AFSA Comments on Proposed Regulation AA
On April 1, AFSA posted comments on the CFPB’s proposal to establish Regulation AA. This new regulation would establish new limitations on consumer credit that exceed the CFPB’s authority.
The proposal would prohibit provisions in contracts that waive federal or state laws that provide consumer benefits. One example of the negative effect of this rule would be to ban waivers of redemption in foreclosure. Some states offer a borrower the right to redeem property sold to a foreclosure purchaser after the property is sold to a new buyer. Lenders and consumers might want to waive that right to streamline the foreclosure process generate a higher value in the foreclosure sale.
The rule also would have a potential effect on lawful arbitration clauses. The rule would bar agreements waiving “causes of action.” A “cause of action” is a set of facts or circumstances that give a party the right to seek judicial relief. AFSA and sister trades pointed out that an arbitration clause that requires parties to handle all disputes outside of courts could be banned by this rule. The CFPB lost its authority to make rules on arbitration by operation of the Congressional Review Act in 2017, so this rule is beyond the CFPB’s authority.
As this proposal was issued right before end of the Biden administration, it is likely the rule will be reassessed and possibly withdrawn by the new CFPB leadership.
April 2nd, 2025
