CFPB Q1 Circular Recap: Essential Takeaways for Mitigating UDAAP Risk to Remittance Transfer Providers, Digital Comparison-Shopping Tool Operators, and Lead Generators

In the first quarter of 2024, the Consumer Financial Protection Bureau (CFPB) issued two Consumer Financial Protection Circulars, putting remittance transfer providers, digital comparison-shopping tool operators, and lead generators on notice of certain practices that can violate the Consumer Financial Protection Act’s (CFPA’s) prohibition on unfair, deceptive, and abusive acts and practices.

Remittance Transfer Providers

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

1. Speed. Avoid marketing remittance transfers as being delivered within a certain time frame (e.g., “instantly,” 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 like “free” or “no fee” (or similar terms, such as “no charge,” “without charge,” or “zero fees”) in marketing remittance transfers if the transfers are not actually free. Such advertising may be deceptive if consumers are charged a fee by the remittance transfer provider or even an unaffiliated third party over whom the provider has no control. Although terms like “free” are generally considered high-risk in advertising (because regulators often view them as luring or baiting consumers), even if a fee or cost were disclosed elsewhere (e.g., in required disclosures, in fine print, or on a webpage), such disclosure would not cure a misleading communication in advertising.
3. Clarity. Avoid using technical jargon or confusing language in ads, and when advertising promotional pricing, make clear to consumers the duration of the promotional period and that costs may increase when that period ends.

Digital Comparison-Shopping Tool Operators and Lead Generators

In its February 29 circular, the CFPB warned digital comparison-shopping tools, lead generators, digital intermediaries, and specialty data brokers, including those conducted via website, application, and chatbot (“intermediaries”), that taking unreasonable advantage of a consumer’s reasonable reliance on an intermediary to act in the consumer’s interest is an abusive act or practice in violation of the CFPA. The CFPB noted that such a violation can occur even if there is no substantial injury to the consumer.

The CFPB defined intermediaries to include entities that make money, 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
• Influencing a consumer’s likelihood of selecting or engaging with information about certain financial products, services, or providers
• Recommending 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 takes the position that a consumer can reasonably rely on an intermediary to act in the consumer’s interest based on the intermediary’s explicit or implicit representations or communications, or even just by the nature of the intermediary’s function in the market — where the intermediary receives information from the consumer to match the consumer with (or purports to help the consumer to select) a financial product, service, or provider.

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

1. Compensation Arrangements. Review the terms of agreements with providers for language establishing dynamic bidding or a bounty system that could signal to a regulator that an intermediary may be directing consumers to certain providers based on compensation, at least until a minimum volume for payment has been satisfied.
2. Nonpaying Providers. Present consumers with information about providers from whom the intermediary does not receive compensation if the intermediary’s service includes few providers. The CFPB explained that presenting a greater number of comparison options (e.g., by not excluding nonpaying providers) can reduce an intermediary’s risk of an abusive act or practice, especially when an intermediary otherwise includes a very low number of providers in their service.
3. Disclosures. Clearly disclose to consumers if options or rankings presented to them are only a subset of products, services, or providers available and if any option presented is influenced in any way by financial considerations to an intermediary’s business.
4. Consumer Input. Use care when displaying results in response to input provided by a consumer (e.g., information, interests, or preferences conveyed through a form, survey, filtering option, or chatbot interaction) to tailor results presented to the consumer. The CFPB takes the position that eliciting input from a consumer can cause the consumer to reasonably expect that the results they receive from an intermediary will be based on the input they provided.
5. Consumer’s Interest. Consider how options presented are in the consumer’s interest, and be able to support marketing statements to consumers that communicate that the intermediary:
   • Puts consumers first, prioritizes consumer interests or preferences, acts on consumers’ behalf, or helps consumers to achieve their financial goals
   • Presents information, objective recommendations, or research-based rankings of options, based, at least in part, on information provided by the consumer or based 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 (e.g., promising to match consumers with loans that have the best interest rates, finance charges, or repayment periods)
   • Is associated with a trusted institution (e.g., a college, university, financial institution, or the Federal Deposit Insurance Corporation) or otherwise has expertise in helping consumers evaluate options
6. Steering. Ensure that similarly-situated consumers receive the same offers and that no part of the consumer’s shopping experience steers the consumer toward options based on an intermediary’s compensation arrangements with providers or benefits that an intermediary may receive if the consumer would reasonably rely on the intermediary to act in the consumer’s interest. This includes, for example, preferentially treating or generating more interest in an intermediary’s own financial products or services or those of another to increase financial or other benefits for an intermediary when those products or services are more costly or less desirable than what the consumer might otherwise prefer. Steering can include, in certain instances, enhanced placement, more-dynamic design features, preferential order, presenting certain options as “featured,” allowing fewer clicks to view more information, or any other strategy that would make something more likely to be seen or selected by the consumer.
7. Advertisements. Present sponsored or other advertising content visually separate from and not embedded or intertwined with product rankings, recommendations, or results — for example, reserving advertising for banners 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 enhancements to your business’ compliance management system may also be warranted, including policies and procedures, training, monitoring, and consumer complaint response functions.

Goodwin is recognized as one of the leading law firms in the United States, partnering with a range of banks and fintech companies, including digital comparison-shopping tool operators and lead generators, to provide expert navigation through a variety of matters and controversies. If your business would benefit from a risk analysis of your UDAAP exposure and risk mitigation recommendations or from developing or enhancing your compliance management system to account for the risks identified in the CFPB’s first-quarter circulars, reach out to Kim Holzel, Josh Burlingham, Andrew Kliewer, or the Goodwin lawyer with whom you typically consult.

Goodwin’s Fintech Team
We practice in every fintech vertical, including lending, alternative finance (e.g., merchant cash advances, earned wage access, and factoring), payments, deposits, insurance, broker-dealers, and investment advisers. In addition to doing product and service development regulatory work, we assist our fintech clients that choose to deliver their solutions through banks in entering into bank partnership and platform agreements.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.