Banks provide account agreements to consumers, outlining critical terms and conditions that govern their business interactions. These agreements serve as essential documents that clarify the rights, obligations and expectations of the banking relationship.

Typically, banks provide two types of agreements: one for bank accounts and another for loans. The details included in these agreements vary depending on the type of account or service. Common categories of information in the agreements include bank and customer liability, deposit and withdrawal rules, check processing, rights to setoff (offset), account information security, and procedures for addressing disputes and errors. Additionally, they serve to ensure that consumers are well-informed about their relationship with the bank, enhancing transparency and fostering a better understanding of each party’s responsibilities

Content Requirements and Disclosures in Agreements

Banks have some flexibility in determining the content of their account agreements; however, state and federal regulations mandate that certain disclosures be provided to consumers at specific stages, such as at application or at account opening. Integrating these disclosures directly into their account agreements helps banks streamline processes and mitigates the risk of regulatory breaches. In addition to regulatory compliance, banks often incorporate legal disclaimers and waivers to minimize liability and clarify any limitations on the bank’s obligations to customers.

Ensuring Compliance Through Clear Disclosures

Regulatory requirements extend beyond simple disclosure mandates. Banks must also ensure that disclosures are clear, accurate and not misleading. Ambiguities or inaccuracies can expose banks to litigation and regulatory penalties. Effective disclosures empower consumers by providing them with the knowledge they need to make informed decisions about their banking relationships. Consequently, banks must review their agreements regularly to ensure that the language used remains consistent with current legal standards and consumer protection regulations.

Prohibited Terms and Conditions in Consumer Agreements

While banks have considerable leeway in crafting their agreements, certain terms and conditions are explicitly prohibited by law. In June 2024, the Consumer Financial Protection Bureau released a circular¹ highlighting unlawful and unenforceable terms that banks must avoid. It outlines a range of prohibited practices that banks need to be aware of.

Prohibited terms and conditions commonly seen in agreements that need to be corrected or clarified include:

1. Prohibited Arbitration Clauses in Mortgage and Credit Agreements
   The inclusion of certain terms in contracts for consumer financial products or services may violate the prohibition when applicable federal or state law renders such contractual terms, including those that purport to waive consumer rights, unlawful or unenforceable. The Truth in Lending Act prohibits the inclusion in a residential mortgage loan or open-ended consumer credit plan secured by the principal dwelling of terms requiring arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling claims arising out of the transaction.² This measure ensures consumers retain the right to pursue legal action in court if necessary. By maintaining consumer access to judicial recourse, the Truth in Lending Act reinforces critical consumer protection measures.
2. Limitations on Servicemembers’ Legal Rights

   The Military Lending Act generally prohibits terms in certain consumer credit contracts that require servicemembers and their dependents to waive the covered borrower’s right to legal recourse under any otherwise applicable provision of state or federal law, including any provision of Servicemembers Civil Relief Act.³

   If the SCRA applies, creditors may not compel arbitration. Additionally, the SCRA was amended to codify the unwaivable right of servicemembers to bring and participate in class actions, “notwithstanding any previous agreement to the contrary.”⁴

3. Restrictions on Remittance Transfer Consumer Claims

   Under the Electronic Fund Transfers Act, remittance transfer providers are barred from limiting a consumer’s ability to seek damages or recover costs and attorney fees in disputes. Such limitations are in direct conflict with provisions found in sections 1693m(a)(3) and 1693(l) of the EFTA,⁵ which establish liability for providers and ensure that consumers have recourse to adequate remedies. This protection emphasizes the importance of holding remittance providers accountable for errors, delays or failures that can have significant financial repercussions for consumers.

4. Disclaimers that Misrepresent Legal ObligationsContractual disclaimers such as “subject to applicable law” or “except where unenforceable” are insufficient to cure the inclusion of otherwise unlawful terms. The use of these disclaimers can mislead consumers into believing certain actions are permissible under some conditions when, in fact, they are not. Courts, including in Ruth v. Triumph Partnerships (577 F.3d 790, 801-02), have found such phrasing problematic, as it implies a conditional legality that is often legally unsupported. Banks must avoid using disclaimers that create an appearance of legality where none exists.

Regular Compliance Reviews and Legal Counsel Involvement

Given the complex and evolving regulatory landscape, banks are encouraged to conduct compliance reviews of their account agreements at least annually. Legal counsel should play a key role in this review process, as attorneys can provide expertise on current legal standards, identify potential issues with existing disclaimers and waivers, and recommend necessary updates to reflect new legal developments. Banks that proactively monitor agreements ensure terms and conditions uphold consumer protections and minimize legal risks