, or quantify, these 
benefits.
    Firms that are complying with the law (by both not using covered 
terms and conditions that are prohibited, and by adhering to underlying 
applicable legal protections despite any use of covered terms and 
conditions), are often at a competitive disadvantage relative to firms 
that do not comply with the law. As discussed above, the information 
collected by the proposed rule is likely to improve the Bureau's 
ability to target supervisory action towards those firms that may be 
using covered terms and conditions in a manner that facilitates 
violating Federal consumer financial law. To the extent that this 
improvement induces more firms to comply with Federal consumer 
financial law, firms which were previously compliant will benefit. As 
noted above, the Bureau does not have systematic data on the use of all 
covered terms and conditions, the number of firms currently not 
complying with consumer protection law, or the harm to compliant firms 
from their competitors' noncompliance. The Bureau is therefore unable 
to quantify this benefit to firms. Improved targeting of the Bureau's 
monitoring and supervision processes also may benefit firms that do not 
use covered terms and conditions or use them in a manner that does not 
facilitate violation of Federal consumer financial law, as they would 
be, on the margin, less likely to bear the costs of supervision or 
enforcement actions, as discussed above. Without the data proposed to 
be collected by the registry or the opportunity to develop, test, and 
implement procedures for using this data to inform Bureau 
prioritization, the Bureau is unable to quantify this benefit.
3. Publication of Registration Information Pursuant the Bureau's Market 
Monitoring Authority Costs
    The publication requirement in proposed Sec.  1092.303 would allow 
information about covered terms and conditions that are already 
available to existing customers of supervised registrants to be 
centralized on the Bureau's public website. This could make the 
information more accessible than it might otherwise be. However, in the 
section 1022(b) analysis impacts of the Bureau's recent proposal to 
register certain public orders against covered persons, the Bureau 
observed that publication of certain public orders in a centralized 
fashion would be unlikely to change the behavior of most 
consumers.\354\ Similarly, as explained at the end of this part VII.E.3 
below, the publication of information that would be required by this 
proposal is likely to have a minimal impact on consumer behavior, so 
the impact of this proposed provision on most affected entities likely 
would not be significant.
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    \354\ Nonbank Registration--Orders Proposal, at 169 (citing 
research on impacts of consumer disclosures).
---------------------------------------------------------------------------

    For the reasons discussed in part VII.E.2 above, firms are likely 
to remove covered terms or conditions that are prohibited by law, 
before being required to register them under the proposed rule. Some 
firms' use of covered terms and conditions that are not prohibited by 
law still may be so controversial among consumers or the general public 
that their publication on the Bureau's public website could impose a 
significant impact on these firms. However, even under the baseline 
with no rule, covered terms and conditions generally are available and 
can become the subject of scrutiny by public regulators and the public 
at large. Publication may increase the incentive at the margin to 
remove covered terms and conditions, to the extent the Bureau, through 
its supervisory work, would not have found a given covered term or 
condition to violate or risk violating Federal consumer financial law.
    With respect to the covered terms and conditions that are 
registered (which likely would be largely terms and conditions that are 
not prohibited), even if controversial, their publication is unlikely 
to result in a significant increase in private class actions. As 
discussed in part II, these remaining covered terms and conditions 
reflect risks to consumers due to their potential to undermine 
applicable legal protections magnified by their creation through form 
contracts often entered into with limited consumer understanding. It is 
possible some of these remaining terms and conditions may, in 
conjunction with other facts or circumstances, also violate the 
prohibition against UDAAP or other protections enforced by other 
regulators or privately. However, with respect to the potential for 
significant increased private enforcement, through class actions in 
particular, that appears unlikely. Consumers' ability to participate in 
class actions is limited by several of the covered terms and 
conditions, and especially in light of the prevalence of arbitration 
agreements discussed in part II above. As a result, in the context of 
current law governing the covered terms and conditions, the Bureau's 
publication of information collected by the proposal is unlikely to 
result in a significant increase in class action litigation across 
markets supervised by the Bureau.
    The Bureau requests comments and information that would inform the 
Bureau's estimates of the impacts of publication on covered entities.

[[Page 6962]]

