CFPB Releases Compliance Bulletin Outline UDAPP Violations
On March 22, 2022, the Consumer Financial Protection Bureau (“CFPB”) released a compliance bulletin outlining certain practices constituting unfair and deceptive acts or practices (“UDAPP”).
Standard of Violation
Under the bulletin, practices were deemed “unfair” or “deceptive” in accordance with the terms of sections 1031 and 1036 of the Consumer Financial Protection Act (“CFPA”), which prohibits covered institutions from engaging in an unfair, deceptive, or abusive act or practice in connection with any consumer financial product or service.
Specifically, the CFPA voids use of a consumer contract that “A) prohibits or restricts the ability of an individual who is a party to the form contract to engage in a covered communication; B) imposes a penalty or fee against an individual who is a party to the form contract for engaging in a covered communication; or C) transfers or requires an individual who is a party to the form contract to transfer to any person any intellectual property rights in review or feedback content, with the exception of a non-exclusive license to use the content, that the individual may have in any otherwise lawful covered communication about such person or the goods or services provided by such person.”
Additionally, the CFPB relied on the 2016 Consumer Review Fairness Act (the “FTC Act”)—which was enacted in direct response to other businesses restricting consumer reviews—and relevant Federal Trade Commission (“FTC”) enforcement actions. Under the terms of the FTC Act, a company is specifically prohibited from utilizing form contracts or contractual clauses—known as “gag clauses or non-disparagement clauses”—in an effort to restrict a consumer’s negative review of their product or service.
In assessing these practices and determining whether or not they constituted a violation of these authorities, the CFPB considered the “the importance of consumer reviews in today’s market,” and the “public policy” in the United States toward the maintenance and promotion of “credible indicators of product or service quality.”
Enforcement Theories
After considering the relevant authorities and policies, the CFPB clarified that the following enforcement theories will be utilized:
If a business includes a provision limiting consumer reviews in a consumer’s form contract, such provision will be deemed a “deceptive” practice.
The basis for this enforcement is that inclusion of the provision “deceptively represents to consumers that the term is enforceable.”
Inclusion of a “non-disparagement clauses” in form contracts will be deemed an “unfair practice” under the FTC Act.
Any effort by an organization to hide or remove negative reviews concerning the organization will be deemed a “deceptive” practice.
Such efforts include instructions by the organization to its employees to issue positive reviews and failing to post or attempting to bury negative reviews.