CFPB Releases Guidance on Dark Patterns in Negative Option Marketing Practices
Previously, we reported on how the Federal Trade Commission (FTC) released a report Bringing Dark Patterns To Light. On January 19, 2023, the Consumer Financial Protection Bureau (CFPB or Bureau) released a similar circular warning companies that engage in negative option marketing practices of the CFPB’s authority to take action against these practices.
The CFPB defines “negative options” as “a term or condition under which a seller may interpret a consumer’s silence, failure to take an affirmative action to reject a product or service, or failure to cancel an agreement as acceptance or continued acceptance of the offer.” Negative practices may take the form of automatic renewal plans, continuity plans, or trial marketing plans, where consumers continue to pay fees until they affirmatively cancel their plan.
The CFPB warns that these practices can become harmful to customers “when sellers mislead consumers about terms and conditions, fail to obtain consumers’ informed consent, or make it difficult for consumers to cancel” their subscriptions for products or services. In the past, the FTC has challenged similar harmful practices by “using its authority under Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices.” Which, in turn, has led the CFPB to follow suit against those organizations, relying on “the [Consumer Financial Protection Act of 2010’s (CFPA)] prohibition on unfair, deceptive, and abusive acts or practices.”
The FTC and CFPB have recently “taken action to combat the rise of digital dark patterns, which are design features used to deceive, steer, or manipulate users into behavior that is profitable for a company, but often harmful to users or contrary to their intent.” According to the FTC and CFPB, when a negative option is paired with the use of dark patterns, the issuing company may be violating the law.
Disclosure
Sellers are at risk of violation of the CFPA if the seller:
(1) does not clearly and conspicuously disclose the material terms of the negative option offer to the consumer,
(2) does not obtain the consumer’s informed consent, or
(3) misleads consumers who wish to cancel, erects unreasonable barriers to cancellation, or impedes the effective operation of promised cancellation procedures.
Sellers are also at risk of violating the CFPA’s deceptive acts or practices prohibition “if they misrepresent or fail to clearly and conspicuously disclose the material terms of an offer for a product or service with a negative option feature.”
Consent
Sellers may be at risk of violating the CFPA if “they fail to obtain the consumer’s informed consent before charging the consumer[,]” as this can be categorized as deception if the CFPB determines that a consumer was likely to be reasonably mislead by the practice. Likewise, the practice may be considered unfair if it is likely to cause injury to consumers that “is not outweighed by countervailing benefits.”
Cancellation
The CFPB requires that companies’ cancellation policies comply with the CFPA, where “certain types of representations are presumed to be material, including express representations and representations regarding costs.” As an example, the CFPB provides that consumers have reported deceptive cancellation policies, including companies’ claims that cancellations can be made immediately with “no questions asked,” but customers later report they are put through a challenging, sometimes futile, process to complete cancellation. Consumers have also reported “misrepresentations about the costs and benefits of [a company’s] products and services in order to persuade consumers not to cancel.”
The CFPB and FTC further agree that unreasonable barriers to cancel as well as failure to honor cancellation requests may also violate the law. Examples of these practices include:
· hanging up on consumers who call to cancel;
· placing consumers on hold “for an unreasonably long time”;
· providing consumers with false information about how to cancel; or
· misrepresenting the reasons for a company’s delay in processing a consumer’s request for cancellation.