    Although the Bureau is not proposing the registry to signal an 
endorsement of supervised registrants or their safety, some consumers 
may interpret registration as a signal of legitimacy or safety.\355\ 
Unregistered firms may experience costs if consumers interpret their 
absence from the registry as a signal that they are relatively more 
likely to be illegitimate or risky.\356\ There is also some potential 
for harm to consumers who do not understand the information conveyed by 
registration and, for example, pay less attention to other indicators 
of a firm's business practices. The Bureau is in a position to minimize 
these costs by designing a public-facing registration system that can 
educate those consumers who might access it on the significance of the 
published information.
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    \355\ All else equal, use of covered terms and conditions in 
covered form contracts is an indicator that a firm is potentially 
risky, rather than safe. It is also only one among many indicators 
of risk to consumers, and should not be relied on exclusively to 
determine a firm's riskiness to consumers.
    \356\ For example, enough firms purport to be supervised by the 
Securities and Exchange Commission (SEC) that the SEC maintains a 
public list of unregistered entities known as the PAUSE program.
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    On the other hand, consumers might interpret published information 
on a supervised registrant's use of covered terms and conditions in 
covered form contracts as a signal that their products or services are 
risky. As discussed below, consumers are unlikely to directly-access 
the registry, but its information could be used to heighten public 
awareness. This signal potentially generated by publication in the 
registry generally is unlikely to impose costs such as by altering the 
ability of firms to attract or retain customers, except potentially in 
limited circumstances. In general, the use of many types of covered 
terms and conditions is widespread and that the presence of many well-
known firms on the registry would not negatively affect their ability 
to attract or retain customers. In addition, the registry may identify 
certain other covered terms and conditions that are not prohibited but 
which are outliers and are unusually risky. Depending on the 
competitive environment that firms face, they may choose to adjust 
their use of such terms and conditions, weighing the cost associated 
with a risk of losing trust with their customers or potential customers 
against the value they believe those terms and conditions to provide. 
Finally, as discussed above, to the extent that supervised nonbanks are 
using prohibited covered terms and conditions, they are likely to 
remove those before registration. However, if a supervised registrant 
does continue to use prohibited covered terms and conditions, then, as 
discussed above, Bureau supervisory or enforcement action already may 
become more likely; otherwise, to the extent the term is prohibited by 
State or Tribal law, then the publication of this type of registration 
information under the proposed rule could increase the visibility of 
that practice; the resulting increased public scrutiny of such a 
prohibited practice might reduce that firm's ability to attract or 
retain customers.
    In a baseline with no rule, consumers have the opportunity to 
review the terms and conditions of contracts for products or services 
they are considering at point of sale, but may rarely do so, as 
discussed in part II above. The publication of information collected 
under the proposal on the Bureau website would offer consumers an 
alternative, centralized way to access this information and facilitate 
comparisons across competing firms. While the Bureau does not have 
sufficient data to quantify this impact, a large body of research has 
shown that consumers often pay little attention even to important 
product attributes.\357\ For that reason, the Bureau does not 
anticipate making the centralized registry directly accessible to 
consumers would have significant impact on supervised registrants. 
Unlike core financial deal terms like price or payment terms, covered 
terms and conditions often are distant in time and probability, and 
often may directly affect only a minority of consumers of a given 
product or service. In addition, consumers may not appreciate how 
covered terms and conditions may weaken compliance incentives 
generally, which can have broader impacts on product and service 
delivery overall. Therefore, covered terms and conditions are unlikely 
to be decisive factors in consumers' choices at the point of sale. 
Because consumers already have access to the contract at point of sale, 
the public registry centralizing this information on the Bureau's 
website would have limited additional impact. Well-designed information 
disclosures can be effective at directing consumer attention; for 
example, one study found that providing payday loan borrowers with 
information about the costs of payday loans reduced payday loan 
borrowing.\358\ However, effective information disclosures are 
typically more direct (e.g., disclosing the costs of payday loans to 
payday loan borrowers) and more timely (e.g., disclosed to payday loan 
borrowers at the time they are obtaining a payday loan) than the 
information that would be published under the proposed rule. Therefore, 
the Bureau believes that the proposed publication of registration 
information is likely to have a minimal impact on consumer behavior, 
and so the associated impact on supervised nonbanks also will be 
minimal.
---------------------------------------------------------------------------

    \357\ For one review of this research, see Benjamin Handel and 
Joshua Schwartzstein, Frictions or Mental Gaps: What's Behind the 
Information We (Don't) Use and When Do We Care?, Journal of Economic 
Perspectives (2018), vol. 32(1), at 155-178.
    \358\ See Marianne Bertrand and Adair Morse, Information 
Disclosure, Cognitive Biases, and Payday Borrowing, The Journal of 
Finance (2011), vol. 66(6), at 1865-1893.
---------------------------------------------------------------------------

    The Bureau has considered the possibility that supervised nonbanks 
would pass through some of the costs described above to consumers, 
generally by raising prices. As discussed in the previous sections, 
firms' ability to shift the burden on increased costs to consumers 
depends on the nature of those costs, especially whether they vary 
depending on the number of customers or units sold. Some of the effects 
described above could potentially make it more or less difficult for 
some registrants to attract new customers. In the long-run, customer 
acquisition costs are arguably a component of variable cost, and 
potentially could lead to higher prices. However, for the reasons 
discussed above, the impact of the proposed publication of registration 
information is likely to have a minimal impact on consumer behavior, so 
even if these costs were fully passed through the impact on consumers 
would be minimal.
Benefits
    Under the proposed rule, the registration information (except for 
administrative information) would be published on the Bureau's public 
website to the extent permitted by applicable laws. This would benefit 
the public by facilitating the use of registration information by other 
public regulators. Recognizing the value of contract registration, some 
individual States have established registration systems for one 
market.\359\ The proposed registration system would provide nationwide, 
standardized information on covered terms and conditions in covered 
form contracts across a broader set of supervised markets. Other 
Federal agencies and public regulators in States without

[[Page 6963]]

preexisting contract registration systems would be able to use the 
Bureau's registry to inform and improve their supervision and 
enforcement activities. Public regulators in States with preexisting 
contract registration systems would benefit from the additional context 
provided by national data, as well as data focused specifically on the 
use of covered terms and conditions.
---------------------------------------------------------------------------

    \359\ For example, Colorado, Louisiana, Maine, and Illinois 
require private student lenders to register their standard terms and 
conditions.
---------------------------------------------------------------------------

    The benefits of making the Bureau registry available to other 
public regulators are analogous to the benefits of the Bureau's own use 
of the registry discussed above. The two primary benefits are 
incentivizing firms to ensure that their contracts do not use 
prohibited covered terms or conditions and facilitating risk-based 
monitoring, supervision, and enforcement of applicable law. Many of the 
laws prohibiting waivers discussed in parts II.B and II.C are enforced 
by other Federal and State agencies. Because the Bureau cannot enforce 
many of these laws, the proposed rule would not incentivize firms to 
remove covered terms and conditions prohibited by those laws unless 
they were used in circumstances that constituted a UDAAP or 
registration information were shared with the other agencies 
responsible for enforcement. For the reasons discussed above, 
quantifying these benefits is not possible without data on the 
prevalence of prohibited clauses and the harm they do to consumers.
    To the extent that consumers are more willing to trust firms 
subject to Bureau supervision, the public registry identifying nonbanks 
in part on the basis that they are subject to the Bureau's supervisory 
authority may provide a benefit to firms that may partially offset 
costs associated with publication of their risky covered terms and 
conditions. The Bureau does not have sufficient data, for example, on 
how Bureau supervision affects consumers' attitudes towards firms or 
consumers' choices, for it to quantify this benefit. Some supervised 
nonbanks covered by the proposed rule already would have a license at 
the State level. Many State licensing regimes also provide an online 
search function, and firms may advertise their license number either 
because it is required or because it is beneficial. In addition, firms 
would need to take care to avoid deceptive practices and other 
problematic statements in conveying the significance of their 
registration to consumers.\360\ For these reasons, any benefits from 
publicizing their registration with the Bureau are likely to be 
incremental at best.
---------------------------------------------------------------------------

