Proposed Rule2025-19690
Registry of Supervised Nonbanks That Use Form Contracts To Impose Terms and Conditions That Seek To Waive or Limit Consumer Legal Protections; Withdrawal of Proposed Rule
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 29, 2025
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (Bureau or CFPB) is withdrawing its Notice of Proposed Rule: Registry of Supervised Nonbanks That Use Form Contracts To Impose Terms and Conditions That Seek To Waive or Limit Consumer Legal Protections, published on February 1, 2023 (Proposed Rule), and is providing this notice of withdrawal. The Bureau has determined that legislative rulemaking is not necessary or appropriate at this time to address the subject matter of the Proposed Rule. The Bureau will not take any further action on the Proposed Rule.
Full Text
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[Federal Register Volume 90, Number 207 (Wednesday, October 29, 2025)]
[Proposed Rules]
[Pages 48787-48792]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-19690]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 90, No. 207 / Wednesday, October 29, 2025 /
Proposed Rules
[[Page 48787]]
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1092
[Docket No. CFPB-2023-0002]
Registry of Supervised Nonbanks That Use Form Contracts To Impose
Terms and Conditions That Seek To Waive or Limit Consumer Legal
Protections; Withdrawal of Proposed Rule
AGENCY: Consumer Financial Protection Bureau.
ACTION: Proposed rule; withdrawal.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
withdrawing its Notice of Proposed Rule: Registry of Supervised
Nonbanks That Use Form Contracts To Impose Terms and Conditions That
Seek To Waive or Limit Consumer Legal Protections, published on
February 1, 2023 (Proposed Rule), and is providing this notice of
withdrawal. The Bureau has determined that legislative rulemaking is
not necessary or appropriate at this time to address the subject matter
of the Proposed Rule. The Bureau will not take any further action on
the Proposed Rule.
DATES: The Proposed Rule published February 1, 2023, 88 FR 6906, is
withdrawn as of October 29, 2025.
ADDRESSES: The docket for this withdrawn Proposed Rule is available at
<a href="https://www.regulations.gov/document/CFPB-2023-0002-0001">https://www.regulations.gov/document/CFPB-2023-0002-0001</a>.
FOR FURTHER INFORMATION CONTACT: Dave Gettler, Paralegal Specialist,
Office of Regulations, at 202-435-7700 or <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you require this document in an
alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#d5969385978a94b6b6b0a6a6bcb7bcb9bca1ac95b6b3a5b7fbb2baa3"><span class="__cf_email__" data-cfemail="a1e2e7f1e3fee0c2c2c4d2d2c8c3c8cdc8d5d8e1c2c7d1c38fc6ced7">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Summary
The Bureau is withdrawing the notice of proposed rulemaking,
Registry of Supervised Nonbanks That Use Form Contracts to Impose Terms
and Conditions That Seek To Waive or Limit Consumer Legal Protections,
published on February 1, 2023, 88 FR 6906. The Proposed Rule would have
required that most nonbanks subject to its supervisory authority
register in a CFPB system information about their use of certain terms
and conditions in form contracts, and would have required the Bureau to
publish such information and registrants' identifying information.\1\
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\1\ Registry of Supervised Nonbanks That Use Form Contracts To
Impose Terms and Conditions That Seek To Waive or Limit Consumer
Legal Protections, 88 FR 6096 (Feb. 1, 2023).
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The Bureau is withdrawing the Proposed Rule, as discussed in more
detail in part VI below, based on its conclusion that the significant
costs of the proposed registration and publication system are not
justified by their uncertain and speculative benefits. As discussed in
part VI below, the proposal would have imposed a significant burden on
supervised nonbanks in order to collect and publish information of
uncertain or speculative value or benefit, mostly about regulated
entities' use of lawful terms and conditions. It also would have
imposed significant burdens on the Bureau, beyond those the Bureau
estimated when it issued the Proposed Rule, which are unwarranted in
light of the speculative benefits and additional limitations on the
Bureau's resources, as noted below. Given this and the Bureau's focus
on limiting regulatory burdens on the American people, the Bureau
believes it is appropriate to withdraw this proposal. The Bureau has
also considered changes in and updates to its policies, agenda, and
objectives in withdrawing the proposal.
II. Background on the Proposed Rule
A. Terms and Conditions in Form Contracts for Consumer Financial
Products and Services
In the Background Section of part II, the Proposed Rule explained
the prevalence of form contracts in markets for consumer financial
products and services as well as the purported risks associated with
certain terms and conditions in these form contracts. Part II.A of the
proposal explained that consumer finance companies often include in
their agreements with consumers for consumer financial products and
services terms and conditions that are non-negotiable. Part II.B of the
proposal explained how Federal, state, tribal and local laws disfavor a
subset of these terms and conditions that seek to waive or limit the
availability of certain legal protections, including those that Federal
regulators, Congress, and the States have deemed to be legally
impermissible or subject to additional requirements to be
enforceable.\2\ Finally, part II.C described some of the purported
risks posed by such terms and conditions in form contracts, including
risks related to consumer understanding, waivers of rights, and
decreased deterrence, compliance, and accountability. Part II.C also
provided an overview of certain terms and conditions that the proposal
intended to cover and how nonbanks rely on such terms in different
markets for consumer financial products and services.
