US Financial Regulator Puts Subscription-Based Firms On Alert

January 24, 2023
The US Consumer Financial Protection Bureau warns companies against using dark patterns to make consumers pay recurring fees.

The US Consumer Financial Protection Bureau (CFPB) warns companies against using dark patterns to make consumers pay recurring fees.

In a new circular, the CFPB warns companies offering opt-out subscriptions that they must comply with federal consumer financial protection law.

According to the guidance, companies may violate US law if they do not clearly and conspicuously disclose the terms of their subscription services and get consumers’ informed consent, or if they make it unreasonably difficult for consumers to cancel.

“Consumers shouldn’t have to jump through hoops to cancel subscriptions they don’t want, and they shouldn’t have to worry about a trial marketing offer turning into an unwanted monthly charge,” said CFPB director Rohit Chopra.

“The CFPB has made it clear that misleading consumers about products or subscription services they don’t want is not only dishonest, but also a violation of law.”

The circular establishes that these manipulative practices, also known as dark patterns, may breach the prohibition against unfair, deceptive and abusive acts or practices (UDAAP).

For instance, obtaining consent is considered deceptive if it is likely to mislead a “reasonable consumer” and is “material”. Meanwhile, it could be considered unfair if it “causes or is likely to cause substantial injury to consumers, which is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or to competition”.

Additionally, companies must comply with provisions of the Electronic Fund Transfer Act (EFTA), which prohibit pre-authorised electronic fund transfers from a consumer’s bank account without written authorisation. Such consent must be informed and obtained before charging the consumer, the circular emphasises.

Regarding cancellation, the CFPB says sellers would likely violate the law if they place “unreasonable” barriers to cancellation or fail to honour cancellation requests.

For example, if they gang up on consumers who call to cancel, place them on hold for an unreasonably long time, provide false information about how to cancel, or misrepresent the reasons for delays in processing consumers’ cancellation requests.

UDAAP prohibitions also apply to disclosures. In assessing disclosures and omissions, the CFPB says it considers the overall “net impression” of the communication rather than evaluating statements in isolation.

The CFPB’s guidance adds to the Federal Trade Commission’s (FTC) 2021 policy statement, which warned businesses that it would start stepping up against companies using dark patterns and issued a staff report detailing what different forms dark patterns could take.

"Deceptive practices that seek to trap consumers into subscriptions they don’t want are a violation of the law," said Samuel Levine, director of the FTC’s Bureau of Consumer Protection.

The CFPB circular “puts companies on notice that there is a government-wide effort to stop these manipulations", Levine stressed.

Previous FTC enforcement actions against Epic Games, Vonage and Credit Karma have resulted in $623m in fines.

Similarly, Citibank was ordered to pay $35m to the CFPB in 2015 after the regulator found that the bank marketed optional add-on products that charged recurring fees until consumers affirmatively cancelled.

Additionally, the CFPB has an ongoing lawsuit against TransUnion, which the CFPB says used misleading buttons to sign people up for its service while they believed they were only retrieving a free copy of their credit report.

In another court case against ACTIVE Network, the agency alleges the company used misleading tactics to enrol families into an expensive discount club while they thought they were simply registering for a community race or event. The misleading conduct has been going on since 2011 and generated altogether $300m in fees for the company.

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