    \360\ Cf. Consumer Financial Protection Circular 2022-02, 
``Deceptive representations involving the name or logo of deposit 
insurance'' (May 17, 2022) (discussing risks of deception in falsely 
characterizing the status of deposit products as insured by a 
Federal regulator); CFPB Order to Terminate Sandbox Approval Order, 
In re Payactiv, Inc. (June 30, 2022) (rescinding regulatory approval 
under TILA due to statements by regulated entity ``wrongly 
suggesting the CFPB had endorsed [the entity] or its products'').
---------------------------------------------------------------------------

    One alternative to publication is the establishment of confidential 
data-sharing agreements with individual public regulators. This would 
permit use of the Bureau registry by other regulators without making it 
available to the public or to other firms, including potential 
competitors. However, the process of establishing memoranda of 
understanding with other regulators at the Federal, State, Tribal, and 
local levels specifically covering the proposed registry would require 
public resources and impose costs for public regulators, and therefore 
may lead to incomplete sharing of information and significant 
reductions in the benefit to consumers. Furthermore, as described 
above, the Bureau believes that publication of registration information 
will not impose significant costs on firms that would justify these 
reductions.
    Furthermore, publication of registration information is likely to 
provide benefits to the public beyond improved compliance with 
applicable law and strengthened public enforcement of consumers' 
rights. For example, academics, journalists, and consumer advocacy 
groups may use registry information to produce articles or reports 
which increase consumers' understanding of their rights. The Bureau 
does not have sufficient information to quantify the value of 
additional consumer education resulting from the publication of 
registration information.
    In addition, the Bureau is proposing to collect information on 
firms' use of covered form contracts containing covered terms and 
conditions purchased from third-party providers. If this type of 
information is published by the Bureau, firms using these contracts may 
benefit if consumers and public regulators perceive them as following 
an industry standard. Publication of this type of information may also 
have an impact on the contract provider industry by providing 
additional information on the market for contracts. This may improve 
contract providers' understanding of the market for contracts, 
including new market opportunities. The Bureau seeks comment on the 
potential impacts of collecting and publishing information on covered 
terms and conditions in covered form contracts sold by third-party form 
contract providers.

F. Potential Specific Impacts of the Proposed Rule

1. Insured Depository Institutions and Credit Unions With $10 Billion 
or Less in Total Assets, as Described in Section 1026
    There will be no direct effect on insured depository institutions 
or credit unions with $10 billion or less in total assets, as the rule 
applies only to supervised nonbanks. There may be certain indirect 
impacts, as described below.
    Some smaller depository institutions may partner with nonbanks to 
offer loans, such as payday loans, in supervised markets. Proposed 
Sec.  1092.302(a)(2)(iii)(B) would require supervised payday lenders to 
identify the legal names of parties to their covered agreements. The 
Bureau requests data on how often payday lenders' agreements identify 
smaller depository institutions as parties in the payday lenders' 
agreements with consumers. If the payday lender's agreement identifies 
the smaller depository institution as a party, then that information 
would be reported under the proposal to the Bureau and potentially the 
public under the publication provisions of the proposal. It is 
uncertain whether such reporting and publication would have even an 
indirect effect on the smaller depository institution, however.
    An additional indirect impact on some insured depository 
institutions or insured credit unions with $10 billion or less in total 
assets may be possible in two separate contexts. First, to the extent 
that they are affiliated with a supervised registrant, a cost to the 
affiliate--such as the cost of registration and submission of 
information--may be an indirect cost to the insured depository 
institution or insured credit union. Second, to the extent they compete 
with a supervised registrant, a cost to the competitor--such as the 
cost of registration and submission of information--may be an indirect 
benefit to them because they do not incur that cost under the proposal. 
But as noted above, even for supervised registrants, the Bureau does 
not anticipate that the cost of the proposed rule will be significant 
in most cases. Therefore, the Bureau anticipates that these types of 
indirect impacts on any such insured depository institutions or insured 
credit unions with $10 billion or less in total assets would be even 
less significant.

[[Page 6964]]

2. Impact of the Proposed Provisions on Consumer Access to Credit
    The proposed rule could potentially reduce consumer access to 
credit if costs associated with the proposed rule were passed through 
to consumers as higher prices or led covered persons to discontinue 
certain products or services. As discussed above, the available data, 
combined with economic theory, suggests that such effects will be 
negligible. Moreover, bank and nonbank entities that would not be 
directly affected by the proposed rule could provide financial products 
and services to consumers who would otherwise obtain these financial 
products and services from affected nonbank covered persons. Therefore, 
the Bureau believes that the proposed rule will not have a significant 
negative impact on consumer access to credit.
    By improving the Bureau's ability to conduct its consumer 
education, regulation, market monitoring, and supervision activities, 
the proposed rule would likely improve the functioning on the broader 
market for consumer financial products and services. Therefore, the 
proposed rule may have positive effects on consumer access to consumer 
financial products and services provided in conformity with applicable 
legal obligations designed to protect consumers.
3. Impact of the Proposed Provisions on Consumers in Rural Areas
    Broadly, the Bureau believes that the analysis above of the impact 
of the proposed rule on consumers in general provides an accurate 
analysis of the impact of the proposed rule on consumers in rural 
areas. If consumers in rural areas are relatively less reliant on 
affected nonbanks, the impact of the rule on consumers in rural areas 
would be smaller than the impact on those in non-rural areas. Because 
the Bureau lacks high-quality data on the rural market share of 
supervised nonbanks that would be affected by the proposed rule, the 
Bureau cannot judge with certainty the relative impact of the rule on 
rural areas. However, for certain large and well-studied industries, 
including mortgage and auto lending, the Bureau has evidence of the 
lesser rural impact.\361\ Based on this evidence, the Bureau believes 
that the impact of the proposed rule would likely be relatively smaller 
in rural areas.
---------------------------------------------------------------------------

