Through a new interpretive rule announced this week, the Consumer Financial Protection Bureau (CFPB) has declared that digital marketing providers can be held liable under the Consumer Financial Protection Act (CFPA) if they engage in or substantially assist unfair, deceptive or abusive practices in advertising financial products on behalf of banks and nonbanks covered by the CFPA.
While service providers to “covered persons” under the CFPA are already subject to the Act, Congress carved out an exception for service providers offering or providing to covered persons “time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.” The CFPB's new rule limits the applicability of that exemption to digital marketing providers such that the “electronic media” prong is very nearly void.
According to CFPB Director Rohit Chopra, while digital marketing providers may be furnishing space for ads, these firms also are offering many other features that go well beyond the exemption. Because of this commingling of features, digital marketing providers can be liable for violations of the CFPA should they engage in unfair, deceptive or abusive acts or practices (UDAAP) directly, or knowingly provide substantial assistance to covered persons engaging in such conduct. And, importantly, the CFPB has also recently stated that discrimination may constitute an unfair act or practice that violates the CFPA's UDAAP prohibition.
The new rule will have far-reaching implications by design and signals the type of advertising activities under scrutiny by the Bureau. Chopra has made clear that based on the new rule, “the service provider exemption for 'time or space' will typically not apply to the digital marketing services offered by major platforms.” It is not just the major platforms at issue, however, as the new rule makes no distinction among digital marketing providers based on size or market influence. Chopra has also encouraged state enforcers to follow his lead and bring enforcement actions against digital marketing providers that no longer meet the criteria for an exemption based on the new rule.
The rule includes a lengthy explanation about digital marketing activities that, in the CFPB's view, go beyond the exemption. In general, an advertiser that develops a “content strategy” by identifying or selecting prospective customers or by selecting or placing content to affect consumer engagement is not likely to fall within the “time or space” exception.
The case is more clear-cut, according to the CFPB, when the digital marketing provider determines which specific consumers should see digital advertisements, such as suggesting to the covered persons which users are the most appropriate audience for the advertisement, rather than receiving direction from the covered person. The CFPB compares this function to the role of a lead generator that would be considered a service provider under the CFPA and deems it well beyond providing airtime or physical space to run an ad.
Even where the digital marketing provider has received direction from the covered person on the types of audience the covered person would like to reach, the CFPB determined that the digital marketing provider loses the “time or space” exemption when it applies ad targeting and delivery algorithms that identify audiences with desired characteristics and determines whether or when specific consumers see an advertisement. As explained by the CFPB, “the use of algorithms and business-specific data to determine when to display a specific business' ads to specific consumers to affect consumer engagement extends well beyond the activities performed by a traditional media source.”
The CFPB reasoned that the phrasing of “print, newspaper, or electronic media” alongside the other exemption for support services or ministerial services means that the “time or space” exception refers to the offering of advertising in manner similar to what “was generally performed by traditional media sources such as print or newspaper.” Although the exception does not actually refer to media sources, the CFPB further explained that “[a] traditional media source typically provided 'time or space' – i.e., the airtime or physical space for the ad – with relatively little (i.e., largely 'ministerial') involvement in the development of content strategy.”
CFPB's discussion leads us to ask: 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 known as an interactive advertising agency. Back then, online advertising was all about the sheer number of impressions, meaning how many people might see a banner ad placed on a website, where the ad would be seen by any visitor to that page. If you are a digital marketing provider stuck in the 1990s, you might still fall under today's “time or space” exemption.
The CFPB provided this example: “For instance, digital marketing providers may offer covered persons the ability to choose to run an advertisement on a particular webpage or application of the covered person's choosing, with advertisements seen by any user of that page or application. In these instances, the digital marketer would typically fall within the 'time or space' exception.”
We note, however, that when Congress enacted the CFPA in 2010 with the “service provider” definition and the exceptions as they are today, the concepts of using behavioral analytics in advertising were already well developed. By then, the Federal Trade Commission had already held a 2007 workshop on behavioral advertising and, in 2009, released a staff report with industry self-regulatory principles for online behavioral advertising. Other industry groups were meeting with Congress and regulators to explain technological innovations and the benefits of adtech services to both businesses and consumers. And since 2010, the FTC and CFPB have been actively scrutinizing digital marketers, including lead generators.
For example, in 2016, the staff of the FTC Bureau of Consumer Protection released a paper on lead generation, and both agencies have brought enforcement actions against lead generation services. And more recently, the CFPB has opened market inquiries targeting technology companies offering payment services and “Buy Now, Pay Later” credit that make use of online advertising.
In touting the new rule this week, including in statements made before the National Association of Attorneys General Presidential Summit, Chopra explained that the rule was motivated by the CFPB's determination that digital marketing providers are no longer functioning in ways that are analogous to traditional print media. Rather, he said, “[s]ocial media platforms and other ad networks are not in the business of simply displaying ads, they are part of the persuasion, often playing the role long held by corporate marketing and product development department.”
The CFPB's limitation of the “time or space” exception is the latest in a string of interpretive rules issued by the CFPB without notice-and-comment. For digital marketing firms that have not thought much about being regulated by the CFPB, it is time to get a handle on the various pitfalls that could bring you into the Bureau's sightline. When coupled with the FTC's announced rulemaking on privacy, it is clear that the regimes of Chopra and FTC Chair Lina Khan intend to focus intently on digital marketing providers.
For an index of articles and presentations on related consumer financial services topics, click here. Members of our consumer financial services and advertising practices have authored and presented on several related topics, including:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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