US CFPB Issues Circular Targeting Subscription Services – Financial Services & More Trending News

 

Last week, the Consumer Financial Protection Bureau
(“CFPB” or “Bureau”) revealed steerage
highlighting that unfavorable possibility advertising and marketing practices, which
embody merchandise resembling subscription plans and different merchandise and
providers that depend on automated renewal, are on the Bureau’s
radar as a topic for potential investigations and enforcement
actions.

On January 19, 2023, the CFPB issued Circular 2023-01 (the
“Circular”),1 offering steerage on when
so-known as “negative option marketing practices” could
violate the prohibition towards unfair, misleading, or abusive acts
or practices (“UDAAP”) within the Consumer Financial
Protection Act (“CFPA”). According to the CFPB, unfavorable
choices are phrases or situations “below which a vendor could
interpret a shopper’s silence, failure to take an affirmative
motion to reject a services or products, or failure to cancel an
settlement as acceptance or continued acceptance of the provide.”
Negative choices are additionally generally known as subscription
plans, automated renewal plans, continuity plans, and trial
advertising and marketing plans.

The CFPB famous that the Circular “is usually in
alignment” with the Federal Trade Commission’s
(“FTC”) 2021 coverage assertion on unfavorable possibility
practices.2 Indeed, the Circular seems to replicate the
CFPB’s try to implement sure practices prohibited by the
Restore Online Shoppers’ Confidence Act (“ROSCA”)
(which isn’t inside the CFPB’s authority to implement) as
violations of the prohibition towards UDAAPs below the CFPA (which
is inside the CFPB’s authority to implement). ROSCA, which is
enforced by the FTC and state attorneys basic, requires (1)
disclosure of all materials phrases earlier than fee data is
obtained, (2) categorical knowledgeable consent, and (3) a simple technique of
cancellation. As detailed under, the Circular focuses on comparable
themes and describes acts and practices that may very well be thought of
unfair or misleading. (Businesses engaged in unfavorable possibility
advertising and marketing must also overview the FTC’s coverage assertion, which
outlines a number of further necessities for compliance with
ROSCA.)

The CFPB’s steerage highlighted three unfavorable possibility
advertising and marketing practices that, within the CFPB’s view, could violate the
CFPA’s prohibition towards UDAAPs:

1. Failing to obviously and conspicuously disclose the
materials phrases of the unfavorable possibility provide.
The CFPB
specified {that a} coated particular person could violate the regulation in the event that they fail to
disclose the next materials phrases of the unfavorable possibility provide
itself:

  • that the patron is enrolling in and will likely be charged for the
    services or products;

  • the quantity that will likely be charged;

  • that expenses will likely be on a recurring foundation until the patron
    takes affirmative steps to cancel the services or products; and

  • if there’s a trial advertising and marketing plan, expenses will start or
    improve after the trial interval until the patron takes
    affirmative motion.

In the previous, the CFPB has introduced an enforcement motion towards
a coated one who, for instance, allegedly marketed a
“free” trial when customers have been robotically enrolled
in a subscription program with a month-to-month charge until they cancelled
and didn’t clearly and conspicuously disclose the charge. The CFPB
additionally initiated an enforcement motion towards a coated one who
allegedly didn’t adequately inform customers about the price of
add-on merchandise.

2. Failing to acquire knowledgeable shopper consent.
According to the CFPB, shopper consent is just not knowledgeable if the
coated particular person mischaracterizes or conceals the unfavorable possibility
function, supplies contradictory or deceptive data, or
in any other case interferes with the patron’s understanding of the
settlement. The CFPB has introduced actions towards coated individuals who
allegedly falsely represented to customers that they have been agreeing
to obtain details about an add-on product when, in actuality,
the customers have been buying the product.

3. Misleading customers who want to cancel, erecting
unreasonable boundaries to cancellation, or impeding the efficient
operation of promised cancellation procedures.
Similar to
views expressed within the FTC’s 2021 coverage assertion, the CFPB
famous that coated individuals could violate the regulation in the event that they fail to
honor cancellation requests or in any other case forestall customers from
cancelling, resembling by hanging up on customers, inserting them on
maintain for an unreasonably very long time, offering false data
about how you can cancel, or misrepresenting the explanations for delaying
cancellation requests. Prior enforcement actions by the CFPB
embody actions towards coated individuals who allegedly required
customers to repeatedly demand cancellation regardless of representing
that buyers may cancel instantly and making
misrepresentations in regards to the prices and advantages of merchandise and
providers in an try to steer customers to not cancel.
Notably, within the Circular, the CFPB is much less aggressive on this entrance
than is the FTC, which, counting on ROSCA’s necessities for a
“simple” technique of cancellation, has mentioned that corporations
should permit cancellation in the identical method as signal-up (i.e.,
web signups can’t be required to cancel by telephone). Though
unspoken, the seemingly cause for this discrepancy is that the CFPB
lacks authority to implement ROSCA itself and thus is attempting to
retrofit its UDAAP authorities to the extent attainable to cowl the
identical subject material.

