Is a borrower protection clause enforceable in a personal loan agreement, and how should it be drafted?

Lexi, Chatbot

I understand that you're concerned about the terms of your loan agreement and the borrower protection clause. Can you tell me if there has been a specific incident where you feel this clause has been violated?

Lexi, Chatbot

Have you already attempted to address this issue with the other party involved in the loan agreement?

Queeneth E. Esq

Hello and welcome to our service. My name is Queeneth. I am an attorney with over 8 years of legal experience. I will do my best to assist you today. (Kindly note that our conversation does not establish an attorney-client relationship.)

Queeneth E. Esq

The idea is reasonable, but I would not use it in the broad form you described. The problem is not the goal. The problem is that phrases like "without harassment, coercion or intimidation," "no third party gets involved," and "anything that will cause a disturbance" are broad and can be hard to enforce if a dispute comes up. Courts generally enforce contracts more easily when the terms are definite rather than ambiguous, and most contracts already carry an implied duty of good faith and fair dealing even if you do not spell it out.

The biggest risk in your wording is the "no third party gets involved" part. That could accidentally block normal and legitimate things like: using a lawyer, using a payment processor, sending a bookkeeping or servicing notice, assigning the loan if the agreement allows assignment, or going to court if there is a default. You usually do not want to write a clause that can be read as waiving normal enforcement rights unless that is truly your intention.

Also, federal anti-harassment and third-party contact rules are aimed at debt collectors, not necessarily every private lender collecting their own loan, so those rules are not a perfect substitute for a well-drafted contract clause between private parties. The CFPB and FTC both explain that debt collectors may not harass and generally may not communicate with third parties about a debt.

A better approach is to make the clause narrow and specific. For example, instead of one broad "borrower protection" clause, break it into separate ideas: repayment must follow the schedule unless both parties agree otherwise in writing; all communications must be respectful and not threatening, abusive, or harassing; payment reminders may be sent only to agreed contact methods; neither party may publicly disclose the debt except as required by law; third parties may be used only for legitimate purposes such as attorneys, accountants, payment processors, court filings, or collection/enforcement allowed by the agreement and law; changes to contact information or payment logistics must be given in advance.