CFPB General Counsel Meredith Fuchs and CFPB Assistant General Counsel for Law and Policy Anne Zorc spoke last week at the Georgetown Consumer Law Society and Citizen Works’ symposium entitled “Making the Fine Print Fair.” The CFPB’s representatives focused on the Bureau’s updates to the RESPA-TILA integrated disclosures rule, about which we previously reported. According to Ms. Fuchs, the simplified forms will help consumers better understand the terms of the deal offered and determine what they can and cannot afford.
Ms. Zorc used her remarks to summarize the new RESPA-TILA integrated disclosures. In their remarks, several of the symposium’s panelists had suggested that empirical testing should be used in the development of effective disclosures and Ms. Zorc discussed the CFPB’s use of testing to develop the new notices. These studies resulted in more graphic notice forms that Ms. Zorc described as containing “as few words as possible,” with the most important information to consumers appearing on the front page.
Ms. Fuchs briefly mentioned several other efforts underway at the CFPB to improve consumer disclosure. The first was the Bureau’s trial disclosure policy that allows companies to request individual waivers from certain federal disclosure requirements to test innovative disclosure methods. The Bureau is also evaluating shorter, simpler credit card agreements through a pilot program with the nation’s largest credit union.
Ms. Fuchs also briefly summarized the Bureau’s ongoing mandated study of arbitration clauses in financial product agreements. She highlighted that about 90% of the agreements reviewed by the CFPB contained clauses that bar consumers from participating in class actions. She also noted the CFPB’s finding that, for credit card agreements, the arbitration provisions were on average 14% of the entire agreement (based on the number of words).
The symposium also featured an address by FTC Chairwoman Edith Ramirez, who highlighted two recent and ongoing FTC actions to combat abuses in fine print. The first was the FTC’s action against ten auto dealers for deceptively using fine print to contradict advertised prices and rates. The second action was a rare use of the FTC’s authority to combat unfair practices, charging that a payday lender’s restriction on claims being litigated in tribal court in South Dakota were unfair to consumers.
All speakers and panelists at the seminar shared the view that fine print is harmful to consumers. When referring to “fine print,” the panelists broadly referred to both traditional non-negotiable contracts, such as cell phone service agreements, and so-called “clickwrap” contracts. In clickwrap contracts, such as End User License Agreements, customers consent to any terms or conditions by clicking on a dialog box on a screen in order to complete a transaction. Several law professors presented empirical studies that showed both traditional and clickwrap contracts are getting longer and more complicated, and that consumers do not understand what they are reading (assuming they even attempt to read a contract).
The panelists presented several possible solutions to the “problem” of fine print. One solution would require companies to notify customers in the event of changes to clickwrap contracts, via procedures similar to existing data breach notification requirements. Another solution involved creating a list of certain non-waivable terms, similar to the European Union’s unfair contract terms “blacklist.” A listed term, such as a right to a trial, could not be waived in any kind of consumer contract. Along similar lines, Nancy Kim, a professor at California Western School of Law, suggested that only certain so-called “shield” terms that are designed to protect a company’s property or proprietary rights should be enforceable in clickwrap contracts.
Another solution involved using performance-based standards, similar to existing over-the-counter drug label testing requirements. Under this model, companies would have to demonstrate to regulators that a sufficient number or percentage of consumers understand the terms of a contract as they are formatted before they can be used. This way, the responsibility for designing disclosures that are readable to consumers would move from regulators to the firms themselves, which are better suited to educate consumers, simplify and innovate terms, and channel consumers to suitable terms.
Overall, the seminar was very pro-consumer, with no speakers representing industry. It is clear from the seminar that the use of fine print is an issue of interest to both the CFPB and the FTC, with the CFPB currently focused on the use of fine print in disclosures and the FTC focused on deceptive advertising concerns. It seems likely that both agencies will increasingly focus on fine print issues as consumer advocate groups mobilize on this issue.
A video of the entire symposium is available on Georgetown Law’s website.