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\2\ For example, in 1984, the Federal Trade Commission (FTC)
issued the Credit Practices Rule, which prohibited the inclusion of
certain creditor remedies in consumer credit contracts and generally
applied to nonbank creditors. See Credit Practices Rule, 49 FR 7740
(Mar. 1, 1984). Congress also has enacted numerous statutes limiting
companies' ability to use certain contract terms. See, e.g., 10
U.S.C. 987(e)(2) (expressly prohibiting waivers of right to recourse
under any State or Federal law in contracts with covered
servicemembers). See also generally Proposed Rule, 88 FR 6906 at
6908-14 (discussing other examples); Public Law 114-258, codified at
15 U.S.C. 45b (enacting the Consumer Review Fairness Act of 2016,
which prohibits companies that use form contracts from restricting
consumers' right to provide negative reviews).
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However, the Background section largely described these risks to
consumers in the abstract and, with the exception of unlawful terms and
conditions as discussed further below, provided scant evidence
quantifying risks of harm to consumers or the ways in which the
proposal would mitigate risks. Moreover, none of the categories of
terms and conditions identified in the Background section are per se
unlawful and some are even favored by existing law.\3\
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\3\ See, e.g., Morgan v. Sundance, 596 U.S. 411, 418 (2022)
(explaining how the Federal Arbitration Act contains a general
``policy favoring arbitration'' pursuant to arbitration agreements);
88 FR 6906 at 6910 (describing examples in Federal mortgage
regulations specifically authorizing waivers when needed to
facilitate loans to meet a bona fide personal financial emergency).
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B. The Proposed Rule
In its proposal, the Bureau proposed to collect information about
supervised nonbanks' use of terms and conditions in form contracts that
expressly seek to
[[Page 48788]]
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 defined these
terms and conditions as covered terms and conditions. Covered terms and
conditions would have been covered by the proposal even when they are
legally enforceable.\4\ Indeed, the Proposed Rule identified a wide
range of terms and conditions that would be covered even though they
are legally permissible.\5\
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\4\ 88 FR 6906.
\5\ See, e.g., 88 FR 6906 at 6912 (Servicemembers Civil Relief
Act expressly allows servicemembers to enter into certain waivers);
id. (describing conditions in which State law permits certain
waivers); id. at 6934 (describing how proposal covered liability
limits ``including when they are permitted by law''); id. at 6909
n.17 (``existing law permits certain contractual waivers or
limitations in consumer contracts'' that would be required to
register); id. at 6911 (mortgage regulations permit consumers to
waive rescission rights in certain circumstances); id. at 6913
(``permissible arbitration agreements'').
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Under the Proposed Rule, nonbank covered persons subject to the
Bureau's supervisory authority would have been required to file annual
reports with the CFPB regarding both the covered terms and conditions
that they include in their form contracts, as well as any court or
arbitrator decision on the enforceability of such terms.\6\ The
Proposed Rule estimated over 7,300 supervised nonbanks would be
required to register, including those engaged in mortgage lending,
private student loan origination, payday lending, and any of the five
markets where the Bureau has defined nonbank larger participants--
consumer reporting, consumer debt collection, automobile finance,
student loan servicing, and international money transfers.\7\
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\6\ See proposed Sec. Sec. 1092.301(i) (defining ``[u]se of a
covered term or condition'') and 1092.302 (proposing requirements
for annual reporting on the ``use of covered terms and
conditions'').
\7\ 88 FR 6906 at 6957 (Table 3).
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The Proposed Rule would have excluded certain supervised nonbanks
from its coverage. Notably, the proposal excluded States and federally
recognized Indian Tribes but acknowledged that there may be some
uncertainty whether a particular supervised nonbank is a State or
Tribe. The proposal suggested that such nonbanks could choose to
register without prejudice to their ability to dispute their coverage
under the Proposed Rule, or file a notice of nonregistration, as
described in the proposal, if they have a good-faith basis to believe
they are a State or Tribe.
The Bureau proposed to establish subpart C of part 1092 for the
registration and collection of this information.\8\
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\8\ Under the proposal, this registration requirement would have
been part of the general nonbank registration system established
under proposed subpart A of part 1092.
