On January 29, 2024, the Consumer Financial Protection Bureau ("CFPB") issued a circular (the "Circular") detailing what it considers deceptive financial services marketing practices under the Consumer Financial Protection Act ("CFPA"). According to the CFPB, operators of comparison-shopping websites may violate the CFPA by steering consumers to certain products or services based on how the site operators are compensated. Titled "Preferencing and steering practices by digital intermediaries for consumer financial products or services," the Circular makes clear that product steering compromises the trust of consumers who rely on comparison-shopping websites to operate in their best interests.
As our readers are aware, the CFPB is the principal regulatory body responsible for administering federal consumer financial law. Its broad jurisdictional reach includes banks, credit unions, payday lenders, and other financial institutions. The CFPA is designed to protect consumers from unfair, deceptive, and/or abusive acts and practices. The CFPA is enforced not only by the CFPB, but state attorneys general and various other regulatory agencies. The CFPB released the Circular to help ensure that all enforcement agencies consistently regulate abusive financial product comparison shopping practices. In the wake of the Circular's release, we caution that each entity involved in the chain of marketing financial products to consumers (from the website operator to the financial service provider itself) could be subject to more widespread enforcement action.
Why is the CFPB Concerned with the Relationship Between Comparison Shopping Operators and Lead Generators?
According to the CFPB, consumers are becoming increasingly reliant on digital comparison shopping tools to meet their financial product and service needs. Consumers searching for a type of financial product or service will typically be presented with information about the costs, features, and terms for a set of comparable and competing offers. Lead generators serve an important role in directing prospective customers to companies that offer these financial products and services. When consumers submit their information to receive product/service offers on comparison shopping sites, it is the site operator that alone decides which provider obtains the consumer lead (whether through real time bidding or otherwise).
Whether due to operators explicitly claiming that their recommendations are objective, or their usage of terms such as "expertise," "best," "help," or other comparable terms, consumers trust that the most compatible offers are objectively presented to them. Because of this, the Circular clarifies that comparison shopping operators cannot make recommendations or steer consumers towards particular products or services based solely on the benefits that accrue to them. According to the CFPB, the recommending criteria must be objective. To do otherwise would constitute a clear violation of the CFPA, it explains, and would be considered the utilization of a dark pattern. The CFPA prohibits operators and service providers from engaging in any unfair, deceptive, or abusive act or practice. An act or practice is abusive if it "takes unreasonable advantage" of certain circumstances, including "the reasonable reliance by the consumer on a covered person to act in the interests of the consumer." "Dark patterns" are subtle design tricks that influence consumers into making unintended decisions, or to the same end, discourage behavior that hurts a business's bottom line. As our readers are aware, cracking down on "dark patterns" has been a major focus of the FTC in recent months.
It is important to note that the Circular glaringly omits any discussion of the need for requisite disclosure language on comparison shopping sites. Most consumers are familiar with the conspicuous disclosures that many comparison-shopping tools and lead generator websites employ, informing visitors that the site operator may be compensated by the providers of the promoted products or services. The CFPB frustratingly failed to address in the Circular whether such disclosures would protect operators from CFPA liability.
Why is the Circular on Comparison Shopping Relevant to Your Business?
The Circular has broad implications, as it is intended to ensure that all parties with authority to enforce the CFPA are on the same page. As our readers are aware, the CFPA carries serious penalties for its violation. Entities that are found to run afoul of the CFPA are responsible for between $7,034 to $1,406,728 in daily penalties, depending on whether their conduct was willful and knowing.
Given the foregoing, businesses would be well-apprised to reexamine their comparison shopping tools and lead generation practices. To stay out of the CFPB's crosshairs, companies should retain counsel that is experienced with online marketing and lead generation industry regulatory compliance.
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