If you've been focused on only the high-level statements from the CFPB, you might already expect Rohit Chopra to fashion himself and the agency as "pro-consumer." Consistent with that approach, the agency just signaled its distaste for, and desire to severely restrict, the common and useful advertising practices of comparison-shopping platforms and lead generation.

Using its bully pulpit (and not notice and comment regulation or waiting for explicit legal authority), the CFPB released a Consumer Financial Protection Circular, stating that operators of digital comparison-shopping tools ("Operators") and lead generators can violate the Consumer Financial Protection Act's (CFPA) prohibition on abusive acts or practices if they steer consumers to certain products or services—or certain providers—based on compensation received by the lead generator or Operator. This might feel like standard consumer protection-speak, except that equating compensation models to abusive conduct means that the CFPB has performance advertising in its crosshairs.

In its press release announcing the circular, the CFPB explains, "[T]he guidance discusses how regulators and law enforcement agencies can evaluate operators of comparison-shopping tools that accept payments from financial firms to manipulate results or suppress options that may better fit the consumer's stated preferences." In the same release, the CFPB also announced that it would be "developing a consumer-facing tool that, once finished, will bring more transparency to credit card comparison-shopping."

CFPA's Prohibition on Abusive Acts or Practices

Under the CFPA, an act or practice is considered abusive if the act or practice (i) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (ii) takes unreasonable advantage of:

  • A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
  • The inability of consumers to protect their interests in selecting or using a consumer financial product or service; or
  • The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

How the CFPB Believes Consumers Reasonably Rely on Lead Generators and Operators

The CFPB claims jurisdiction over lead generators and Operators as "covered persons" or "service providers" under the CFPA, subjecting lead generators and Operators to the CFPA's prohibition on abusive practices. Interestingly, the circular focuses on how lead generators and Operators purportedly take unreasonable advantage of "reasonable reliance by the consumer on a covered person to act in the interests of the consumer."

The CFPB asserts that "sometimes" consumers reasonably rely on lead generators and Operators to act in their best interests by "virtue of playing the role of helping people select providers" and "their explicit and implicit representations and communications." The CFPB provides the following examples of how Operators induce reasonable reliance:

  • An Operator operating a tool that functions by "matching" people with consumer financial products or services, such as by providing curated recommendations based partly on information provided by the consumer;
  • An Operator explicitly or implicitly representing that information shown is based on the interests of the consumer, such as claiming its recommendations are objective;
  • An Operator presenting information based on the interests of the consumer, even if the Operator does not explicitly claim to make objective recommendations, such as:
    • emphasizing its "expertise" in helping consumers evaluate options,
    • describing its tools as providing "research-based" ranking of options for consumers,
    • stating to consumers that the Operator will "help you today" to "achieve your financial goals,"
    • purporting to match consumers with the "best" or "right" offers, or
    • claiming to "put consumers first" or to provide a "one-stop shop" with all the information consumers need to make informed selections among potential providers.

Similarly, the CFPB believes consumer-facing lead generators can induce reasonable consumer reliance through their role as intermediary between consumers and lenders and through explicit or implicit messaging to consumers. In particular, the CFPB seems to find reasonable reliance on behalf of consumers when "lead generators conceal their real role in the market and present themselves as a tool for consumers to connect with trusted lenders or receive the best available terms for a consumer financial product or service."

Potentially Abusive Steering and Bidding Practices

While the CFPB spends most of the circular focusing on how lead generators and Operators generate reasonable reliance by consumers, to show an act or practice is abusive, the CFPB must also prove that a lead generator or Operator was not acting in the interests of a consumer and was taking unreasonable advantage of the consumer's reasonable reliance.

The CFPB notes lead generators and Operators may not be acting in the interests of consumers when they receive fees or other benefits from consumer financial product or service providers or when consumer financial product or service providers "bid" on leads, as this could result in consumers being directed toward more expensive or less favorable products that generate more revenue for the lead generator or Operator.

