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ADventures in Law

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Sometimes you hear grumbling that Leap Day shouldn’t mean an extra day of work, but not at the CFPB.  The agency celebrated February 29 this year by issuing guidance regarding “steering.”  The guidance comes in the form of a <a href="https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2024-01-preferencing-and-steering-practices-by-digital-intermediaries-for-consumer-financial-products-or-services/">circular</a>, and it takes aim at digital comparison-shopping tools and lead generators, finding that preferencing products or services based on compensation to the operator by those third parties constitutes unlawful steering.  And by compensation the CFPB doesn’t just mean traditional paid placement but also includes broader concepts such as commission rates or fees.  Essentially, if operating a comparison tool or lead generator related to financial products, then the CFPB believes potentially any bias in the site, whether through an algorithm or design, toward outcomes that are financially beneficial for the operator I is unlawful.

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This overlaps heavily with existing FTC guidance and requirements.  While the CFPB calls this practice steering, the FTC would likely label it a dark pattern.  As we’ve discussed on this blog previously, a dark pattern is the FTC’s catch-all term for design patterns that unfairly influence user behavior.  Similarly, steering involves the company promoting certain outcomes based on financial incentives.  The circular provides many examples, including, “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.”

Another example in the circular is “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.” This again overlaps with existing FTC guidance and would be covered by the <a href="https://www.govinfo.gov/content/pkg/FR-2023-07-26/pdf/2023-14795.pdf">Endorsement Guides</a>. The FTC requires that any material connection between an endorser and a seller, such as a payment for enhanced placement, be clearly and conspicuously disclosed as part of any endorsement. In this example, that would permit the operator to use the “featured” tag, but the operator would be required to clearly and conspicuously disclose that the featured seller has paid for this endorsement.

What’s most interesting about the CFPB guidance, however, is not how it overlaps with FTC guidance but how it potentially goes beyond it. In the above example, the FTC would require a disclosure, but it is reasonable to assume that so long as the disclosure is sufficient, an operator could still use “featured” language even if there is a paid relationship. In contrast, the CFPB guidance states, “An operator can also implicitly hold itself out as presenting information based on the interests of the consumer even if it does not explicitly claim to make objective recommendations.” When considering this specific example of featured language, a footnote advises that it is “less likely” to run afoul of these requirements if “the advertisement itself is not presented as a recommendation.”

It remains to be seen how the CFPB will enforce this guidance, but this is a strong indicator that it intends to take paid relationships completely out of comparison tools used to find financial products.

Steering into Dark Patterns

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