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C. Legal Authority
The Bureau stated that it was proposing the rule, pursuant to CFPA
sections 1022(b) and (c) and section 1024 discussed further below,\9\
principally to facilitate its market monitoring functions and its risk-
based supervisory processes. It stated that the most immediate use of
the proposed information collection would be in prioritization and
implementation of its nonbank supervision program. The Bureau also
stated that it had preliminarily determined to publish the information
it collects under the proposal as permitted by law.\10\ In part II.C.
of the proposal, the Bureau described these and related purposes in
more detail.\11\
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\9\ 12 U.S.C. 5512(b) and (c) & 12 U.S.C. 5514.
\10\ 88 FR 6906 at 6907; see also proposed Sec. 1092.303
(providing that the CFPB will publish and maintain a publicly-
available source of information about supervised registrants and
their use of covered terms and conditions).
\11\ 88 FR 6906 at 6914-24.
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III. Comments Received
The Bureau received 35 unique comments on the Proposed Rule.
Comments generally opposed to the proposal included those from 12
Members of Congress, 4 Tribes, and 20 trade associations representing
nonbank providers of consumer financial products and services,
depository institutions, and credit unions. In addition, communications
from the Small Business Administration Office of Advocacy (SBA) and
mortgage market government-sponsored enterprises (GSEs) \12\ raised
specific points, noted below, and did not express support for the
proposal. Finally, the Bureau received comments generally in support of
the proposal from two coalitions encompassing 66 nonprofits and
consumer advocacy organizations, 2 law professors, 4 law students, and
3 other individuals.
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\12\ A summary of this ex parte communication by Fannie Mae and
Freddie Mac was posted to the docket.
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With limited exceptions noted further below, most commenters
generally agreed with or did not dispute the proposal's conclusion that
most consumers do not read form contracts. However, most commenters
focused their comments not on the risks posed by form contracts per se,
but on the issue of registration and publication related to the use of
covered terms and conditions. These commenters opposed and supported
the Proposed Rule on various grounds.
Comments from industry, Members of Congress, and Tribes generally
opposed the proposal.\13\ Among their numerous reasons for opposition,
many stated that: (1) the paperwork burdens of registration would be
unduly high; \14\ (2) the public registry would impose substantial,
unaccounted for, and unwarranted reputational burdens on registrants
for use of lawful terms and conditions; \15\ (3) the proposal
unnecessarily included lawful terms and conditions,\16\ including
arbitration agreements,\17\ other terms and conditions that State law
expressly
[[Page 48789]]
permits,\18\ and terms and conditions that pertain to the application
of State laws; \19\ (4) under the proposal, the Bureau would collect
very large quantities of information from supervised nonbanks about
widely used, lawful terms and conditions that would be of little use to
the Bureau and the public in assessing risk; \20\ (5) it would be
arbitrary, unfair, and undermine competition for the Bureau to impose
the proposed burdensome requirements on supervised nonbanks and not on
banks and credit unions using covered terms and conditions in the same
markets; and (6) the proposal would infringe on Tribal sovereignty.\21\
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\13\ In addition, the GSEs generally implicitly opposed the
proposal, suggesting that the proposal's exemption for form
contracts made publicly available by GSEs was ambiguous and too
narrow. The SBA also called on the Bureau to address a data
deficiency in the final rule or convene a small business review
panel.
\14\ Several industry commenters stated that the proposal
underestimated the burdens of the proposed registration
requirements. For example, a trade association described how
supervised nonbanks would need to hire third-party lawyers and
consultants. These commenters also pointed to other burdens, such as
compliance, reporting, and technological investments. Another
commenter also stated that the burden of reporting information about
court and arbitrator decisions on enforceability of covered terms
and conditions would be ``massive,'' and suggested the Bureau could
instead research that information on its own. The Bureau discusses
comments on impacts further below in part IV.
\15\ These comments generally described how the registry would
create ``negative innuendo'' and ``stigma'' that would ``scare and
shame,'' ``brand,'' and ``penalize'' the use of lawful terms and
conditions, creating ``nuisance exposure'' and a ``chilling
effect.'' One commenter noted that the proposal acknowledged this
impact when it indicated that nonregistrants could seek to
differentiate themselves in marketing. This commenter and other
trade associations stated that the reputational impact would be
significant enough to warrant the Bureau convening a small business
review panel.
\16\ Two of these comment letters suggested that if the Bureau
were to issue a final rule, it should limit the scope of required
registration to terms and conditions for which there is
``overwhelming consensus of their unlawful nature.''
\17\ Legal objections to the proposed coverage of arbitration
agreements also are noted below.
\18\ A trade association stated that the proposal would apply to
terms and conditions that legislatures and courts, including at the
State level, have found to be lawful.
\19\ One of the trade associations therefore suggested that if
the Bureau finalized the proposal, it should be further limited,
such as to terms and conditions that violate Federal consumer
financial law.
\20\ Some commenters also stated that the proposal's burdens
outweigh its benefits.
