Today, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule laying out when digital marketing providers for financial firms must comply with federal consumer financial protection law.
Digital marketers that are involved in the identification or selection of prospective customers or the selection or placement of content to affect consumer behavior are typically service providers for purposes of the law. Digital marketers acting as service providers can be held liable by the CFPB or other law enforcers for committing unfair, deceptive, or abusive acts or practices as well as other consumer financial protection violations.
“When Big Tech firms use sophisticated behavioral targeting techniques to market financial products, they must adhere to federal consumer financial protection laws,” said CFPB Director Rohit Chopra. “Federal and state law enforcers can and should hold these firms accountable if they break the law.”
Digital marketing providers have transformed advertising. Traditional advertising relies on getting a product or service out to as wide an audience as possible. A traditional marketer, for example, may try to purchase time and space for a TV commercial on the most watched station or show.
Digital marketers, on the other hand, seek to maximize individuals’ interactions with ads. They may harvest personal data to feed their behavioral analytics models that can target individuals or groups that they predict are more likely to interact with an ad or sign up for a product or service.
When digital marketing providers go beyond traditional advertising, they are typically covered by the Consumer Financial Protection Act as service providers.
The Act contains an exception for companies that solely provide time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media. However, the CFPB stated today that the exception does not cover firms that are materially involved in the development of content strategy.
Financial firms rely on the expertise and tools of digital marketing providers that offer sophisticated analytic techniques, aided by machine learning and advanced algorithms, to process large amounts of personal data and deliver highly targeted ads. Financial firms use behavioral analytics to connect with potential customers. However, depending on how these practices are designed and implemented, behavioral marketing and advertising could subject firms to legal liability.
Today’s interpretive rule explains:
- Digital marketers provide material services to financial firms: A material service is one that is significant or important. Digital marketing providers are typically materially involved in the development of content strategy when they identify or select prospective customers or select or place content in order to encourage consumer engagement with advertising. Digital marketers engaged in this type of ad targeting and delivery are not merely providing ad space and time, and they do not qualify under the “time or space” exception.
- The CFPB, states, and other consumer protection enforcers can sue digital marketers to stop violations of consumer financial protection law: Service providers are liable for unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Act. When digital marketers act as service providers, they are liable for consumer protection law violations.
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