Concurrently with the Consumer Financial Protection Bureau's announcement yesterday that it had settled its first enforcement action involving allegations that a major credit card issuer had deceptively marketed “add-on products” such as payment protection and credit monitoring, the CFPB released a bulletin providing general guidance on marketing such products. While focused on credit card add-on products, the bulletin is also intended to serve as guidance for the marketing of similar products offered in connection with other forms of credit or deposit services.
In the bulletin, the CFPB reviews applicable federal consumer protection laws and regulations and describes steps it expects institutions supervised by the CFPB to take to avoid statutory and regulatory violations. Highlights include the following:
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The bulletin focuses on the (1) Dodd-Frank Act's prohibition against deceptive practices, (2) requirements of the Truth in Lending Act/Regulation Z, including those for account opening and periodic statements, error resolution procedures, and advertising, and (3) Equal Credit Opportunity Act/Regulation B prohibition against discrimination on a prohibited basis. In evaluating whether disclosures are effective in preventing deception, the factors the CFPB will look at include the prominence of a statement, use of an "easy-to-understand" format for presenting information, the location of information, and whether it is in close proximity to the claim it qualifies. Fair-lending concerns could arise if the CFPB finds differential treatment on a prohibited basis in connection with add-on products, such as by requiring applicants based on race or age to purchase add-on products as a condition of obtaining credit.
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To avoid legal violations, the CFPB expects institutions to take steps that ensure (1) marketing materials reflect actual terms and conditions of products, (2) employee incentive or compensation programs require adherence to institution-specific guidelines and do not incentivize employees to provide inaccurate information, (3) scripts and manuals used by telemarketing and customer service centers satisfy certain standards (including prohibiting enrollment without a consumer's clear consent to purchase a product, and providing clear guidance on the wording and appropriate language for resisting consumer requests for more information or refusals of a product and any limits on the number of times such requests or refusals can be resisted), (4) telemarketers and customer service representatives follow approved scripts, (5) applicants are not required on a prohibited basis to purchase products as a condition of obtaining credit, and (6) cancellation requests are properly handled.
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Compliance management programs should include written policies and procedures to ensure compliance with applicable federal and state laws and regulations, periodic quality assurance reviews, independent audits, oversight of affiliate or third-party service providers, a system for handling complaints, and an employee training program.
Attorneys in Ballard Spahr’s Consumer Financial Services Group handle a wide range of issues related to the CFPB. We design and oversee compliance self-assessments (including fair lending), conduct compliance audits, handle responses to civil investigative demands, prepare clients for and counsel them during CFPB exams, and submit formal comments on proposed CFPB rules.
The group also produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided on the right. The group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).
For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Practice Leader Jeremy T. Rosenblum at 215.864.8505 or rosenblum@ballardspahr.com, Beth Moskow-Schnoll at 302.252.4447 or moskowb@ballardspahr.com, Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com, Mercedes Kelley Tunstall at 202.661.2221 or tunstallm@ballardspahr.com, or Trevor R. Salter at 202.661.2224 or saltert@ballardspahr.com.