\21\ All Tribe commenters generally supported the proposed
exemption for States including Tribes, but several stated that it
needed to be broadened to include State/Tribe-owned/controlled
entities, which enjoy a right of self-determination as to their
status as a sovereign entity. Relatedly, all of these commenters
opposed what they viewed as the proposal's implication that the
Bureau is competent to determine whether entities that claim
association with Tribes are by law part of the Tribe and entitled to
Tribal sovereignty. For that reason, they stated that the proposal
to allow such entities to file good faith notices of nonregistration
was based on a faulty premise that the Bureau could evaluate the
merits of those notices.
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Commenters in opposition also generally stated that the proposed
exclusions, such as for firms with less than $1 million in annual
receipts from consumer financial products and services in supervised
markets, were inadequate.\22\ Mortgage industry commenters similarly
stated that the proposed exemption for certain GSE form contracts was
inadequate, that the proposal would lead to unnecessary burden across
market participants registering the same standard terms and conditions,
and that the proposal generally was inappropriate for the mortgage
market, where arbitration agreements generally are prohibited and State
law already restricts many waivers.
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\22\ While these commenters advocated for a higher exemption,
they did not state that would overcome their general opposition to
the proposal.
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Commenters in opposition also generally disagreed with the claims
in the proposal that lawful covered terms and conditions, such as
arbitration agreements, pose risks to consumers. One industry trade
association also provided an economic analysis reporting no
statistically significant relationship between companies' use of
arbitration agreements and consumer complaints filed with the CFPB or
enforcement actions filed by the CFPB. As a result, as noted above,
these commenters generally stated that the public registry would be
confusing and not allow for true discernment of risk.\23\ Two industry
commenters also disputed the proposal's preliminary finding that form
contracts in general pose risks to consumers due to their being non-
negotiable and consumers not reading them.\24\
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\23\ For example, one industry association noted how a registry
of lawful terms and conditions would ``mislead'' consumers about
their risks.
\24\ In these commenters' view, the ``opt out'' provisions in
their form contracts are a form of negotiability. In addition, one
of these commenters noted that it requires consumers to check boxes
confirming assent to individual terms.
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In addition, several commenters opposed to the proposal questioned
the Bureau's legal authority to finalize it. They stated that: (1) the
authorities relied upon in CFPA sections 1022 and 1024 do not authorize
the Bureau to establish a registry of terms and conditions it deems to
be risky; \25\ (2) the proposal raised constitutional concerns; \26\
(3) the proposal ran afoul of the major questions doctrine; (4) the
proposed coverage of arbitration agreements would be unlawful; \27\ and
(5) the proposal to publish registration information failed to consider
the degree to which covered terms and conditions constitute
confidential business information or protected intellectual
property.\28\
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\25\ Another commenter indicated that the proposed registry was
unprecedented and inappropriate.
\26\ These grounds included due process and the 10th Amendment
of the U.S. Constitution.
\27\ Several commenters stated that the proposal to collect and
publish information on the use of arbitration agreements was not
permitted under section 1022 or section 1024, due to more specific
authority to regulate arbitration agreements in section 1028.
Several also stated that this aspect of the proposal violated the
Congressional Review Act (CRA) resolution of disapproval of the
Bureau's 2017 Arbitration Agreements Final Rule. See Final rule; CRA
revocation, 82 FR 55500 (Nov. 22, 2017). Several also stated that
the proposal was based on an arbitrary and capricious premise that
arbitration agreements are risky, which, in their view, is
inconsistent with the Federal Arbitration Act (FAA) and its
jurisprudence.
\28\ A law professor disagreed, stating that companies give the
covered form contracts to consumers, so they are not trade secrets.
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In contrast, most of the commenters in support stated that the
proposed publication of registration information would present a more
systematic picture of the level of risk that covered terms and
conditions pose to consumers. Meanwhile, they cited data from the
Bureau's 2015 Arbitration Study and elsewhere that indicated to them
that arbitration agreements are prevalent in supervised markets, and
they cited research that, in their view, established that consumers
fare poorly in arbitration and disadvantaged groups even more so. And
they pointed to anecdotal examples of nonbanks that used those and
other covered terms and conditions in supervised markets, including
some terms and conditions that were found unlawful and others the
commenters viewed as risky.\29\ These commenters also cited examples of
firms that both used covered terms and conditions and faced enforcement
actions finding other conduct that caused consumer harm in violation of
consumer protection laws. In their view, overlap between use of covered
terms and conditions and such enforcement actions illustrated how
covered terms and conditions reduced incentives to comply with the law
and reduced remedies for noncompliance.
