Podcast - CFPB Warns of Manipulation in Digital Comparison Shopping Tools

Welcome to another podcast of Clearly Conspicuous. As we've noted in previous sessions our goal in these podcasts is to make you succeed in this current environment that's very aggressive and progressive, make you aware of what's going on with the federal and state agencies and give you practical tips for success. It's a privilege to be with you today. 

CFPB Issues Circular Warning Federal Enforcement Agencies and Regulators About Comparison Shopping Operators

Today we discuss the Consumer Financial Protection Bureau issuance of a circular to law enforcement agencies and regulators explaining how companies operating comparison shopping can break the law when they steer consumers to certain products or lenders because of kickbacks. Consumers use comparison shopping tools to evaluate the cost, the features and the terms of many financial products, including credit cards, loans and bank accounts. However, consumers often encounter manipulated results or digital dark patterns fueled by behind-the-scenes incentive payments from lenders. The circular explains how these practices may violate federal law and highlights examples of illegal arrangements. According to CFPB Director Chopra, "Americans turn to online comparison tools to find the credit cards with the lowest interest rates or the best rewards. The CFPB is working to ensure that digital advertisements for financial products are not disguised as unbiased and objective advice."

How Digital Comparison Shopping Tools Work and What Risks They Pose for Consumers

Digital comparison shopping tools are widely used in many product categories, from retail goods to travel and financial products. By allowing consumers to compare a variety of competing products quickly and efficiently, these tools have the potential to benefit individual consumers and drive competition across the larger market. Comparison shopping tools can help consumers evaluate and find financial products, especially credit cards and mortgages. Consumers often rely on these tools to navigate difficult financial decisions. However, some tools operators take advantage of that reliance and manipulate results. For example, some operators might accept financial kickbacks, sometimes referred to as bounties, within the industry, to manipulate lists of results displayed to shoppers. The CFPB previously issued guidance on how real estate and mortgage laws apply to mortgage comparison shopping. In today's circular, the CFPB provides guidance on how consumer financial protection laws apply to comparison shopping for other financial products. Comparison shopping tools can heavily influence a consumer selection of a financial product. Many digital comparison shopping tools hold themselves out as providing unbiased and objective advice. The guidance discusses how regulators and law enforcement agencies can evaluate operators of comparison shopping tools that accept payments from financial firms to manipulate results or suppress options that may better fit the consumer's stated preferences.

Dark Patterns in Comparison Shopping

Looking at dark patterns in comparison shopping now. Dark patterns are a common tool used to manipulate consumers. Operators of comparison shopping tools may deceive consumers with user experiences and user interfaces that lead people to believe they are the beneficiaries of competition. However, if consumers are being tricked into paying higher prices or selecting inferior products, the comparison shopping company and the company paying to play may be the only ones benefiting from the facade of competition. The CFPB has warned that dark patterns can violate consumer financial protection laws, and the agency has taken enforcement actions against violators.

Competition in the Credit Card Market

Next issue to think about here is increasing competition in credit cards and other markets. The CFPB has found evidence of practices that may imply anti-competitive behavior in the consumer credit card market, as well as high levels of concentration in the industry. A recent CFPB report showed that large banks are offering worse credit card terms and interest rates than small banks and credit unions, regardless of credit risk. The difference in interest rates can translate to $400 to 500 in additional annual interest for the average cardholder. The CFPB has also published research showing how the larger issuers have increased their interest rate margin over the past decade, resulting in about $25 billion in additional interest charges in 2023 alone.

Key Takeaways

So here's the key takeaway. The CFPB circular is part of a broader effort to level the playing field by the bureau that they believe is too often tilted against consumers across many different markets for consumer financial products and services. The guidance follows an advisory opinion to protect mortgage borrowers from pay-to-play digital comparison shopping platforms. It also follows efforts to level marketplaces throughout actions on hard-to-cancel subscription services, fake review fraud, pay-to-play feel and hidden junk fees. So please stay tuned to further programs as we identify and address the key issues and developments, and provide strategies for success. I wish you continued success and meaningful day. Thank you.