    \361\ For evidence on the mortgage market, see Julapa Jagtiana, 
Lauren Lambie-Hanson, and Timothy Lambie-Hanson, Fintech Lending and 
Mortgage Credit Access, The Journal of FinTech (2021), vol. 1(1). 
For evidence on the auto loan market, see Donghoon Lee, Michael Lee, 
and Reed Orchinik, Market Structure and the Availability of Credit: 
Evidence from Auto Credit, MIT Sloan Research Paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3966710.
---------------------------------------------------------------------------

VIII. Regulatory Flexibility Act Analysis

A. Overview

    The Regulatory Flexibility Act of 1980 (RFA), as amended by the 
Small Business Regulatory Enforcement Fairness Act of 1996, the Dodd-
Frank Act Wall Street Reform and Consumer Protection Act of 2010, as 
well as the Small Business Jobs Act of 2010, requires each agency to 
consider the potential impact of its regulations on small entities, 
including small businesses, small governmental units, and small not-
for-profit organizations.\362\ The RFA defines a ``small business'' as 
a business that meets the size standard developed by the Small Business 
Administration pursuant to the Small Business Act.\363\ Potentially 
affected small entities include those in the markets described in Table 
1 above.
---------------------------------------------------------------------------

    \362\ 5 U.S.C. 601-12. The Bureau is not aware of any small 
governmental units or not-for-profit organizations to which the 
proposal would apply. Proposed Sec.  1092.301(h) would exclude 
governmental units, unless, in the case of a State, Tribe, or arm of 
a State or Tribe, the U.S. Congress has abrogated their immunities.
    \363\ 5 U.S.C. 601(3) (the Bureau may establish an alternative 
definition after consultation with the Small Business Administration 
and an opportunity for public comment).
---------------------------------------------------------------------------

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis of any rule subject to notice-
and-comment rulemaking requirements, unless the agency certifies that 
the rule will not have a significant economic impact on a substantial 
number of small entities. The Bureau also is subject to certain 
additional procedures under the RFA involving the convening of a panel 
to consult with small business representatives prior to proposing a 
rule for which an IRFA is required.
    For the reasons discussed below, the Bureau has determined, and the 
undersigned has certified, that this proposed rule, if adopted, would 
not have a significant economic impact on a substantial number of small 
entities, and that an IRFA is, therefore, not required.

B. Impacts of the Proposed Rule on Small Entities

    As discussed in the 1022(b)(4) analysis above, the costs to 
supervised nonbanks associated with registration under the proposed 
rule are small. The direct cost to supervised nonbanks is the employee 
time spent by to gather and submit registration information. Required 
information includes identifying and administrative information, as 
well as information regarding the covered terms and conditions in 
registrants' covered form contracts. This information should be readily 
accessible to all entities affected and providing it through the 
nonbank registration system should be straightforward. While the Bureau 
cannot precisely quantify this cost, it believes this will generally 
take on average 15 to 25 hours of employee time per small entity 
annually, as reflected in Table 2 above, based on the Bureau's estimate 
that small entities generally have a consumer contracting system of 
simple or intermediate complexity.\364\ Firms would not need to 
purchase new hardware or software and would not need to employ or train 
specialized personnel to comply with the proposed rule.
---------------------------------------------------------------------------

    \364\ See the 1022(b)(4) analysis above for a detailed 
description of this burden. Table 2 reports the estimated burden for 
each task involved in the proposed registration, for firms at 
varying levels of complexity.
---------------------------------------------------------------------------

    The Bureau believes that indirect costs, primarily related to 
increased incentives for compliance with applicable consumer protection 
law including Federal consumer financial law, are also likely to be 
small. For example, some supervised nonbanks may choose to conduct a 
compliance audit of their covered terms and conditions in their covered 
form contracts, to ensure there are no waivers or other covered terms 
or conditions subject to the various express legal prohibitions 
mentioned in part II.B above and there are no covered terms or 
conditions that constitute UDAAPs under Bureau decisions and guidance 
such as those discussed in part II.C above. As discussed in the 
1022(b)(4) analysis, this often would involve review of only relatively 
easily-identified terms and conditions and would not require an audit 
of the whole contract. Small entities in some supervised markets, such 
as mortgage and automobile finance, typically purchase their contracts 
from vendors, who may bear the cost of conducting such audits. These 
are fixed costs and therefore unlikely to be passed on to small 
entities. Regardless of the method of ascertaining information 
contained in contracts and to determine compliance with the law and 
this proposed regulation, the business cost to review contracts and 
remove prohibited terms would be a one-time cost and is unlikely to be 
significant when amortized over

[[Page 6965]]

five years and, in any event, is an existing requirement under existing 
consumer protection law, separate and apart from the requirements that 
would be imposed by this proposed rule. Moreover, to the extent that 
the Bureau prioritizes supervision of entities which pose risks to a 
larger number of consumers, these indirect costs are likely to be even 
smaller for small entities.
    The 1022(b)(4) analysis above finds that, even for complex entities 
using many different contracts, it is unlikely that the direct costs of 
registration under the proposed rule exceed approximately $13,250 
annually. Because entities with under $1 million in receipts are exempt 
from registration, the impact of the rule would be less than 1.3% of 
receipts for all affected registrants, and therefore not significant. 
The Bureau believes that this estimate is likely to overstate the cost 
to most small entities. The estimated direct costs of registration for 
a supervised registrant using 10-25 different contracts range from more 
than $900 to less than $1,600 annually, or 0.09-0.16% of annual 
receipts. The Bureau believes that this lower estimate is most likely 
to be appropriate for small entities.
    For some small entities, the impact may be larger than average and 
in extreme cases may rise to the level of a significant economic 
impact. However, the Bureau believes that such cases would be rare, and 
that the number of small entities experiencing a significant economic 
impact under the proposed rule would not be substantial.