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\29\ Several commenters in support also called for the Bureau to
expand the list of covered terms and conditions to include, among
other provisions, specific aspects of arbitration agreements, such
as provisions delegating the power to the arbitrator to determine
arbitrability and provisions prescribing standards for so-called
mass arbitration. Some also supported coverage of loser-pays
provisions and choice-of-law provisions. One stated that the
registry should cover implied waivers, including terms and
conditions that do not contain the notice required by the FTC's
Holder Rule, 16 CFR 433.2. Based on their review of a selection of
income-share agreements to fund education expenses of postsecondary
education students, they stated that these agreements, in their
view, were subject to the Holder Rule and did not comply with that
rule.
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Commenters in support described several benefits of the proposal.
In their view, it would: (1) allow other regulators and the public to
understand the prevalence of covered terms and conditions; \30\ (2)
make the public aware of trends and patterns in the use of covered
terms and conditions, including adjudications of their enforceability;
\31\ (3) help consumer organizations to publicly advocate for
registrants to adopt terms more favorable to consumers; \32\ and (4)
prevent
[[Page 48790]]
supervised nonbanks from gaining a competitive advantage from use of
covered terms and conditions in form contracts.\33\
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\30\ One of these commenters stated that, even though use of
covered terms and conditions may be very common, a public registry
can help the public to understand the true level of diminishment of
their rights. In this commenter's view, that public understanding
could reduce firms' use of covered terms and conditions.
\31\ However, in their view, the proposed collection of data on
enforceability adjudications (i.e., decisions only) was too narrow.
They stated data on pending and settled enforceability challenges,
including mass challenges, would provide a clearer picture of the
risk profile of covered terms and conditions. In their view, such
broader information could provide an early indication of mass harms,
and identify mass adjudications that are stalled by limitations in
arbitration agreements.
\32\ One of these commenters stated that advocates would push
for better practices by engaging in noisy criticism, and suggested
the registry could lead to the creation of ratings organizations to
evaluate quality or consumer-friendliness of covered consumer
financial products or services.
\33\ Many of these commenters stated that the lack of
negotiability and generic language in form contracts allows firms,
including monopolists, to prevent consumers from enjoying the full
protection of the law.
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However, few commenters in support specifically addressed whether
the proposed public registry would improve consumer understanding or
shopping. None stated it would do so directly through widespread
consumer use. And two suggested the proposed public registry could be
confusing to the public unless the Bureau significantly invested in
consumer education about the subject matter and reviewed the
effectiveness of published information. Instead, a few of these
commenters suggested the data in the public registry could be used to
encourage companies to change their practices. For example, one
commenter stated that, in its view, examples of consumer activism in
other contexts \34\ suggest that a small number of active and vocal
consumers could analyze such information and use it to publicize their
views as to which terms and conditions registrants should change. This
commenter also suggested that a law review article analyzing certain
public databases indicated that they could foster competition among
companies to engage in a ``race to the top'' to stay out of such
databases.\35\ In the commenter's view, companies could proactively
remove or avoid use of covered terms and conditions as a marketing or
branding strategy. More broadly, many of the commenters in support
called on the Bureau to pursue a different or supplemental regulation
restricting the use of covered terms and conditions, and arbitration
agreements in particular.
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\34\ Yonathan Arbel & Roy Shapira, The Theory of the Nudnik, 73
Van. L. Rev. 929 (2020).
\35\ Nathan Cortez, Regulation by Database, 89 U. Colo. L. Rev.
1 (2018).
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Commenters in support also generally did not address the usefulness
of the proposed information collection requirements to the Bureau in
particular. One stated that the proposal would help the Bureau to
monitor for systemic risks, including emerging risks, by identifying
which covered terms and conditions are used across a market, and
allowing the Bureau to link the use of covered terms and conditions
with particular harms including repeat offenses.
With respect to the impacts of the proposal on covered persons,
commenters in support also generally did not address this topic, except
in certain limited respects. First, most commenters in support called
for imposing similar requirements on depository institutions and credit
unions. For example, one commenter stated that depository institutions
use the same terms and conditions and should be covered on the same
basis. However, another commenter agreed with the proposal's focus on
nonbanks because, in its view, nonbanks posed disproportionate risks to
consumers not served or underserved by the banking sector. Second, a
commenter suggested that registration of the entire form contract
containing a covered term or condition would be less burdensome than
the proposal to require submission of structured data about the use of
specific covered terms and conditions. Third, another commenter stated
that the proposal to collect information about court and arbitrator
decisions on the enforceability of covered terms and conditions would
pose low burden because, in their experience, such decisions were
infrequent.
IV. Rationales for Withdrawing the Proposed Rule
As explained below, the Bureau is withdrawing the Proposed Rule
because the purported benefits of the proposed registry and publication
requirement do not justify the proposal's significant costs.\36\ As
also discussed below, the Bureau considered alternatives to full
withdrawal of the proposal, but finds that those alternatives do not
resolve these flaws.