Similarly, the circular suggests that bidding or setting bounties for leads, where the compensation structure increases overall revenue while impacting placement on a comparison-shopping website or mobile app or who receives leads, could constitute an abusive act or practice.

The CFPB does not limit this prohibited steering to compensated arm's-length third parties. If an Operator benefits by steering consumers toward certain products and services, including its own or that of an affiliate, the CFPB believes that this also could be an abusive practice.

The CFPB's Examples of Potentially Abusive Preferencing or Steering

The CFPB enumerates some examples of preferencing or steering that may be considered abusive if the lead generator or Operator takes unreasonable advantage of the consumer's reasonable reliance on the lead generator or Operator to act in the interests of the consumer. Not all of the circular's examples are listed below, but a few notable examples will likely impact the existing operations of lead generators and Operators:

  • An 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.
  • An 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, and uses steering practices to increase the likelihood the Operator will satisfy volume allocation requirements.
  • An Operator uses dynamic bidding or a bounty system to determine which offers are presented to consumers with certain demographic or other characteristics.
  • An 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. Operators can do this by prompting users to input information about their preferences through a survey, filtering options, or interacting with a chat bot, which the CFPB believes creates an impression that results will be presented based on an objective evaluation of the consumer's preferences.

What Comes Next?

The CFPB's latest circular clearly targets lead generators and Operators that connect consumers to consumer financial products and services or operate comparison-shopping tools. While the circular is not binding law, but rather a general statement of policy, it sheds light on the CFPB's position regarding lead generator and Operator compensation and business practices and how the CFPB views those practices in the context of its UDAAP authority. The circular is also an important source of guidance from the CFPB to state attorneys general, who have authority under the CFPA to enforce the CFPA, including the CFPA's UDAAP prohibitions.

While the CFPB spends the circular decrying the business practices of lead generators and Operators, the CFPB offers little or no guidance to lead generators or Operators on how to comply with its expectations. For example, the CFPB offers no disclosure or disclaimer language that might cure reasonable reliance on behalf of a consumer when interacting with a lead generator or Operator, including existing disclosure language used by such entities to comply with FTC rules and previous enforcement actions. However, the circular offers some guidance (in a roundabout way) to lead generators and Operators on compliance throughout the circular's footnotes and discussion.

For example, the CFPB distinguishes between arrangements where lead generators and Operators are compensated and preference providers or steer consumers to certain providers, versus situations where lead generator and Operator compensation does not influence the lead generator or Operator's decisions regarding "placement or, similarly, regarding which provider receives a lead." Thus, if an Operator took equal compensation from providers and "matched" consumers to providers based on the consumer's stated preferences and credit features that would be beneficial to the consumer, this may not rise to the level of impermissible steering under the circular. Similarly, the CFPB seems to say in a footnote that including non-paying providers in a comparison-shopping tool would decrease the likelihood that a lead generator or Operator took unreasonable advantage of a consumer's reliance, even if the Operator or lead generator receives compensation from certain providers.

The CFPB has not engaged in extensive enforcement and litigation against lead generators, except for a 2015 case against a lead generator that operated a pingtree model to sell consumer leads. While some parallels can be drawn here, the CFPB seemed to be concerned more with the consumer harm stemming from the end products (APRs in excess of 36%) rather than the model itself. Furthermore, that settlement was a result of protracted litigation and might not encapsulate the CFPB's present concerns articulated in the circular.

The CFPB's newest circular raises concerns for those engaging in lead generation or operating a comparison-shopping platform. The circular significantly increases the risk of CFPB enforcement for both lead generators and Operators, and does little to provide a clear path forward to lead generators and Operators on how business models could be reformed to ensure consumers are not reasonably relying on lead generators and Operators. As a result, and more than ever, it is important for lead generators and Operators to monitor for any further guidance from the CFPB and be on the alert that the CFPB may be previewing its enforcement strategy with this circular.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.