IX. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et 
seq., Federal agencies generally are required to seek approval from the 
Office of Management and Budget (OMB) for information collection 
requirements prior to implementation. Under the PRA, the Bureau may 
neither conduct nor sponsor, and, notwithstanding any other provision 
of law, a person is not required to respond to, an information 
collection unless the information collection displays a valid control 
number assigned by OMB.
    The information collection requirements in this proposed rule would 
be mandatory. Certain information collected under this proposed rule 
would not be made available to the public, in accordance with 
applicable law.
    The collections of information contained in this proposed rule, and 
identified as such, have been submitted to OMB for review under section 
3507(d) of the PRA. A complete description of the information 
collection requirements (including the burden estimate methods) is 
provided in the information collection request (ICR) that the Bureau is 
submitting to OMB under the requirements of the PRA. Please send your 
comments to the Office of Information and Regulatory Affairs, OMB, 
Attention: Desk Officer for the Bureau of Consumer Financial 
Protection. Send these comments by email to [email protected] 
or by fax to 202-395-6974. If you wish to share your comments with the 
Bureau, please send a copy of these comments as described in the 
Addresses section above. The ICR submitted to OMB requesting approval 
under the PRA for the information collection requirements contained 
herein is available at www.regulations.gov as well as on OMB's public-
facing docket at www.reginfo.gov.
    Title of Collection: Registry of Supervised Nonbanks that Use Form 
Contracts to Impose Terms and Conditions that Seek to Waive or Limit 
Consumer Legal Protections.
    OMB Control Number: 3170-00XX.
    Type of Review: Request for approval of a new information 
collection.
    Affected Public: Private sector.
    Estimated Number of Respondents: 7,345.
    Estimated Total Annual Burden Hours: approximately 15-210 depending 
on complexity of entity's contracting with consumers.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the Bureau, 
including whether the information will have practical utility; (b) the 
accuracy of the Bureau's estimate of the burden of the collection of 
information, including the validity of the methods and the assumptions 
used; (c) ways to enhance the quality, utility, and clarity of the 
information to be collected; and (d) ways to minimize the burden of the 
collection of information on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments submitted in response to this proposal will be 
summarized and/or included in the request for OMB approval. All 
comments will become a matter of public record.
    If applicable, the notice of final rule will display the control 
number assigned by OMB to any information collection requirements 
proposed herein and adopted in the final rule.

List of Subjects in 12 CFR Part 1092

    Administrative practice and procedure, Consumer protection, Credit, 
Intergovernmental relations, Law enforcement, Nonbank registration, 
Registration, Reporting and recordkeeping requirements, Trade 
practices.

Authority and Issuance

0
For the reasons set forth above, the Bureau proposes to add part 1092 
to chapter X in title 12 of the Code of Federal Regulations, to read as 
follows:

PART 1092--NONBANK REGISTRATION

Subpart A--General
Sec.
1092.100 Authority and purpose.
1092.101 General definitions.
1092.102 Submission and use of registration information.
1092.103 Severability.
Subpart B--[Reserved]
Subpart C--Use of Form Contracts To Impose Terms and Conditions That 
Seek To Waive or Limit Consumer Legal Protections.
1092.300 Scope.
1092.301 Definitions.
1092.302 Registration and submission of information regarding 
supervised registrants' use of covered terms and conditions.
1092.303 Publication of information regarding supervised 
registrants' use of covered terms and conditions.

    Authority:  12 U.S.C. 5512(b) and (c); 12 U.S.C. 5514(b).

Subpart A--General


Sec.  1092.100  Authority and purpose.

    (a) Authority. The regulation in this part is issued by the Bureau 
pursuant to section 1022(b) and (c) and section 1024(b) of the Consumer 
Financial Protection Act of 2010 (CFPA), codified at 12 U.S.C. 5512(b) 
and (c), and 12 U.S.C. 5514(b).
    (b) Purpose. The purpose of this part is to prescribe rules 
governing the registration of nonbanks, and the collection and 
submission of registration information by such persons, and for public 
release of the collected information as appropriate.
    (1) Subpart A contains general provisions and definitions used in 
this part.
    (2) Subpart B is reserved.
    (3) Subpart C sets forth requirements regarding the registration of 
supervised nonbanks and collection of information regarding their use 
of form contracts to impose certain terms and conditions that seek to 
waive or limit consumer rights or other applicable legal protections.

[[Page 6966]]

Sec.  1092.101  General definitions.

    For the purposes of this part, unless the context indicates 
otherwise, the following definitions apply:
    (a) Affiliate, consumer, consumer financial product or service, 
covered person, Federal consumer financial law, insured credit union, 
person, related person, service provider, and State have the same 
meanings as in CFPA section 1002, codified at 12 U.S.C. 5481.
    (b) Bureau means the Consumer Financial Protection Bureau.
    (c) Include, includes, and including mean that the items named may 
not encompass all possible items that are covered, whether like or 
unlike the items named.
    (d) Nonbank registration system means the Bureau's electronic 
registration system identified and maintained by the Bureau for the 
purposes of this part.
    (e) Nonbank registration system implementation date means, for a 
given requirement or subpart of this part, the date(s) determined by 
the Bureau to commence the operations of the nonbank registration 
system in connection with that requirement or subpart.