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\36\ While the Bureau bases its withdrawal on its conclusion
that the absolute burdens of compliance alone are significant enough
that, in light of the speculative benefits, the proposed policy does
not justify the costs, the Bureau acknowledges the persuasive nature
of comments it received questioning the authority of the Bureau to
create a registry as proposed, discussed in part III above. The
Bureau is persuaded that further consideration of its authorities is
merited before it may propose to establish such a registration
regime.
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A. The Purported Benefits of the Proposed Registration Requirements Do
Not Justify the Costs
The Proposed Rule's findings regarding its necessity and value were
based on speculative and unquantified benefits, which do not justify
the steep burdens that would have been imposed on regulated entities
subject to the Proposed Rule.\37\
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\37\ Withdrawing the proposed rule also furthers the
Administration's goals of limiting regulatory burdens on the
American people. See, e.g., E.O. 14219 of February 19, 2025,
Ensuring Lawful Governance and Implementing the President's
``Department of Government Efficiency'' Deregulatory Initiative, 90
FR 10583 (Feb. 25, 2025).
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The Proposed Rule only quantified some of the estimated burdens to
covered persons.\38\ However, even the burdens it did quantify--the
paperwork burdens of complying with the proposed registration
requirements--were significant. Table 3 in the Proposed Rule estimated
that supervised nonbanks would expend approximately 202,875 hours
complying with the proposed registration requirements.\39\ The
estimated registration burden per firm ranged from 15 hours (for firms
with a ``simple'' portfolio of about 10 contracts containing covered
terms and conditions) to over 214 hours (for firms with a ``complex''
portfolio of about 250 contracts containing covered terms and
conditions).\40\ The Proposed Rule estimated that half of the paperwork
burden would involve reviewing consumer form contracts to identify
covered terms and conditions.\41\ Over a third of the estimated
paperwork burden would involve completing the registration process.
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\38\ For example, it did not quantify the burdens supervised
nonbanks would face as a result of the proposal to publish
registration information. 88 FR 6906 at 6961-62.
\39\ 88 FR 6906 at 6957 (Table 3).
\40\ Id. at 6956 (Table 2).
\41\ Id.
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As noted above, some industry commenters stated that the Proposed
Rule underestimated the paperwork burdens. For example, they generally
suggested that supervised nonbanks would have more covered terms and
conditions to register than the CFPB expected due to its inclusion of a
wide range of lawful terms in the scope of registration. In the view of
some commenters, the Proposed Rule also did not adequately account for
burdens on supervised nonbanks such as instituting new internal
compliance and reporting processes, making technology integration
investments, consulting with outside legal counsel, and making
marketing changes and engaging public relations services to address
reputational impacts.
The Bureau agrees with commenters that the burdens would have been
unduly high and unwarranted, particularly in light of the speculative
nature of the benefits. The proposal's impacts analysis identified the
``primary benefit'' of the proposal as increasing compliance among
covered supervised nonbanks by qualitatively increasing the incentive
for supervised nonbanks to refrain from using noncompliant covered
terms and conditions, and through more targeted scrutiny by the Bureau
and other regulators.\42\
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\42\ 88 FR 6906 at 6953.
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[[Page 48791]]
Neither the Bureau nor commenters established that the proposed
registration requirements would have any deterrent effect, much less an
effect that would be commensurate with the significant burden such
requirements would impose. Moreover, the Bureau believes, after
consideration of comments, that, as a policy matter, the Proposed
Rule's attempt to disincentivize conduct through the collection of vast
amounts of data regarding typically lawful contract terms amounts to
regulatory overreach, and is a misguided use of the Bureau's
authorities that dilutes the Bureau's ability to identify true risk to
consumers.
The proposal acknowledged that the Bureau lacked data about the
frequency of use of unlawful covered terms and conditions.\43\ Thus,
although it claimed that the use of noncompliant terms and conditions
would be ``significantly reduce[d],'' \44\ the proposal did not
adequately quantify this purported benefit. The proposal also did not
establish that such an incentive was necessary given restrictions in
existing law on use of such terms and conditions. In fact, much of the
anecdotal evidence the Bureau cited to justify the proposal involved
the enforcement of existing law to deter this very conduct.\45\
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\43\ See id. at 6954 (``The Bureau does not possess data on the
frequency of use of such terms[.]'') and id. at 6960 (``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.'').
\44\ Id. at 6960.
\45\ See generally examples in part II of the proposal.
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The Proposed Rule also did not quantify any other benefit from the
registration of lawful terms and conditions, including by helping the
Bureau to detect risk to consumers and to prioritize its examination
work on that basis. For example, the Proposed Rule stated a theory that
public oversight should be heightened when entities use covered terms
and conditions that limit or restrict private enforcement.\46\ But it
did not provide evidence to support this theory, much less quantify any
purported benefit. The Bureau seeks to avoid imposing steep compliance
burdens on regulated entities when benefits to consumers or the public
are unclear.
