CFPB Q1 Circular Summary: Essentials for Mitigating UDAAP Risk for Remittance Transfer Providers, Digital Comparison Shopping Tool Operators, and Lead Generators | Insights and resources

In the first quarter of 2024, the Consumer Financial Protection Bureau (CFPB) issued two consumer financial protection circulars, informing remittance transfer providers, digital comparison shopping tool operators, and lead generators of certain practices that may violate the provisions of the Consumer Financial Protection Act. (CFPA) prohibition of unfair, deceptive and abusive acts and practices.

Remittance Transfer Providers

In its March 27 circular, the CFPB explained that remittance providers may violate the CFPA’s prohibition on deceptive acts or practices in advertising the speed or cost of remittance transfers, even if the providers comply with the disclosure requirements of the Remittance Rule. The CFPB’s motivation for issuing this circular appears to have arisen, at least in part, from consumer complaints to the CFPB about remittance transfer service providers obscuring or omitting the cost of remittance transfers in advertising and charging unexpected fees, as well as the oversight and enforcement of CFPB Actions. The circular communicates that remittance transfer providers should:

1. Speed. Prevent marketing remittance transfers from being delivered within a certain time frame (for example, “instantaneously,” in “30 seconds,” or “within seconds”) if the transfers may actually take longer to reach or be made available to recipients.
2. Cost. Avoid using terms such as “free” or “no fees” (or similar terms, such as “free”, “no fees” or “zero fees”) in marketing remittance transfers if the transfers are not actually free. Such advertising can be misleading if consumers are charged a fee by the remittance transfer provider or even by an unaffiliated third party over which the provider has no control. Although terms such as “free” are generally considered high risk in advertising (because regulators often view them as bait to lure or entice consumers), even if a fee or cost were disclosed elsewhere (e.g., in disclosures requests, in small print or on a web page), such disclosure does not constitute a misleading advertising communication.
3. Clarity. Avoid using jargon or confusing language in your ads, and when advertising promotional prices, make it clear to consumers how long the promotional period is and that costs may increase after the period ends.

Operators of digital comparison shopping tools and lead generators

In its February 29 circular, the CFPB warned that digital comparison shopping tools, lead generators, digital intermediaries, and specialized data brokers, including those conducted via website, application, and chatbots (“intermediaries”), that taking unreasonable advantage of a consumer’s reasonable price by relying on an intermediary to act in the consumer’s best interests constitutes an abusive act or practice in violation of the CFPA. The CFPB noted that such a violation can occur even in the absence of substantial harm to the consumer.

The CFPB has defined intermediaries as entities that earn, at least in part, from any of the following activities:

• Presenting information about the costs, features, or other terms of financial products or services for comparison shopping purposes
• Influence a consumer’s likelihood to select or interact with information about certain products, services or financial providers
• Recommend certain financial products, services or providers
• Collecting data from consumers and selling that information to one or more lenders to complete a loan transaction

The CFPB believes that a consumer can reasonably rely on an intermediary to act in his or her best interests based on the intermediary’s express or implied statements or communications, or even just the nature of the intermediary’s function in the marketplace, in which the intermediary receives information from the consumer to match the consumer (or purports to help the consumer select) a product, service or financial provider.

To help mitigate the risk of engaging in acts or practices that may be considered abusive by the CFPB, intermediaries should consider the following measures addressed in the circular:

1. Compensation agreements. Review the terms of supplier agreements for language that establishes dynamic bidding or a rewards system that could signal to a regulator that an intermediary may direct consumers to certain suppliers based on a fee, at least until it has been satisfied a minimum payment volume.
2. Non-paying suppliers. Present consumers with information about providers from which the intermediary receives no compensation if the intermediary’s service includes few providers. The CFPB explained that presenting a greater number of comparison options (for example, by not excluding non-paying providers) can reduce an intermediary’s risk of an abusive act or practice, especially when an intermediary otherwise includes a very low number of suppliers in its service.
3. Disclosures. Clearly communicate to consumers whether the options or rankings presented to them are only a subset of available products, services or providers, and whether any options presented are influenced in any way by financial considerations for an intermediary’s business.
4. Consumer input. Use caution when viewing results in response to input provided by a consumer (for example, information, interests or preferences submitted via a form, survey, filter option, or interaction with a chatbot) to personalize results presented to the consumer. The CFPB believes that obtaining input from a consumer may cause the consumer to reasonably expect that the results he or she receives from an intermediary will be based on the input provided.
5. Consumer interest. Consider how the options presented are in the consumer’s interest and be able to support consumer-facing marketing claims that communicate that the intermediary:
   • Puts consumers first, prioritizes consumers’ interests or preferences, acts on behalf of consumers, or helps consumers achieve their financial goals
   • Presents research-based information, objective recommendations, or rankings of options, based, at least in part, on information provided by the consumer or on the consumer’s circumstances
   • Provides a one-stop shop for consumers seeking to make an informed selection by matching them with the “best” or “right” offers (for example, promising to match consumers with loans with the best interest rates, finance charges, or repayment periods)
   • Is associated with a trusted institution (for example, a college, university, financial institution, or the Federal Deposit Insurance Corporation) or is otherwise experienced in helping consumers evaluate options
6. Helm. Ensure that similarly situated consumers receive the same offers and that no part of the consumer’s shopping experience directs the consumer to options based on an intermediary’s compensation arrangements with suppliers or benefits that an intermediary might receive if the consumer would reasonably relying on the intermediary to act in the interests of the consumer. This includes, for example, dealing preferentially or generating greater interest in the financial products or services of one intermediary or those of another to increase financial or other benefits to an intermediary when such products or services are more expensive or less desirable than those that the consumer might otherwise prefer. Help may include, in some cases, improved positioning, more dynamic design features, preferential ordering, presenting certain options as “featured,” allowing fewer clicks to view more information, or any other strategy that makes something more likely to be seen or displayed. selected by the consumer.
7. Ads. Present sponsored or other advertising content that is visually separate and not embedded or intertwined with product rankings, recommendations, or results, such as by reserving advertising for banner or pop-up ads.

Next steps

If you are a remittance transfer provider or intermediary, you should consider reviewing your customer-facing materials and processes for the aforementioned risks of deceptive and abusive acts or practices. You may find that precautionary improvements to your company’s compliance management system, including policies and procedures, training, monitoring and consumer complaint response functions, may also be warranted.

Goodwin is recognized as one of the leading law firms in the United States, partnering with a number of banks and fintech companies, including operators of digital comparison shopping tools and lead generators, to provide expert navigation through a variety of matters and disputes . Whether your company would benefit from a risk analysis of UDAAP exposure and risk mitigation recommendations or from developing or improving your compliance management system to account for the risks identified in the CFPB’s first quarter circulars , contact Kim Holzel, Josh Burlingham, Andrew Kliewer, or the Goodwin attorney you typically consult with.

The Goodwin Fintech team
We operate in every fintech vertical, including lending, alternative finance (e.g., merchant cash advances, access to earned wages, and factoring), payments, escrow, insurance, broker-dealers, and investment advisors. In addition to carrying out product and service development regulatory activities, we assist our fintech clients who choose to provide their solutions through banks in entering into banking and platform partnership agreements.

This disclosure, which may be considered advertising under the ethical rules of some jurisdictions, is provided with the understanding that it does not constitute legal or other professional advice by Goodwin or its attorneys. Previous results do not guarantee a similar result.

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