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NAFCU to CFPB: Narrow scope of contract registry
In response to the CFPB’s proposed rule to require supervised nonbanks to report certain terms and conditions in form contracts for consumer financial products and services that pose risks to consumers, NAFCU Senior Counsel for Research and Policy Andrew Morris called on the bureau to narrow its scope to ensure credit unions’ partnerships with third-party vendors are not stifled.
“While NAFCU supports efforts to detect and prevent abuses of federal consumer financial law among nonbank entities, the proposed rule raises serious concern about the prospect of additional burden for credit unions that use [credit union service organizations (CUSOs)] or vendor form contracts, and is likely to magnify the risk of reputational damage associated with use of contract language that must be registered but is not expressly prohibited by law,” Morris wrote.
To address these concerns, Morris recommended that the bureau:
- narrow the scope of the proposal to focus on contract language that is expressly prohibited by federal consumer financial law administered by the CFPB;
- not attempt to circumvent a 2017 joint resolution passed by Congress under the Congressional Review Act disapproving the agency’s arbitration rule;
- not review contracts based on sources of authority outside of the federal laws the agency administers under the Dodd-Frank Act;
- pause its rulemaking to collect additional information relevant to burdens on small entities; and
- clarify, for the purpose of developing the proposed service provider exception, that CUSOs are excluded from the definition of a supervised registrant.
In addition to Morris’ letter, NAFCU signed a joint trades letter that reiterated many of the association’s recommendations. The groups raised concerns about the proposal being an “impermissible and unjustified attack on arbitration agreements” that violates federal laws, and the bureau again ignoring its responsibility under the Small Business Regulatory Fairness Act (SBREFA) to consider the burdens – especially reputational harms and litigation risks – on small entities. The trades also asked that the information not be made public or name specific companies to ensure consumers are not misled by potential biases against the use of certain contract terms that are not unlawful.
NAFCU will continue to engage the bureau on this issue to ensure it is within the bureau’s authority.