The CFPB has issued an interpretive rule that addresses when digital marketing providers are “service providers” subject to the Consumer Financial Protection Act, including the CFPA’s prohibition on unfair, deceptive, or abusive acts or practices.
The CFPB describes digital marketing providers as businesses that use data obtained from an array of sources to offer targeted advertising services. For example, they analyze and use data collected from individual consumers to segment consumers by different characteristics such as age, location, or interests. These consumer categories can be used by firms that engage digital marketing providers to select or exclude certain types of customers. Digital marketing providers can also target advertisements at specific times based on the content that a user is currently viewing. The CFPB states:
Ultimately, the digital marketer may decide which group(s) the consumer belongs in and which financial services companies desire to advertise to that group, and may select the specific ad to display to that consumer and/or when to display the ad based on other factors (e.g. the amount a firm is willing to pay to display the ad). Accordingly, many digital marketing providers are materially involved in the development of “content strategy” by identifying or selecting prospective customers and/or selecting or placing content to affect consumer engagement, including purchasing or adoption behavior. These activities go well beyond the activities of traditional media sources, such as print newspapers or radio, that solely passively provided airtime or physical space for advertisements.
The CFPA defines a “service provider” as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” A “service provider” includes, but is not limited to, a person that “participates in designing, operating, or maintaining the consumer financial product or service” or “processes transactions relating to the consumer financial product or service.” A “service provider” does not include a person “solely by virtue of such person offering or providing to a covered person [either] a support service of a type provided to businesses generally or a similar ministerial service [or] time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.”
According to the CFPB, digital marketing providers typically provide a “material service” when they “are materially involved in the development of content strategy.” Describing a “material service” as one that is “significant or important,” the CFPB considers digital marketing providers to be providing a “significant” service to covered persons when they “identify or select prospective customers and/or select or place content to affect consumer engagement.” In finding digital marketing providers to be providing a “material service,” the CFPB also relies on its characterization of the involvement of digital marketing providers as more similar to the function traditionally performed by a covered person’s own customer acquisition or marketing group than a traditional media source (e.g. lead generation, marketing analysis or strategy).
The CFPB states that the reference to “solely” providing “time or space for an advertisement” in the “time or space” exception means that digital marketers that do more than provide airtime or physical space for advertisements fall outside the exception. It also states that the “time or space” exception should be interpreted along with the exception for “a support service of a type provided to businesses generally or a similar ministerial service.” According to the CFPB, firms that provide a “ministerial service” to a financial institution “are not materially involved in the marketing or distribution of the consumer financial product or service; they are not typically involved in the identification or selection of prospective customers, nor do they select or place content to affect consumer engagement.” The CFPB also interprets the reference to “electronic media” in the “time or space” exception to refer to offering advertising in a manner similar to how advertising was offered by traditional “print “ media sources, which typically operated as passive conduits of information provided by their customers.
The CFPB indicates that there may be circumstances under which the conduct of digital marketing providers does fall within the “time or space” exception. One circumstance would be where a digital marketing provider is only minimally involved in identifying or selecting prospective consumers or selecting or placing content to affect consumer engagement, such as where the marketer only offers covered persons the ability to choose to run an advertisement on a particular webpage or application of the covered person’s choosing, with advertisements seen by any user of that page or application.
The CFPB makes clear however that a digital marketing provider would not fall within the “time or space’ exception if:
- It targets and delivers advertisements to users with certain characteristics, even if those characteristics are specified by the covered person. In these circumstances, it is the digital marketer’s ad targeting and delivery algorithms that identify the specific audience that sees the advertisement. (The CFPB notes the Department of Housing and Urban Development’s action against Facebook for alleged violations of the Fair Housing Act in connection with Facebook’s targeted advertising program.)
- A covered person identifies particular users by name and the digital marketer targets and delivers the advertisements to those users at specific times to increase or maximize engagement. (The CFPB notes that although a traditional media source might have provided basic information to customers about when to air particular ads, the business purchasing the ad generally made the decision about when and where to place the ad).
- It plays an even more significant role in determining which consumers see advertisements, such as by suggesting or determining to the covered person which users are the most appropriate audience for the covered person’s advertisements (rather than receiving such direction from the covered person.)
In its press release, the CFPB warns that “[d]igital marketers acting as service providers can be held liable by the CFPB or other law enforcers for committing unfair, deceptive, or abusive acts or practices as well as other consumer financial protection violations.” In the interpretive rule, the CFPB references the recent change to its Examination Manual to provide that discrimination can constitute an unfair act or practice, perhaps sending a message to digital marketing providers that a UDAAP violation can arise in connection with the marketing of both credit and non-credit transactions.
The interpretive rule is yet another example of a change that the CFPB should make with input from stakeholders rather than by administrative fiat.
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