CFPB Says Negative Option Programs Must Follow Consumer Protection Laws
Commentary by Steven Lofchie
The CFPB reminded companies to comply with federal consumer financial protection laws when offering "negative option" programs or subscription services.
The term "negative option" refers to programs or services as to which a customer's silence, failure to take an affirmative action to reject a product or service is considered acceptance of the offer, such as a subscription service that automatically renews or a trial program that automatically charges a higher fee after the trial period ends.
In the Consumer Financial Protection Circular, the CFPB said that a negative option program may violate consumer protection laws if it (i) fails to clearly and conspicuously disclose the material terms, (ii) fails to obtain consumers' informed consent, (iii) intentionally misleads consumers who want to cancel, (iv) implements unreasonable barriers to cancellation or (v) fails to honor cancellation requests.
The CFPB said that its guidance is part of a larger initiative to combat "digital dark patterns," which the agency described as design features used to deceive, steer or manipulate users into behavior that is profitable for a company, but often harmful to users or contrary to their intent.
Commentary
Although the CFPB's statement as to "digital dark patterns" is not directly applicable to broker-dealers and investment advisers, it is consistent with the SEC's preliminary efforts to engage in rulemaking with respect to "digital engagement practices" (also referred to as "gamification") (see SEC Seeks Comment on Broker-Dealer and Investment Adviser "Digital Engagement Practices").