The CFPB Joins the FTC on Unfavorable Choice Advertising and marketing and Darkish Patterns in New Round

In relation to destructive choices, the CFPB has sturdy opinions, As demonstrated in its new round, these opinions usually align with these of the Federal Commerce Fee (FTC), which has repeatedly focused trial provides, subscription gross sales, and different applications involving recurring expenses for enforcement. The round reaffirms the CFPB’s focus—shared with the FTC—on combating digital darkish patterns used to interact in unfair, misleading, or abusive acts or practices, particularly when these methods are mixed with destructive possibility advertising.

In an upcoming webinar on March 1, 2023 (RSVP right here), Venable might be presenting an in-depth evaluation of the CFPB’s round, in addition to CFPB and FTC enforcement actions and personal litigation primarily based on purportedly illegal destructive possibility advertising. For many who can’t wait, we’ve summarized the highlights of the round under.

What’s the Motivation Behind the Round?

The round displays the CFPB’s penchant for in search of to control areas Congress has charged different companies with supervising and imposing. Though the CFPB’s scrutiny of destructive possibility advertising is properly documented, the brand new round is a part of the CFPB’s broader effort to police phrases and situations. This initiative was not too long ago illustrated by the CFPB’s proposed rule that may require nonbanks topic to the CFPB’s jurisdiction to register “details about their use of sure phrases and situations in type contracts.”

By concluding that sure destructive possibility practices might violate the Shopper Monetary Safety Act (CFPA), the CFPB is buttressing its causes for requiring sellers to file their phrases within the proposed registry. Not surprisingly, the CFPB cites destructive possibility provides within the abstract of the proposed rule as probably “not current[ing] a significant alternative” to customers.

What’s Lined by the Round?

As used within the CFPB round, “‘destructive possibility’ refers to a time period or situation below which a vendor might interpret a shopper’s silence, failure to take an affirmative motion to reject a services or products, or failure to cancel an settlement as acceptance or continued acceptance of the provide.” These embody shopper subscriptions that mechanically renew or trial applications that cost a recurring payment as soon as the trial interval ends except the patron cancels. This definition is substantively equivalent to the definition the FTC utilized in its October 2021 coverage assertion, and just like the definitions set forth within the FTC’s Telemarketing Gross sales Rule (TSR)

When Is Unfavorable Choice Advertising and marketing a UDAAP Violation?

The first query addressed by the round: “Can individuals that interact in destructive possibility advertising practices violate the prohibition on unfair, misleading, or abusive acts or practices [UDAAP] within the Shopper Monetary Safety Act (CFPA)?” It ought to come as no shock, given the CFPB’s at present expansive interpretation of its enforcement powers, that the reply is sure. Based on the CFPB:

Unfavorable possibility advertising practices might violate [the Consumer Financial Protection Act’s prohibition on unfair, deceptive or abusive acts or practices] the place a vendor (1) misrepresents or fails to obviously and conspicuously disclose the fabric phrases of a destructive possibility program; (2) fails to acquire customers’ knowledgeable consent; or (3) misleads customers who need to cancel, erects unreasonable limitations to cancellation, or fails to honor cancellation requests that adjust to its promised cancellation procedures.

Though the CFPB divides its evaluation into three classes (disclosure, consent, cancellation), all share a standard theme, which is that companies providing destructive possibility applications ought to be sure that customers have all the fabric info essential to make an knowledgeable determination as as to if to enroll and that buyers have an unobstructed path to cancellation.

A big a part of this accountability is ensuring that the related data is introduced to the customers in a transparent method that’s simple to learn and perceive. For instance, the bulletin states that disclosures shouldn’t be hidden in low-contrast tremendous print; a enterprise mustn’t inform customers they’re receiving details about a product after which cost the customers for the product as if it have been bought; and a promise of “rapid” and “no questions requested” cancellation ought to imply simply that, not a high-pressure negotiation.

To the extent anybody may assume these questions are merely educational, the round cites a variety of enforcement actions that the FTC has introduced difficult destructive possibility practices, primarily below the Restore On-line Customers’ Confidence Act (ROSCA) and the TSR, each of which require the identical three parts: clear disclosure, knowledgeable consent, and straightforward cancellation. (We’ve beforehand written about the FTC’s utility of ROSCA and the TSR to destructive possibility provides in its November 2021 coverage assertion.) The round additionally lists related enforcement actions introduced by the CFPB below the CFPA, the Digital Fund Switch Act, Regulation E, and the TSR.

Though CFPB circulars are coverage statements, not formal guidelines or adjudications, they supply perception into the company’s enforcement tendencies and are supposed to information different companies that implement shopper monetary safety regulation. The message right here is evident: companies that interact in destructive possibility advertising ought to be vigilant about how their provides are introduced and the way customers can choose out.

We hope you’ll be part of us for an in depth dialogue of the authorized panorama for destructive possibility applications on March 1, 2023.