13.3.9.2 FTC Prohibition of Waiver of Exemptions

The FTC’s Credit Practices Rule prohibits lenders and retail installment sellers from including waiver of exemption clauses in their consumer contracts.¹⁹² The rule prohibits a clause that “[c]onstitutes or contains an executory waiver or a limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer.” There is an exception that makes it clear that this provision does not prohibit security interests in exempt property, but the effect of this exception is limited by the separate prohibition in the Credit Practices Rule of most non-purchase money security interests in household goods.¹⁹³

While there is no private cause of action for violation of an FTC Rule,¹⁹⁴ inclusion of a clause that the FTC has declared unfair will be a violation of most states’ unfair and deceptive acts and practices (UDAP) statutes, as long as the creditor is covered by the statute.¹⁹⁵ Such a clause is also unenforceable.¹⁹⁶

West Virginia’s highest court found deceptive a contractual provision waiving the consumer’s rights to exempt certain property from seizure. The waiver was only “to the extent permitted by law,” and West Virginia prohibits such a waiver. The creditor argued that the contractual provision was not deceptive because the provision had no effect as it was not “permitted by law.” But the court found the provision misleading and likely to cause confusion or misunderstanding.¹⁹⁷