Sec.  1092.102  Submission and use of registration information.

    (a) Filing instructions. The Bureau shall specify the form and 
manner for electronic filings and submissions to the nonbank 
registration system that are required or made voluntarily under this 
part. The Bureau also may provide for extensions of deadlines or time 
periods prescribed by this part for persons affected by declared 
disasters or other emergency situations.
    (b) Coordination or combination of systems. In administering the 
nonbank registration system, the Bureau may rely on information a 
person previously submitted to the nonbank registration system under 
this part and may coordinate or combine systems in consultation with 
State agencies as described in 12 U.S.C. 5512(c)(7)(C) and 12 U.S.C. 
5514(b)(7)(D).
    (c) Bureau use of registration information. The Bureau may use the 
information submitted to the nonbank registration system under this 
part to support its objectives and functions, including in determining 
when to exercise its authority under 12 U.S.C. 5514 to conduct 
examinations and when to exercise its enforcement powers under subtitle 
E of the CFPA. However, this part does not alter any applicable process 
whereby a person may dispute that it qualifies as a person subject to 
Bureau authority.


Sec.  1092.103  Severability.

    The provisions of this part are separate and severable from one 
another. If any provision is stayed or determined to be invalid, the 
remaining provisions shall continue in effect.

Subpart B--[Reserved]

Subpart C--Use of Form Contracts To Impose Terms and Conditions 
That Seek To Waive or Limit Consumer Legal Protections


Sec.  1092.300  Scope.

    This subpart requires supervised nonbanks to collect and submit 
information to the Bureau's nonbank registration system regarding their 
use of form contracts to impose certain terms and conditions that seek 
to waive or limit consumer legal rights and other applicable legal 
protections. This subpart also describes the information the Bureau 
will make publicly available, when permitted by law.


Sec.  1092.301  Definitions.

    For the purposes of this subpart, unless the context indicates 
otherwise, the following definitions apply:
    (a) Administrative information means contact and other information 
regarding persons subject to this subpart and other information 
submitted or collected to facilitate the administration of the nonbank 
registration system including submissions made pursuant to Sec.  
1092.302(d).
    (b) Covered form contract means any written agreement between a 
covered person and a consumer that:
    (1) Was drafted prior to the transaction for use in multiple 
transactions between a business and different consumers; and
    (2) Contains a covered term or condition.
    (c) Covered term or condition means any clause, term, or condition 
that expressly purports to establish a covered limitation on consumer 
legal protections applicable to the offering or provision of any 
consumer financial product or service described in paragraph (g) of 
this section.
    (d) Covered limitation on consumer legal protections means any 
covered term or condition in a covered form contract:
    (1) Precluding the consumer from bringing a legal action after a 
certain period of time;
    (2) Specifying a forum or venue where a consumer must bring a legal 
action in court;
    (3) Limiting the ability of the consumer to file a legal action 
seeking relief for other consumers or to seek to participate in a legal 
action filed by others;
    (4) Limiting liability to the consumer in a legal action including 
by capping the amount of recovery or type of remedy;
    (5) Waiving a cause of legal action by the consumer, including by 
stating a person is not responsible to the consumer for a harm or 
violation of law;
    (6) Limiting the ability of the consumer to make any written, oral, 
or pictorial review, assessment, complaint, or other similar analysis 
or statement concerning the offering or provision of consumer financial 
products or services by the supervised registrant;
    (7) Waiving, whether by extinguishing or causing the consumer to 
relinquish or agree not to assert, any other identified consumer legal 
protection, including any specified right, defense, or protection 
afforded to the consumer under Constitutional law, a statute or 
regulation, or common law; or
    (8) Requiring that a consumer bring any type of legal action in 
arbitration.
    (e) Identifying information means existing information available to 
the supervised registrant that uniquely identifies the supervised 
registrant, which includes legal name(s), State of incorporation or 
organization, headquarters and principal place of business addresses, 
and unique identifiers issued by a government agency or standards 
organization.
    (f) Annual registration date means, starting after the nonbank 
registration system implementation date, the day during the calendar 
year by which a supervised registrant must complete its annual 
registration required by Sec.  1092.302(a). The annual registration 
date will be set by filing instructions issued by the Bureau, as 
described in Sec.  1092.102(a), in which the Bureau may specify the 
process for filing for an automatic extension of the annual 
registration date for up to 30 days.
    (g) Supervised nonbank means a nonbank covered person that is 
subject to supervision and examination by the Bureau pursuant to 12 
U.S.C. 5514(a), except to the extent that such person engages in 
conduct or functions that are excluded from the supervisory authority 
of the Bureau pursuant to 12 U.S.C. 5517 or 12 U.S.C. 5519. Subject to 
the foregoing statutory exclusions, this term includes any nonbank 
covered person that:
    (1) Offers or provides a residential mortgage-related product or 
service as described in 12 U.S.C. 5514(a)(1)(A);
    (2) Offers or provides any private educational consumer loan as 
described in 12 U.S.C. 5514(a)(1)(D);

[[Page 6967]]

