January 2023 UDAAP Bulletin

The following is a monthly roundup summarizing enforcement actions, guidance, rulemakings, and other public statements from the Consumer Financial Protection Bureau and the Federal Trade Commission regarding the prohibition on unfair, deceptive, or abusive acts or practices (UDAAP) in the marketplace for consumer financial services.

Enforcement and Litigation

• Consumer Financial Protection Bureau and New York Attorney General. Indirect Auto Lender. The CFPB and the NY AG sued an indirect auto lender for allegedly misrepresenting the cost of credit and tricking its customers into high-cost loans on used cars. In addition to alleged violations of 12 U.S.C. §§ 5531 and 5536, the complaint also alleges violations of New York State's usury limits and other consumer and investor protection laws by the lender. (UDAAP violations: abusive, deceptive).
• Consumer Financial Protection Bureau. Debt Collection. The CFPB reached a settlement with a debt-collection law firm to resolve allegations that it engaged in illegal debt-collection practices in violation of both the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692e(3) and 1692e(10), and the Consumer Financial Protection Act, 12 U.S.C. §§ 5531(a) and 5536(a)(1)(A), by filing more than 99,000 debt-collection lawsuits, while having documents to support only a fraction of those suits. The agency further alleged that the firm's attorneys misrepresented to consumers that they were meaningfully involved in filing debt-collection suits in violation of both the Fair Debt Collection Practices Act and the Consumer Financial Protection Act. (UDAAP violations: deceptive, unfair).
• Federal Trade Commission. Investment Advice, Money-Making Opportunities. The FTC announced that an investment advice company agreed to a proposed court order to resolve allegations that the company deceived consumers with false claims about the likelihood that consumers would make money by following the company's investment "system" or "strategy," in violation of FTC Act Section 5, 15 U.S.C. § 45, and Section 4 of Restore Online Shoppers' Confidence Act, 15 U.S.C. § 8404 (ROSCA). (UDAAP violations: deceptive, unfair).
• Federal Trade Commission. Dark Patterns. FTC finalized a consent order to settle allegations that a credit services company falsely represented that many customers were "pre-approved" for credit card offers that they ultimately did not qualify for, in violation of Section 5 of the FTC Act, 15 U.S.C. § 45, following a public comment period. The FTC stated that this action was part of its ongoing "crackdown on digital dark patterns" – i.e., misleading design interfaces used to induce customers to apply for products or click on offers. (UDAAP violations: deceptive).

Rulemakings and Guidance

• Consumer Financial Protection Bureau. Non-Bank Supervision. The CFPB published a proposed rule to require nonbanks subject to its supervisory authority, with limited exceptions, to register each year, in a nonbank registration system established by the agency, information about their use of certain terms and conditions in form contracts for consumer financial products and services that pose risks to consumers. In the proposed rulemaking, the agency cites CFPB Bulletin 2022-05, stating that the use of these types of contract terms and conditions constitutes an unfair or deceptive act or practice and may create the risk of a UDAAP violation. The deadline for comments is the later of 30 days after publication in the Federal Register or March 13, 2023. Additionally, Director Rohit Chopra gave remarks on the rulemaking, noting that the CFPB "would use data from the registry to identify supervised nonbanks and the risks their terms and conditions pose, prioritize which firms to examine, and plan the scope of those exams." (UDAAP regulatory focus: deceptive, unfair).
• Consumer Financial Protection Bureau. Negative Sales Options and Dark Patterns. The CFPB issued a consumer financial protection circular providing guidance regarding "negative option" marketing practices, including subscription services that automatically renew unless the consumer affirmatively cancels. The CFPB affirmed that these practices may violate UDAAP prohibitions where a company engaging in negative option marketing: (1) misrepresents or fails to clearly and conspicuously disclose the material terms of a negative option program; (2) fails to obtain consumers' informed consent; or (3) misleads consumers who want to cancel, erects unreasonable barriers to cancellation, or fails to honor cancellation requests that comply with its promised cancellation procedures. The circular aligns with a similar enforcement policy statement regarding negative option marketing issued by the FTC in November 2021. (UDAAP regulatory focus: abusive, deceptive, unfair).
• Federal Trade Commission. The FTC voted to extend the comment period, through February 8, 2023, on whether it should explore adopting a rule regarding the harms caused by junk fees that provide little or no added value to the consumer and the unfair or deceptive tactics companies use to impose them under Section 5 of the FTC Act. Note: this is separate from a public comment request from the CFPB on fees levied on consumer financial products or services. (UDAAP regulatory focus: deceptive, unfair).

Michael Buckalew is a regulatory analyst with Davis Wright Tremaine LLP.