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\46\ 88 FR 6906 at 6909 (``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.'') & n.215
(``[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.'').
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As noted above, one commenter suggested that the Proposed Rule's
registry would help the Bureau to monitor for systemic and emerging
risk (such as from detecting widespread use of potentially harmful
terms and conditions, or a connection between their use and other
harmful conduct). However, neither the Proposed Rule nor commenters
explained why a rule mandating permanent, recurring collection of data
on the use of covered terms and conditions by nonbanks across
supervised markets was necessary, compared with more targeted, less
burdensome use of the Bureau's market monitoring or supervisory
authorities. For example, as one industry association noted, the Bureau
could gather similar information through its examinations, which would
avoid the burden from establishing the proposed registry.
The Bureau also is withdrawing the Proposed Rule because the
proposal's speculative and unquantified benefits do not justify the
significant costs to the Bureau. The Proposed Rule would have required
the Bureau to expend significant resources--not only to establish and
operate a registration system, but also to use that system to assess
risks. Yet the proposal considered only some of the resources the
Bureau would have to expend to fully realize the Rule's purported
benefits. The Proposed Rule estimated that operation of the nonbank
registry (including this proposal and the rule establishing the nonbank
orders registry) would cost approximately $2.5 million for vendor
support as well as over 10,000 hours of Federal staff time
annually.\47\ Those estimates, however, did not include the cost to use
the collected data, which would include standardizing unstructured data
and analysis as part of supervisory prioritization (which the Proposed
Rule described as the most immediate use). Moreover, the Proposed Rule
also would have required the Bureau to determine which information
collected is legally permissible to publish and should be published.
That too would require significant Bureau resources. These significant
costs to the Bureau are not justified, especially when the statutory
cap on the Bureau's resources has been significantly reduced since the
Bureau published the Proposed Rule.\48\
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\47\ See Paperwork Reduction Act Supporting Statement, Item 14
at <a href="https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202407-3170-001">https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202407-3170-001</a>.
\48\ See 12 U.S.C. 5497(a)(2)(A)(iii).
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Finally, the Proposed Rule would have led to collection of large
quantities of data about terms and conditions most of which are likely
to be lawful and commonly used in the marketplace. Nothing in the
comment record or the proposal suggests that the Bureau could discern
which of these terms and conditions, if any, pose risks to consumers
without expending substantial resources.\49\ Thus, the Bureau does not
believe that collecting this vast amount of data would be useful to the
exercise of its functions. At best, the proposed information collection
would be a poorly designed distraction. At worst, it would be an
unjustified overreach that places significant, unwarranted burdens on
industry and the Bureau. Regardless, if the Bureau found evidence that
such an information collection is warranted, it could use other
authorities to collect data in a more targeted and efficient manner. It
also can exercise its supervisory and enforcement authorities to take
action against the usage of terms and conditions in the consumer
financial services marketplace that are prohibited by Federal consumer
financial law, to the extent such terms and conditions are used.
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\49\ See 88 FR 6906 at 6953 (the Bureau ``believes that the use
of covered terms and conditions is widespread''). Indeed, a number
of industry commenters stated that the Proposed Rule would not
enable the Bureau to discern risks to consumers. These commenters
believed that most industry participants used at least some covered
terms and conditions, which would render the data collected devoid
of usefulness or benefit. For example, one commenter stated that the
proposed information collection and public registry would ``cast a
dragnet'' that ``obfuscates'' and ``adds noise'' to the Bureau's
market monitoring, rather than serving as a ``proxy'' or ``signal''
for identifying bad actors or illegal or abusive practices or
products. Another stated that the Proposed Rule would ``deluge'' the
Bureau with registrations.
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B. The Proposed Publication Provisions Do Not Justify the Costs
The Bureau is also withdrawing the Proposed Rule because the
proposed public registry's speculative and unquantified benefits to the
public do not justify the costs and potential harm imposed on regulated
entities.
The Proposed Rule's main rationale for making the registry publicly
available was a theory that the rule would serve consumers and the
public interest by, for example, facilitating oversight of supervised
nonbanks by regulators other than the Bureau, contributing to public
debates over form contracts and certain terms and conditions, providing
outside groups
[[Page 48792]]
with resources to educate consumers, and assisting consumers in
identifying supervised nonbanks registered with the Bureau. However,
the Proposed Rule acknowledged both that it would have ``a minimal
impact on consumer behavior'' and, similar to the discussion above,
that the Bureau lacks sufficient data to quantify the proposal's
purported benefits to the public interest.
In addition to the steep costs to regulated entities and the Bureau
associated with the proposed public registry, the proposal also
acknowledges that it may impose potential costs and harms on consumers,
the public, and regulated entities. The proposal noted that publication
``has the potential to create confusion'' among consumers and the
public. For example, consumers could view a firm's registration as a
sign that the supervised nonbank poses substantial risk (despite that
the covered terms and conditions most likely to be registered would be
lawful, as discussed above).