    (3) Offers or provides any consumer payday loan as described in 12 
U.S.C. 5514(a)(1)(E);
    (4) Is a larger participant in any market as defined by rule in 
part 1090 pursuant to 12 U.S.C. 5514(a)(1)(B); or
    (5) Is subject to an order issued by the Bureau pursuant to 12 
U.S.C. 5514(a)(1)(C).
    (h) Supervised registrant means, for purposes of this subpart, any 
supervised nonbank that is subject to supervision and examination by 
the Bureau pursuant to 12 U.S.C. 5514(a), except for the following:
    (1) A Federal agency as defined in 28 U.S.C. 2671;
    (2) A State as defined in 12 U.S.C. 5481 including a federally 
recognized Indian Tribe;
    (3) A person that is subject to Bureau supervision and examination 
solely in the following capacity:
    (i) As a service provider under 12 U.S.C. 5514(e), 12 U.S.C. 
5515(d), or 12 U.S.C. 5516(e); or
    (ii) As an entity that is subject to the Bureau's supervisory 
authority for a period of no more than two years pursuant to an order 
issued by the Bureau pursuant to 12 U.S.C. 5514(a)(1)(C), such as an 
order issued based on a consent agreement by which an entity may 
consent to the Bureau's supervisory authority as described in 12 CFR 
part 1091;
    (4) A natural person;
    (5) A person with less than $1 million in annual receipts resulting 
from offering or providing all consumer financial products and services 
as relevant to paragraphs (g)(1) through (5) of this section. For 
purposes of this exclusion:
    (i) The term ``annual receipts'' has the same meaning as that term 
has in 12 CFR 1090.104(a), including 12 CFR 1090.104(a)(i)-(iii); and
    (ii) A person's receipts from offering or providing a consumer 
financial product or service subject to a larger participant rule 
described in paragraph (g)(4) of this section count as receipts for 
purposes of the exclusion in this paragraph (h)(5) regardless of 
whether the person qualifies as a larger participant;
    (6) A person that has not, together with its affiliates, engaged in 
more than de minimis use of covered terms and conditions by either:
    (i) Entering into covered form contracts containing any covered 
term or condition as described in paragraph (i)(1) of this section 
1,000 or more times during the previous calendar year; or
    (ii) Obtaining, as a party to a legal action, a court or arbitrator 
decision in the previous calendar year on the enforceability of a 
covered term or condition in a covered form contract as described in 
paragraph (i)(2) of this section;
    (7) A person that used of covered terms or conditions in covered 
form contracts in the previous calendar year solely by entering into 
contracts for residential mortgages on a form made publicly available 
on the internet required for insurance or guarantee by a Federal agency 
or purchase by the Federal National Mortgage Association, the Federal 
Home Loan Mortgage Corporation (or its successors), or the Government 
National Mortgage Association. This exclusion does not apply if the 
person obtained a court or arbitrator decision in the previous calendar 
year on the enforceability of a covered term or condition in a covered 
form contract as described in paragraph (i)(2) of this section; or
    (8) A person who is a covered person solely due to being a related 
person as defined in 12 U.S.C. 5481(25).
    (i) Use of a covered term or condition means entering into a 
covered form contract containing a covered term or condition as 
described in paragraph (i)(1) of this section or obtaining a court or 
arbitrator decision ruling on the enforceability of a covered term or 
condition in a covered form contract as described in paragraph (i)(2) 
of this section.
    (1) Entering into a covered form contract containing a covered term 
or condition. A supervised nonbank enters into a covered form contract 
containing a covered term or condition when it takes any of the 
following actions:
    (i) Provides to a consumer a new consumer financial product or 
service that is governed by a covered form contract that contains a 
covered term or condition;
    (ii) Provides to a consumer a new consumer financial product or 
service that is subject to a pre-existing covered form contract that 
contains a covered term or condition, and the provider is a party to 
that covered form contract;
    (iii) Acquires or purchases a consumer financial product or service 
that is subject to a covered form contract that contains a covered term 
or condition, even if the seller is not subject to supervision under 12 
U.S.C. 5514(a)(1) and regardless of whether the seller is subject to 
the authorities of the Bureau more broadly;
    (iv) Adds a covered term or condition to a covered form contract 
governing an existing consumer financial product or service provided to 
a consumer; or
    (v) Adds a covered form contract containing a covered term or 
condition to a consumer financial product or service.
    (2) Obtaining court or arbitrator decisions on enforceability of a 
covered term or condition in a covered form contract. A supervised 
registrant engages in use of a covered term or condition when, as a 
party to a legal action, it obtains an order, opinion, or any other 
type of decision from a court or arbitrator ruling on the 
enforceability of a covered term or condition.


Sec.  1092.302  Registration and submission of information regarding 
supervised registrants' use of covered terms and conditions.

    (a) Annual registration of supervised registrants regarding their 
use of covered terms or conditions. By the annual registration date in 
each calendar year, a supervised registrant must submit or update in 
the Bureau's nonbank registration system its identifying information 
and administrative information, as well as the following information 
regarding its use of covered terms or conditions in the previous 
calendar year:
    (1) The applicable consumer financial products or services listed 
in Sec.  1092.301(g) for which the supervised registrant used covered 
term(s) or condition(s);
    (2) Each State or other jurisdiction where the supervised 
registrant offered or provided the consumer financial products or 
services listed in paragraph (a)(1) of this section;
    (3) For each covered form contract the supervised registrant 
entered into containing a covered term or condition, which consumer 
financial products and services identified pursuant to paragraph (a)(1) 
of this section are affected by the covered term or condition and in 
which States identified pursuant to paragraph (a)(2) of this section, 
as well as following information:
    (i) All brand names and trade names the supervised registrant used 
to offer or provide the consumer financial product or service;
    (ii) The legal names of any persons other than a consumer and the 
supervised registrant that typically entered into the applicable 
covered form contract;
    (iii) Each type of covered limitation on consumer legal protection 
listed in Sec.  1092.301(d) contained in the covered form contract for 
the consumer financial product or service;
    (iv) For each type of covered limitation on consumer legal 
protections described in Sec.  1092.301(d)(1) through (7), relevant 
information about the limitation including:

