CFPB warns digital marketers, loops in state AGs | Jenner and Block
In a recent interpretative rule announced August 10, 2022 – and unveiled at a National Association of Attorneys General summit – the CFPB stated that digital marketers are subject to the jurisdiction of the CFPB and expressly cautioned that it could take enforcement action against those entities. Such enforcement will likely be to anti-discrimination provisions, and the new rule indicates that state attorneys general also have jurisdiction to enforce those rules.
Prior to the CFPB’s Aug. 10 rule, digital marketers — businesses that market to consumers through social media, websites, and other online and digital channels — may consider themselves beyond the reach of the law Financial Consumer Protection Act 2010 (CFPA), which provides that an entity is not a covered “service provider” if it provides “time or space” for an advertisement for a product or service financial information to consumers through print, television or electronic media.
In its new rule of interpretation, however, the CFPB announced that it believes digital marketers are not exempt if they are “materially involved” in the development of a “content strategy” for the marketing of financial products, and are therefore service providers covered by the CFPA. The CFPB noted the evolution of modern digital ad targeting, describing how, instead of simply providing a forum for an advertisement, digital marketers are increasingly involved in screening potential customers or placing content to influence consumer behavior, often based on consumer data collection. While the former practices would not be covered, the CFPB argues that the latter are more like behaviors that would typically be performed by people covered by the CFPA. The rule distinguished practices such as lead generation, customer acquisition, and other marketing analytics or strategies using data and technology, as amounting to “material” involvement and therefore covered behavior.
The new rule is a signal that the CFPB will strengthen enforcement in this area. In the accompanying press release, he described the new rule as a “warning” to digital marketing vendors, and CFPB Director Rohit Chopra said, “When Big Tech companies use sophisticated behavioral targeting to market financial products, they must adhere to federal consumer protection laws. . . . Federal and state law enforcement can and should hold these companies accountable if they break the law. In his remarks during the unveiling the rule, Chopra also encouraged state attorneys general to sue under the Consumer Financial Protection Act for any wrongdoing involving consumer financial products or services, including with respect to marketers. digital marketing.
The rule’s reference to “state law enforcement” is notable. The rule was first unveiled by Director Chopra at a National Association of Attorneys General summit on consumer protection in the digital world. In his prepared remarks, Chopra highlighted the “role of state law enforcement in suppressing unlawful behavior at the intersection of consumer finance and digital marketing.” The interpretive rule notes the jurisdiction of the state’s AG, and the CFPB has previously stated that state law enforcement authorities also have jurisdiction to enforce the CFPA.
On substance, one of the stated goals of this CFPB effort is to address discrimination, which the CFPB has raised as a concern about AI and machine learning. The new rule warns that the Unfair, Deceptive and Abusive Acts/Practices (UDAAP) provision will be used to combat the use of protected features to make marketing decisions (that’s to say digital redlining).
The CFPB has carried out other actions aimed more broadly at discrimination. It recently updated its exam manual to include discrimination as part of the UDAAP, and the agency is currently challenging the scope of the Equal Credit Opportunity Act (ECOA) on digital marketing. In July 2019, we publicly highlighted the use of UDAAP and a similar authority as the basis for enforcement actions alleging discrimination in the use of digital tools.
Businesses involved in digital marketing should carefully review new interpretive guidelines, re-examine their practices to determine if they may potentially be subject to state or federal enforcement action, and be lookout for any potential challenges to the new rule.