Further still, many industry trade association commenters stated
that the proposal would cause significant reputational harm because it
would ``name and shame'' or ``scare and shame'' supervised nonbanks.
More specifically, it would impose a ``stigma'' and ``public stamp of
disapproval'' that ``implies potential wrongdoing'' and ``negative
inuendo.'' In their view, this ``branding'' and ``penaliz[ing]'' effect
was unwarranted, given how it would be based largely on the use of
lawful contract terms. In addition, some industry commenters stated
that the reputational impacts would be substantial, calling into
question the proposal's certification that it would not have a
significant impact on a substantial number of small entities. Some
consumer groups also admitted they would plan to use appearance on the
registry to embarrass companies, which the Bureau finds concerning
given that the registry would contain many lawful contract provisions.
Given that some commenters stated their plan to use the public
registry to challenge registrants' reputations, the Bureau views the
industry comments as raising reasonable concerns about reputational
harm. The proposal did not consider this impact, and the Bureau does
not believe it can be quantifiable, given the unprecedented nature of
the proposed registry. The Bureau nevertheless believes, as it does
with the registration requirement discussed above, after consideration
of comments, that the Proposed Rule's publication requirement was a
misguided attempt to stigmatize regulated entities into changing form
contracts that, by and large, contain lawful terms \50\ with little, if
any, evidence to justify such aggressive regulatory overreach.
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\50\ See, e.g., 88 FR 6906 at 6957 (discussing how the paperwork
burdens of the rule create incentives to remove covered terms and
conditions beyond merely those that are unlawful).
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C. Alternatives Considered
In withdrawing this Proposed Rule, the Bureau considered several
possible alternatives. First, the Bureau considered the alternative
identified in the proposal of requiring registration of all supervised
nonbanks, regardless of their use of covered terms and conditions. The
proposal stated that the Bureau did not pursue that alternative because
it preliminarily concluded it was a higher priority to register users
of covered terms and conditions.\51\ A general registration requirement
for supervised nonbanks would be an entirely different type of policy
from this proposal, which focuses on covered terms and conditions, and
the Bureau declines to consider such an alternative further.
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\51\ Id. at 6919.
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Second, the Bureau considered commenters' suggestion of limiting
the definition of covered terms and conditions to include only those
covered limitations on consumer legal protections that are prohibited
by law. Although this alternative could reduce the number of terms and
conditions that would be subject to the paperwork burdens of reporting
information to the Bureau, it may increase the overall burdens of
identifying such terms and conditions. There are practical difficulties
in determining whether certain terms and conditions are indeed
prohibited by law, and regulated entities may have to spend significant
resources to do so.\52\ Moreover, this approach would still suffer from
the same infirmities that permeate the Proposed Rule as discussed more
fully above, not least of all that neither the Bureau nor commenters
have data to quantify the prevalence of such prohibited terms and
conditions, or to establish the inadequacy of existing law to deter the
use of prohibited terms and conditions. Thus, the Bureau believes that
the costs to regulated entities and the Bureau are not justified to
achieve speculative benefits of even this narrower alternative.
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\52\ Several industry associations acknowledged these
difficulties, stating that the alternative should be limited to
those limitations for which there is ``overwhelming consensus of
their unlawfulness.'' However, such an approach would only increase
burden on the Bureau (if it attempted to establish such a list, as
one of these commenters suggested) or otherwise on supervised
nonbanks, which would have to engage in further evaluation, for each
limitation, of whether the law as a whole establishes such a
consensus.
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Third, the Bureau considered whether it should collect more data to
help better quantify any potential benefits of the Proposed Rule.
Without existing evidence that would support the proposal's aggressive
regulatory theory, the Bureau does not believe it would be prudent to
impose significant additional burdens on industry or to commit the
Bureau's more limited resources to the pursuit of uncertain results.
Fourth, the Bureau considered eliminating the publication
requirement. While withdrawing this part of the Proposed Rule may have
reduced some of the costs to the Bureau and regulated entities, the
publication requirement only represented a portion of the costs
associated with the proposal such that eliminating this requirement
alone would not sufficiently reduce costs to justify imposing the
remaining burdensome requirements of the proposal.
Withdrawal of Proposed Rule
For each of the independently sufficient reasons set forth in part
IV above, the Bureau is withdrawing the proposed rule titled,
``Registry of Supervised Nonbanks That Use Form Contracts To Impose
Terms and Conditions That Seek To Waive or Limit Consumer Legal
Protections,'' published in the Federal Register on February 1, 2023.
Russell Vought,
Acting Director, Consumer Financial Protection Bureau.
[FR Doc. 2025-19690 Filed 10-28-25; 8:45 am]
BILLING CODE 4810-AM-P
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