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    (A) For any limitation on when a consumer may bring a legal action 
described in Sec.  1092.301(d)(1), the specified time period, within 
ranges specified by the Bureau, for the consumer to bring a legal 
action;
    (B) For any limitation on where a consumer may bring a legal action 
in court described in Sec.  1092.301(d)(2), the name and, as 
applicable, place, of the forum or venue for the consumer to bring a 
legal action;
    (C) For any limitation on the consumer's filing a legal action 
seeking relief for other consumers or seeking to participate in a legal 
action filed by others described in Sec.  1092.301(d)(3), the type of 
legal action and, as applicable, participation to which the limitation 
applies;
    (D) For any limitation on liability to the consumer described in 
Sec.  1092.301(d)(4), the text of the covered term or condition 
imposing the limitation on liability;
    (E) For any waiver of a cause of action by the consumer as 
described in Sec.  1092.301(d)(5), the text of the covered term or 
condition imposing the waiver;
    (F) For any limitation on a consumer review, assessment, complaint, 
or other similar analysis or statement, as described in Sec.  
1092.301(d)(6), the text of the covered term or condition imposing the 
limitation; and
    (G) For any other waiver of an identified consumer legal protection 
as described in Sec.  1092.301(d)(7), the text of the covered term or 
condition imposing the waiver;
    (v) The State or other jurisdiction identified in any choice of law 
provisions in the covered form contract, as applicable; and
    (vi) If a covered term or condition reported under this paragraph 
(a)(3) is contained in a standard form contract provided by a third 
party for use by multiple market participants, the name of the form 
contract provider and other information, such as the complete 
copyrighted name including any form number and date of the contract, as 
necessary for the Bureau to identify the precise version of the 
standard form contract;
    (4) Whether the supervised registrant, as a party to a legal 
action, obtained one or more court or arbitrator decisions regarding 
enforceability of a covered term or condition in any covered form 
contract as described in Sec.  1092.301(i)(2) and, if so, the following 
information related to these decisions:
    (i) The consumer financial products or services listed in Sec.  
1092.301(g) to which the decision(s) relate;
    (ii) The type(s) of covered term(s) or condition(s) listed in Sec.  
1092.301(d) at issue in the decision(s); and
    (iii) Whether the decision(s) enforced or declined to enforce the 
covered term(s) or condition(s) at issue.
    (b) Supervised registrant's collection and reporting of 
information; scope of initial registration; corrections to registration 
information.
    (1) General rule. During the period for which a person qualifies as 
a supervised registrant, it must collect information necessary to 
comply with the reporting requirements in paragraph (a)(2) of this 
section.
    (2) Scope of information submitted on the first annual registration 
date after a supervised registrant becomes subject to this subpart. As 
illustrated by the following examples, supervised registrants are not 
required to collect or report information prior to becoming subject to 
this subpart:
    (i) When a supervised registrant must submit information in the 
calendar year after the effective date of subpart C of this part, the 
requirements of paragraph (a)(2) of this section shall be satisfied by 
submission of information that covers the portion of the previous 
calendar year beginning with the effective date.
    (ii) If a supervised registrant qualifies as a larger participant 
under a Bureau rule in part 1090 as of the annual registration date, 
but the entity was not a larger participant for the entire previous 
calendar year, then the requirements of paragraph (a)(2) of this 
section shall be satisfied by submission of information that covers the 
portion of the previous calendar year during which the entity was a 
larger participant.
    (3) Registration process for affiliated persons. Supervised 
registrants that are affiliates will make their submissions either 
jointly or in combination, as set forth in filing instructions the 
Bureau issues pursuant to Sec.  1092.102(a). For purposes of this 
subpart, the definition of ``control'' for purposes of who is an 
affiliate shall have the meaning set forth in paragraph (2) of the 
definition of ``affiliated company'' in 12 CFR 1090.101.
    (4) Correction of submissions to the nonbank registration system. 
If any information submitted to the nonbank registration system was 
inaccurate when submitted and remains inaccurate, the supervised 
registrant shall file a corrected report in the form and manner 
specified by the Bureau within 30 calendar days after the date on which 
such supervised registrant becomes aware or has reason to know of the 
inaccuracy. In addition, the Bureau may at any time and in its sole 
discretion direct a supervised registrant to correct errors or other 
non-compliant submissions to the nonbank registration system.
    (c) Notification by a previously-supervised registrant that it is 
no longer covered by this subpart. Any nonbank person that has 
registered pursuant to paragraph (a) of this section should notify the 
Bureau if it determines that it is no longer a supervised nonbank.
    (d) Notification by certain persons of non-registration under this 
subpart. A person may submit a notice to the nonbank registration 
system stating that it is not registering pursuant to this section 
because it has a good faith basis to believe that it is not a 
supervised registrant, or that it is not registering terms or 
conditions contained in a contract it used because it has a good faith 
basis to believe that the contract is not a covered form contract or 
that the terms or conditions are not covered terms or conditions. Such 
person shall promptly comply with this section upon becoming aware of 
facts or circumstances that would not permit it to continue 
representing that it has a good faith basis to believe that it is not a 
supervised registrant or that the contract or terms or conditions in 
question are covered by this subpart.


Sec.  1092.303  Publication of information regarding supervised 
registrants' use of covered terms and conditions.

    (a) Publication of information collected under this subpart. The 
Bureau shall publish and maintain a publicly-available source of 
information about supervised registrants and the covered terms and 
conditions that supervised registrants use. The Bureau will make this 
information publicly available on a periodic basis within a timeframe 
it determines in its discretion.

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    (b) Scope of information released publicly by the Bureau. The 
Bureau shall publish information collected pursuant to this subpart, 
except for administrative information as defined in Sec.  1092.301(a) 
and categories of information that are protected from public disclosure 
under 5 U.S.C. 552(b)(4). The Bureau may choose not to publish 
information that has been corrected or must be corrected pursuant to 
Sec.  1092.302(b)(4), or information that is not required to be 
submitted under this subpart or is otherwise not in compliance with 
this part. Nothing in this paragraph prohibits publication by the 
Bureau of aggregated reports that do not identify, either directly or 
indirectly, the submitter of the information.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-00704 Filed 1-31-23; 8:45 am]
BILLING CODE 4810-AM-P