The CFPB is a notoriously aggressive regulator of banks and credit companies. But now, the same government agency tasked with bringing the nation’s most powerful financial institutions into compliance is setting its sights on digital marketing companies, and it’s a real eye-opener.
On August 10, the Consumer Financial Protection Bureau (CFPB) issued a new rule of interpretation to determine when digital marketing providers for financial businesses may be liable under the Consumer Financial Protection Act (CFPA), including its prohibition against unfair, deceptive, or abusive acts or practices (UDAAP). Simply put, the CFPB will now review the content of digital marketing creatives to determine if they might not meet the agency’s standards.
*Insert the shocked face emoji here.*
Now, clearly, digital marketers should already be focused on providing clear and honest communications with consumers — and the FTC already mandates a focus on preventing unfair or misleading advertising. Likewise, CMS demands clear and transparent communication in the health insurance space. Therefore the contents of these rules is not a huge change for digital marketing companies, but the organization of the regulations is a REAL big change. Culturally, the CFPB is a very ‘involved’ agency – regular checks with regulated companies are common, as are in-depth document reviews.
If the CFPB truly plans to treat digital marketers the same as other regulated institutions, these companies can expect frequent contact from the regulator as well as much greater scrutiny. It might get really interesting for an industry that traditionally operated with limited oversight. (And that really raises the importance of organizations like REACH…)
So what really happened?
Going back a bit here, the CFPA gives the CFPB the power to enforce federal consumer finance laws and ensure that markets for consumer financial products are fair and transparent.
The CFPA applies to “Covered Persons” and their “Service Providers”. A “covered person” is a person who offers or provides financial products or services intended for use by consumers primarily for personal, family or household purposes. 12 USC § 5481(6). The CFPA further establishes that “any person who provides a material service to a covered person in connection with that covered person’s offer or provision of a consumer financial product or service” is a service provider. 12 USC § 5481(26)(A).
Although (26)(A) is broad, the CFPA provides an exception for businesses that only provide time or space for advertising a financial product or service to consumers through print media, newspapers or electronic media. 12 USC § 5481(26)(B). Digital marketers were therefore never before under the tutelage of the CFPB regulatory authority.
Under the CFPB’s new Interpretation Rule, released last week, the CFPB determined that the exception does not cover entities that are materially involved in the development of content strategy. According to the CFPB, while digital marketing providers may provide space for advertisements, they also offer many other services that go beyond the exemption, such as algorithms or other analytics to target specific customers with advertisements or content liable for abuse. under federal law.
Because “[d]Digital marketing providers are typically significantly involved in the development of content strategy when identifying or screening potential customers or selecting or placing content to encourage consumer engagement with advertising,” the CFPB explained that digital marketers “engaged in this type of ad targeting and delivery do not merely provide ad space and time”, and therefore cannot fall within the “time or space” exception.
If it seems odd that an agency could simply extend its own power by narrowly interpreting the scope of an exemption to that power, it is. And it may not be constitutional. But we are years away from a successful challenge in this field.
For now, the CFPB has clearly put its site on the new “shiny object” of digital marketing agencies. And I suspect the agency will be aggressive from the start. As CFPB Director Rohit Chopra said, “[w]When Big Tech companies use sophisticated behavioral targeting techniques to market financial products, they must comply with federal financial consumer protection laws. It doesn’t look like they’re going to pull any punches here guys.
Chopra also said the new interpretive rule is one of several steps the CFPB is taking to prepare for the future of consumer credit as technology companies expand their reach. “Advancements in technology should help our economy and society move forward, rather than incentivize a rush to seize our sensitive financial data and allow tech giants to evade existing laws that other businesses must follow,” he said. he added. It’s unclear what else the CFPB might have up its sleeve here, but certainly a worrying development for the leading financial services regulator to have now decided it will also regulate high-tech companies.
We’ll keep an eye on that.
This article was written by Puja J. Amin.