In case you missed it – the CFPB just issued updated guidance related to digital marketing and lead generation.[1] The Bureau has now targeted comparison shopping websites by warning that the operators of these websites can be liable for abusive conduct when they steer consumers to use one provider over the other.

Banks and independent lenders routinely depend on upon paid websites to drive consumer traffic so they can acquire new loan applicants. Millions of consumers visit comparison sites each month, and they are accustomed to being presented with lists of lenders and “today’s rates.” The sites feature ads for mortgages, car loans, student loans, and other services. Financial institutions essentially pay for display ads that feature a live feed of market rates and a link to take the consumer to an application.

Site operators are sometimes paid on a fee-per-action basis – for example, by receiving fees per click, per application, per conversion, per offer, or per sale. Financial institutions often bid against each other for advantageous placement of the ads. The CFPB has ominously referred to these compensation arrangements as “bounties.”  The degree to which these bounties affect product placement depends on the operator’s business model and the weight given to compensation over other factors. The Bureau’s updated guidance identifies serious concerns about the preferences the websites create for lenders who pay higher advertising fees than others.

In addition, the CFPB has also applied these same concerns to the methodologies used by lead generation vendors. Lead generators are also paid by through a variety of pricing models. Some lead generators send qualified leads to providers who bid the highest for a specific type of lead.

Under Dodd-Frank, an act or practice is considered abusive if it “takes unreasonable advantage” of certain circumstances, including “the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” Protecting consumers’ ability to effectively compare and choose among options for financial products or services is one of the CFPB’s core statutory objectives. According to the CFPB, lead generators and operators of comparison websites might take unreasonable advantage of consumers where the operator or lead generator preferences certain providers or products over others in exchange for financial benefits. The lawful alternative would be for these companies to present options or distribute leads using factors unrelated to the relative compensation paid by lenders.

The Bureau has now made it clear: Digital comparison-shopping site operators and lead generators will be expected to comply with Dodd-Frank’s UDAAP standards whenever they offer or provide consumer financial products or services or act as a service provider for a consumer-based financial product or service provider. By advertising and enticing consumers to visit a website that features consumer financial services or providers, an operator is acting within the purview of Dodd-Frank. Likewise a lead generator is covered by the law when it sells consumer information to be used in the marketing of financial products and services.

According to the Bureau, Operators of digital comparison-shopping tools and lead generators can engender reasonable consumer reliance playing the role of helping people select providers. They can also engender reasonable consumer reliance by virtue of their explicit and implicit representations and communications.

Operators and lead generators may likely be viewed as NOT acting in the interest of a consumer when their presentation of consumer financial products and services is based on their own financial considerations. Consumer interests are not served when they are steered toward more expensive or less favorable products or providers because those products or providers generate more revenue for the operator or lead generator. Similarly, consumer interests are not served when consumers are steered to more expensive or less favorable products because one provider is bidding more for the lead than another.

The CFPB’s guidance is a message to enforcement agencies as much as it is a directive to financial institutions and their lead providers. Within the new guidance, the Bureau states: “Enforcers should closely examine the specific details of bounty or bidding schemes when making a determination of abusive conduct. If a digital comparison-shopping tool operator or lead generator requires providers to bid or set bounties for leads, and that compensation scheme increases overall revenue while impacting placement on a comparison-shopping website or mobile app or impacting who receives leads, that can suggest that the operator or lead generator is violating the prohibition on abusive acts or practices. The reason is commonsensical: if the tool operator or lead generator receives a higher fee from one provider than another and provides preferential treatment as a result, this can suggest that the lead generator or operator is making decisions based on its own benefit and not in consumers’ interests. This concern may be somewhat mitigated when a comparison-shopping tool operator or lead generator receives compensation from providers but does not consider such compensation in its decisions regarding placement or, similarly, regarding which providers receive a lead.”  (Emphasis added.)

The above-referenced mitigation of the CFPB’s concern leads to further questions and compliance concerns. On one hand, the CFPB has expressed concern that ‘pay to play’ considerations could result in a consumer being improperly steered. However, it is surprising that the CFPB’s “concern” would not be fully satisfied when financial considerations do not affect placement or distribution of a lead. Perhaps the CFPB has something further in mind concerning abusive conduct? If so, why would it not fully outline these other considerations so that lenders can fully mitigate the risk of consumer harm?

Lenders, websites and lead providers must take note. They will be liable under Dodd-Frank by preferencing products or services based on financial or other benefits to be paid. Directing consumers to a specific provider or product, based on financial benefits paid, will likely be considered an abusive act or practice.

There are multiple calls to action that arise from the CFPB’s new guidance. Lenders must examine the terms of how they acquire leads, whether from a comparison site or a lead generator. These institutions must proactively avoid any process that could cause consumer harm, or they will risk substantial liability when examined by state and federal agencies.

Operators of websites and lead generation companies must revisit their pricing models and determine how to proceed in conformance with the new guidelines. These companies may be unaccustomed to direct involvement of the CFPB or other state and federal agencies. The new guidance should dispel any notion that these platforms will not be examined or penalized based on how they price their services. The CFPB has clearly set its cross-hairs on these vendors and it will expect strict compliance to mitigate the risk of consumer abuse.

 

[1] Consumer Financial Protection Circular 2024-01, Feb. 29, 2024.