Through a new interpretative rule announced this week, the Consumer Financial Protection Bureau (CFPB) said digital marketing providers can be held liable under the Consumer Financial Protection Act (CFPA) s ‘they engage in unfair, deceptive or abusive practices in advertising financial products on behalf of banks and non-banks covered by the CFPA.
While providers of services to “covered persons” under the CFPA are already subject to the law, Congress created an exception for service providers offering or providing covered persons with “time or space for a advertisement for a consumer financial product or service in print, newspaper, or electronic media. The new CFPB rule limits the applicability of this exemption to digital marketing providers, so the “electronic media” component is virtually nil.
According to CFPB Director Rohit Chopra, while digital marketing providers can provide space for advertisements, these companies also offer many other features that go far beyond the exemption. Because of this mix of features, digital marketing vendors can be held liable for CFPA violations if they directly engage in unfair, deceptive, or abusive acts or practices (UDAAPs) or knowingly provide substantial assistance to Covered Persons engaging in such conduct. And, importantly, the CFPB also recently stated that discrimination may constitute an unfair act or practice that violates the CFPA’s UDAAP prohibition.
By design, the new rule will have far-reaching implications and signals the type of advertising activities being reviewed by the Bureau. Chopra made it clear that, based on the new rule, “the service provider exemption for ‘time or space’ will generally not apply to digital marketing services offered by major platforms.” However, it’s not just the major platforms that are at fault, as the new rule makes no distinction between digital marketing vendors based on their size or influence in the market. Chopra also encouraged state law enforcement to follow her lead and take legal action against digital marketing vendors who no longer meet the exemption criteria based on the new rule.
What activities allow digital marketing providers to not benefit from the exemption?
The rule includes a lengthy explanation of digital marketing activities that the CFPB says go beyond the exemption. In general, an advertiser who develops a “content strategy” by identifying or selecting potential customers or selecting or placing content to influence consumer engagement will likely not fall under the “temporal or spatial” exception. .
The case is clearer, according to the CFPB, when the digital marketing provider determines which specific consumers should see the digital advertisements, for example by suggesting to covered persons which users are the most appropriate audience for the advertisement, rather than receiving instructions from the covered person. The CFPB compares this function to the role of a lead generator who would be considered a service provider under the CFPA and considers it to go far beyond providing airtime or physical space to broadcast. an announcement.
Even where the digital marketing provider has received instructions from the covered person about the types of audiences the covered person wishes to reach, the CFPB has determined that the digital marketing provider loses the “time or space” exemption when it applies targeting and ad serving algorithms. that identify audiences with desired characteristics and determine if or when specific consumers see an advertisement. As the CFPB explains, “The use of company-specific algorithms and data to determine when to display a specific company’s ads to specific consumers to affect consumer engagement extends far beyond beyond the activities carried out by a traditional media source”.
Does the reference to “electronic media” still make sense?
The CFPB took the view that the wording of “print, newspaper or electronic press” next to the other exemption for support services or ministerial services means that the “time or space” exception refers to the offers advertising in a manner similar to what “was generally done”. by traditional media sources such as print media or newspapers. Although the exception does not actually refer to media sources, the CFPB further explained that “[a] the traditional media source typically provided “time or space” – i.e. airtime or physical space for advertising – with relatively little involvement (i.e. , largely “departmental”) in the development of the content strategy. »
The CFPB discussion leads us to ask ourselves: do the words “electronic media” as used by Congress still have any meaning? Theoretically, yes. In the 1990s, before law school, one of the authors of this article worked at what was then called an interactive advertising agency. At the time, online advertising was limited to the number of prints, i.e. the number of people likely to see a banner ad placed on a website, where the ad would be seen by any visitor to that page. If you’re a digital marketing vendor stuck in the 1990s, you could still fall under today’s “time or space” exemption.
The CFPB provided this example: “For example, digital marketing providers may offer covered persons the option to choose to serve an advertisement on a particular web page or application of the covered person’s choice, with advertisements seen by any user of that page or application.In these cases, the digital marketer would generally fall under the “time or space” exception.
We note, however, that when Congress enacted the CFPA in 2010 with the definition of “service provider” and exceptions as they are today, the concepts of using behavioral analytics in advertising were already well established. developed. By then, the Federal Trade Commission had already held a 2007 workshop on behavioral advertising, and in 2009 issued a staff report containing industry self-regulatory principles for online behavioral advertising. Other industry groups have come together with Congress and regulators to explain technological innovations and the benefits of adtech services to businesses and consumers. And since 2010, the FTC and CFPB have been actively reviewing digital marketers, including lead generators.
For example, in 2016, staff at the FTC’s Consumer Protection Bureau released a document on lead generation, and both agencies filed lawsuits against lead generation services. And more recently, the CFPB opened market investigations targeting technology companies offering “Buy Now, Pay Later” payment and credit services that use online advertising.
In touting the new rule this week, including in statements made ahead of the National Association of Attorneys General’s presidential summit, Chopra explained that the rule was driven by the CFPB’s determination that digital marketing vendors no longer work. analogous to traditional print media. . Rather, he said:[s]Social media platforms and other advertising networks don’t just display advertisements, they are part of the persuasion, often playing the role long held by a company’s marketing and product development department.
The CFPB’s limitation of the “time or space” exception is the latest in a series of interpretative rules issued by the CFPB without notice or comment. For digital marketing companies that haven’t given much thought to being regulated by the CFPB, it’s time to master the various pitfalls that could land you in the Bureau’s crosshairs. When coupled with the FTC’s announced privacy regulations, it’s clear that the regimes of Chopra and FTC Chairman Lina Khan intend to focus intensely on digital marketing providers.
For an index of articles and presentations on topics related to consumer financial services, click here. Members of our consumer financial services and advertising practices have written and presented on several related topics, including:
- Generating Leads Legally: Quick Regulatory and Litigation Results
- Hot Topics on Artificial Intelligence and Machine Learning in Financial Services
- CFPB warns users of algorithms, AI and machine learning of anti-discrimination compliance requirements
- CFPB officially adds UDAAP to its anti-discrimination toolbox
- What to expect when you are the subject of a CFPB investigation – Negotiating the scope of the CID
- States Encouraged by CFPB to Enforce Federal Consumer Finance Law