The Circular warns that an individual who fails to adjust to the
necessities for unfavorable possibility advertising and marketing dangers violating the
prohibition towards UDAAPs below the CFPA in addition to the Electronic
Fund Transfer Act and its implementing regulation, Regulation E,
which prohibit preauthorized digital fund transfers from a
shopper’s checking account with out written authorization. The
Circular additionally reminds corporations that the CFPB may deliver
actions associated to unfavorable possibility advertising and marketing below the
Telemarketing Sales Rule (“TSR”), which prohibits
misleading acts or practices by telemarketers particularly. In
addition to the CFPB’s authority to implement violations associated
to unfavorable possibility advertising and marketing, the FTC may deliver enforcement
actions below Section 5 of the FTC Act, ROSCA, and the TSR.

The Circular is simply the most recent in a collection of efforts by the
Biden-Harris administration, the CFPB, and the FTC to fight
purported “junk fees”3 and “darkish
patterns,” the latter of which is a time period the businesses have
began utilizing to consult with misleading practices not associated to the
services or products itself. Last yr, for instance, the CFPB issued
a request for data on junk charges, which it defines as
obligatory or quasi-obligatory charges added sooner or later within the
transaction after a shopper has chosen the services or products
primarily based on a entrance-finish worth, and revealed charge-associated steerage for
debt collectors4 and depository
establishments.5 And the FTC not too long ago revealed an
intensive report on so-known as darkish patterns, which it describes as
“design practices that trick or manipulate customers into making
selections they’d not in any other case have made and which will trigger
hurt.”6 The Circular specifies that unfavorable possibility
packages and darkish patterns may be notably dangerous when
mixed, as they could trigger customers to be misled into buying
providers with recurring expenses and make it tough to cancel or
in any other case keep away from these expenses. The CFPB additionally highlights that it has
acquired shopper complaints about these unfavorable possibility packages,
together with from older Americans.

Businesses that supply subscription plans or comparable providers
ought to contemplate taking a cautious take a look at their present practices
and choices. These plans proceed to be an space of focus for the
CFPB and FTC, and each businesses can impose vital financial and
injunctive penalties for violations of regulation. Mayer Brown is
obtainable to help with any questions companies could have about
this Circular and compliance with associated authorized necessities.

Footnotes

1. CFPB, Circular 2023-01, Unlawful Negative Option
Marketing Practices (Jan. 19, 2023),
https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2023-01-unlawful-negative-option-marketing-practices/#6.

2. FTC, Enforcement Policy Statement Regarding Negative
Option Marketing (Oct. 28, 2021), https://www.ftc.gov/system/files/documents/public_statements/1598063/negative_option_policy_statement-10-22-2021-tobureau.pdf.

3. CFPB, Request for Information Regarding Fees Imposed
by Providers of Consumer Financial Products or Services (Jan. 26,
2022), https://files.consumerfinance.gov/f/documents/cfpb_fees-imposed-by-providers-of-consumer-financial-products-services_rfi_2022-01.pdf.

4. CFPB, Advisory Opinion, Debt Collection Practices
(Regulation F); Pay-to-Pay Fees (June 29, 2022), https://files.consumerfinance.gov/f/documents/cfpb_convenience-fees_advisory-opinion_2022-06.pdf.

5. CFPB, Circular 2022-06, Unanticipated Overdraft Fee
Assessment Practices (Oct. 26, 2022), https://files.consumerfinance.gov/f/documents/cfpb_unanticipated-overdraft-fee-assessment-practices_circular_2022-10.pdf.

6. FTC, Bringing Dark Patterns to Light (Sept. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800
Dark Patterns Report 9.14.2022 – FINAL.pdf.

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US CFPB Issues Circular Targeting Subscription Services – Financial Services

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