On February 29, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued Consumer Financial Protection Circular 2024-01, Preferencing and steering practices by digital intermediaries for consumer financial products or services. The Circular advised that: “[o]perators of digital comparison-shopping tools can violate the [Consumer Financial Protection Act (CFPA)] prohibition on abusive acts or practices if they distort the shopping experience by steering consumers to certain products or services based on remuneration to the operator;” and “lead generators can violate the prohibition on abusive practices if they steer consumers to one participating financial services provider instead of another based on compensation received.” Digital comparison shopping tools are defined as “tools that overtly recommend certain products as well as tools that have the effect of affirmatively influencing consumers’ likelihood of selecting or engaging with information about various consumer financial products and services.”

The Circular addresses the varying types of comparison-shopping tools and the use of algorithms to rank recommendations, and focuses on financial arrangements for preferential treatment or advantageous placement in the comparison-shopping tool. (The Circular notes that banner or pop-up advertising on operators’ websites are not affected by this guidance.) With respect to lead generation, the Circular focuses on whether certain compensation schemes cause lead generators to steer consumers to lenders that pay the highest bounty.

Under the CFPA, an act or practice in connection with the provision of a consumer financial product or service 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.” Many comparison-shopping tools hold themselves out as providing unbiased and objective advice, and as a result, may influence a consumer’s selection of a financial product. When compensation to the operators of these tools affect the results, the Circular states that this may be abusive and take unreasonable advantage of a consumer. The Circular suggests that consumers are reasonably relying on the tool operator or lead generator to act in the consumer’s best interests, and the tool operators and lead generators are taking unreasonable advantage of consumers when they give preferential treatment to certain products or steer consumers to more costly products to increase the operator’s own financial gain.

The Circular provides the following illustrative examples of abusive practices:

• A tool operator presents a product (or set of products) that is preferred because of financial considerations in a placement that is more likely to be seen, reflects a preferential ordering, has more dynamic design features, requires fewer clicks to access product information, or otherwise increases the likelihood that a consumer will consider or select the preferred product.
• A tool operator presents certain options as “featured” because they are provided by the operator or a third-party provider that paid for enhanced placement.
• A tool operator directs consumers to the products that pay higher fees within a product category—for example, an operator routinely matches consumers with a loan provider because it pays the highest fee per application.
• A tool operator receives different payment based on whether the digital comparison-shopping tool meets a certain threshold volume allocation of leads generated within a set period of time, and uses steering practices to increase the likelihood the operator will satisfy volume allocation requirements. For example, in a 14-day period, a provider pays fees only if at least 1,000 applications are generated, and, on day 13, the operator is more likely to steer consumers to that provider’s products until the allocation is met.
• A tool operator or lead generator uses dynamic bidding or a bounty system to determine which offers are presented to consumers with certain demographic or other characteristics.
• A tool operator expressly or implicitly presents the total set of options featured on the tool as relatively comprehensive or based on criteria such as price, terms, quality of service, or security, when in fact the operator determines which options to include based on financial or other benefits obtained by the operator.
• A tool operator presents a preferred product as a “match” that is not the participating product that is most consistent with the expressed interests of a consumer.
• A lead generator guarantees a certain number and quality of leads to multiple participating lenders and divides customers meeting those criteria up without regard to the fact that consumers with similar characteristics are receiving different offers.

The Circular does not address whether a tool operator/lead generator can avoid an abusive practice finding by disclosing its interest or compensation, and therefore it is unclear whether the CFPB would find that such a disclosure would eliminate the consumer’s reliance that the tool operator/lead generator is acting in the consumer’s best interest. In the overdraft fee context, the CFPB’s guidance suggests that the CFPB would view overdraft fees charged for authorize positive settle negative (APSN) transactions as unfair even if a financial institution were to clearly disclose to consumers that an overdraft fee applies to APSN transactions. As a reminder, Consumer Financial Protection Circulars are solely policy statements issued to advise enforcement authorities and do not have the full force and effect of laws or regulations.

In its press release announcing the Circular, CFPB Director Rohit Chopra stated: “The CFPB is working to ensure that digital advertisements for financial products are not disguised as unbiased and objective advice.” The press release also referred to prior guidance on abusive conduct, addressed “dark patterns” in comparison shopping, and discussed increasing credit card competition. See our blog post addressing credit card competition here. See our legal alert describing dark patterns here.

Prior Guidance

In January 2023, the CFPB issued a circular that addresses the circumstances under which “negative option marketing practices” can violate the CFPA prohibition of unfair, deceptive, or abusive acts or practices. In April 2023, the CFPB issued a policy statement setting forth a framework for determining what constitutes abusive conduct. In the statement, the CFPB indicated the use of so-called “dark patterns” can constitute abusive conduct if they have the effect of making the terms and conditions of a transaction materially less accessible or salient. In January, the CFPB issued its proposed rule on non-sufficient funds fees, which adopts a significantly expanded view of abusive conduct. In February, CFPB issued an advisory opinion entitled Real Estate Settlement Procedures Act (Regulation X); Digital Mortgage Comparison-Shopping Platforms and Related Payments to Operators to address “pay-to-play” mortgage loan digital comparison-shopping platforms under RESPA.

Dark Patterns

While the press release covered “dark patterns in comparison shopping,” the Circular only addressed dark patterns in a footnote to one of the illustrative examples. The “dark patterns” guidance has been more of a prominent focus for the Federal Trade Commission (“FTC”) than the CFPB. In September 2022, the FTC released a report showing how companies are increasingly using sophisticated design practices known as “dark patterns” that can trick or manipulate consumers into buying products or services or giving up their privacy. In September 2022, the FTC announced a settlement with Credit Karma for engaging in deceptive acts and practices in violation of Section 5 of the FTC Act by making false or misleading claims that consumers were pre-approved for certain credit products. In April 2022, the CFPB filed a lawsuit against TransUnion alleging that the company had “used an array of dark patterns” and engaged in deceptive marketing of credit-related products in violation of the CFPB’s 2017 consent order with the company. In October 2022, the CFPB filed lawsuit against online event registration company ACTIVE Network, LLC alleging unlawful practices in connection with fees charged for a membership club. In November 2022, the FTC announced that it has entered into a consent order with internet phone service provider Vonage to settle allegations that it imposed “junk fees” on consumers and used “dark patterns” that prevented them from cancelling their service. In June 2023, the FTC announced that it had entered into a settlement with Publishers Clearing House to settle charges involving the use of “dark patterns” and filed a civil case against Amazon alleging that the company used “manipulative, coercive, or deceptive user-interface designs known as ‘dark patterns’ to trick consumers into enrolling in automatically renewing Prime subscriptions.” In November 2023, the FTC announced a settlement with Bridge It, Inc., an operator of personal finance mobile app alleged to have used “dark patterns” in connection with negative option. We have released three Consumer Finance Monitor podcast episodes on “dark patterns,” which are available here, here, and here.

In February, we hosted a webinar “The Federal Trade Commission: Looking Back at 2023 and Looking Ahead to 2024 and Beyond” with special guest, Malini Mithal, Associate Director of the Federal Trade Commission’s Division of Financial Practices, in which we discussed the highlights of FTC regulatory and enforcement activity in 2023 and what to expect from the FTC in 2024 and beyond.

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