CFPB Warns Digital Comparison-Shopping Operators against Abusive Practices
The CFPB warned that operators of digital comparison-shopping tools or lead generators may be in violation of the Consumer Financial Protection Act ("CFPA") if they give preference to products or services based on financial or other benefits provided to the tool operator.
In Consumer Financial Protection Circular 2024-01, the CFPB explained that operators of sites that compare financial products may violate the CFPA’s prohibition on abusive acts or practices when they steer consumers to certain products or lenders because of "bounties" provided by the product provider. Similarly, the CFPB said that lead generators may violate the CFPA if they steer consumers to a financial services provider based on compensation received. The CFPB stated: "[w]here consumers reasonably rely on an operator of a digital comparison-shopping tool or a lead generator to act in their interests, the operator or lead generator can take unreasonable advantage of that reliance by giving preferential treatment to their own or other products or services through steering or enhanced product placement, for financial or other benefits."
According to the CFPB, consumers "often encounter manipulated results or digital dark patterns, fueled by behind-the-scenes incentive payments from lenders." The CFPB warned that digital comparison-shopping tools are increasingly using algorithms that order recommendations or ranking lists based on multiple variables, such as consumer characteristics, product features, consumer ratings, the likelihood a consumer would be approved, various click-through and application completion or approval rates, and provider compensation or bids. The CFTC explained how these practices may violate federal law and highlights examples of illegal arrangements.
The CFPB had issued guidance previously on how real estate and mortgage laws apply to mortgage comparison-shopping. This guidance addressed how consumer financial protection laws apply to comparison shopping for other financial products.
Commentary
The CFPB's guidance is limited to compensation arrangements from providers for preferential treatment by an operator of a digital comparison-shopping tool. Interestingly, the guidance is silent on the issue of disclosures by comparison shopping site operators. This may pose some compliance challenges for the e-commerce sector in light of prior Federal Trade Commission (FTC) guidance and enforcement actions, which have: (i) prohibited comparison-shopping sites from making misrepresentations about their recommendations and required them to disclose any financial relationship they have with the product providers that influences the display of products and (ii) emphasized the importance of comparison shopping site statements and disclosures for purposes of assessing whether a violation of law has occurred. While some operators receive revenue in exchange for the provision of time or space for advertising that is clearly set apart from the content of the comparison-shopping tool, like banner ads or pop-up advertisements, the guidance does not address that kind of advertising.