On April 1, the American Financial Services Association (AFSA) released comments regarding the Consumer Financial Protection Bureau's (CFPB) proposal to implement Regulation AA. The regulation aims to impose new limitations on consumer credit that, according to AFSA, surpass the CFPB's authority.
The proposed regulation intends to prohibit contract provisions that waive federal or state laws providing consumer benefits. An instance of its impact would involve the banning of waivers of redemption rights in foreclosure cases. Certain states allow borrowers to redeem properties sold in foreclosure even after a new buyer purchases them. Waiving this right could help expedite the foreclosure process and result in higher values during foreclosure sales.
The regulation would also affect legal arbitration clauses. It seeks to bar agreements that waive "causes of action." A "cause of action" refers to circumstances that allow a party to seek legal relief. AFSA and related organizations highlighted that an arbitration clause requiring parties to resolve disputes outside court proceedings could be prohibited under this rule. The CFPB lost its rule-making authority on arbitration due to the Congressional Review Act in 2017, making this rule exceed its authority.
Given that the proposal was introduced just before the end of the Biden administration, it is probable that the new CFPB leadership will reconsider and possibly withdraw the rule.