Rule2022-06446
Bulletin 2022-05: Unfair and Deceptive Acts or Practices That Impede Consumer Reviews
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 28, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
Reviews of products and services help to promote fair, transparent, and competitive markets. When firms frustrate the ability of consumers to post honest reviews of products and services that they use, they may be engaged in conduct prohibited by the Consumer Financial Protection Act (CFPA). The Consumer Financial Protection Bureau (Bureau) is issuing this bulletin to remind regulated entities of the CFPA's requirements and explain how the Bureau intends to exercise its enforcement and supervisory authorities on this issue.
Full Text
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<title>Federal Register, Volume 87 Issue 59 (Monday, March 28, 2022)</title>
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[Federal Register Volume 87, Number 59 (Monday, March 28, 2022)]
[Rules and Regulations]
[Pages 17143-17145]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-06446]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 87, No. 59 / Monday, March 28, 2022 / Rules
and Regulations
[[Page 17143]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Chapter X
Bulletin 2022-05: Unfair and Deceptive Acts or Practices That
Impede Consumer Reviews
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Compliance bulletin.
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SUMMARY: Reviews of products and services help to promote fair,
transparent, and competitive markets. When firms frustrate the ability
of consumers to post honest reviews of products and services that they
use, they may be engaged in conduct prohibited by the Consumer
Financial Protection Act (CFPA). The Consumer Financial Protection
Bureau (Bureau) is issuing this bulletin to remind regulated entities
of the CFPA's requirements and explain how the Bureau intends to
exercise its enforcement and supervisory authorities on this issue.
DATES: This bulletin is applicable as of March 28, 2022.
FOR FURTHER INFORMATION CONTACT: Christopher Shelton, Senior Counsel,
Legal Division, at 202-435-7700. If you require this document in an
alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#4b080d1b09140a28282e383822292227223f320b282d3b29652c243d"><span class="__cf_email__" data-cfemail="c1828791839e80a2a2a4b2b2a8a3a8ada8b5b881a2a7b1a3efa6aeb7">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
A. Role of Consumer Reviews
Numerous studies and surveys have confirmed the importance of
online reviews across the economy. For example, one prominent study
estimated that a one-star rating increase on <a href="http://Yelp.com">Yelp.com</a> translated to an
increase of 5 to 9 percent in revenues for a restaurant.\1\ Another
study found that a one-point boost in a hotel's online ratings on
travel sites is tied to an 11 percent jump in room rates, on
average.\2\ To date, academic research has not focused specifically on
markets for consumer financial products and services. But online
reviews are also commonplace in many of those markets, and the Bureau
expects them to play an increasing role in helping consumers choose
between financial providers. This can create an incentive for dishonest
market participants to attempt to manipulate the review process, rather
than compete based on the value of their services, which can frustrate
a competitive marketplace.
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\1\ Michael Luca, Reviews, Reputation, and Revenue: The Case of
<a href="http://Yelp.com">Yelp.com</a>, Harv. Bus. Sch. Working Paper No. 12-016, 14 (2016).
\2\ Chris Anderson, The Impact of Social Media on Lodging
Performance, 12(15) Cornell Hospitality Report 6, 11 (2012).
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The Bureau notes that consumer reviews can be important to two
groups of consumers: The consumers who read and rely upon reviews, as
well as the consumers who take the time to express their viewpoints by
writing them in the first place. Of course, these groups can be
overlapping. Firms that interfere with consumer reviews can harm both
of these groups.
B. Public Policy Regarding Consumer Reviews
Congress unanimously enacted the Consumer Review Fairness Act in
2016, in response to abuses by companies that restricted consumer
reviews.\3\ As the legislative history of the statute explains, the
``wide availability'' of consumer reviews ``has caused consumers to
rely on them more heavily as credible indicators of product or service
quality. In turn, businesses have sought to avoid negative reviews . .
. through provisions of form contracts with consumers restricting such
reviews. These provisions typically impose monetary or other penalties
for publishing negative comments regarding the provider's services or
products.'' \4\ The legislative history explains that these ``gag
clauses or non-disparagement clauses'' are harmful to consumers.\5\
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\3\ Public Law 114-258, 130 Stat. 1355 (2016) (codified at 15
U.S.C. 45b).
\4\ H.R. Rep. No. 114-731, at 5 (2016).
\5\ Id.
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As discussed below, the Consumer Review Fairness Act protects
``covered communications.'' A covered communication is defined as ``a
written, oral, or pictorial review, performance assessment of, or other
similar analysis of, including by electronic means, the goods,
services, or conduct of a person by an individual who is party to a
form contract with respect to which such person is also a party.'' \6\
For simplicity, this bulletin will refer to ``covered communications''
as consumer reviews.
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\6\ 15 U.S.C. 45b(a)(2). The statute clarifies that the term
``pictorial'' includes pictures, photographs, video, illustrations,
and symbols. 15 U.S.C. 45b(a)(4).
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Relatedly, a ``form contract'' is defined as a contract with
standardized terms that is: ``used by a person in the course of selling
or leasing the person's goods or services;'' and ``imposed on an
individual without a meaningful opportunity for such individual to
negotiate the standardized terms.'' \7\
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\7\ 15 U.S.C. 45b(a)(3)(A). However, the term ``form contract''
does not include an employer-employee or independent contractor
contract. 15 U.S.C. 45b(a)(3)(B).
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The Consumer Review Fairness Act provides, with limited exceptions,
that ``a provision of a form contract is void from the inception of
such contract'' if the provision:
A. Prohibits or restricts the ability of an individual who is a
party to the form contract to engage in a covered communication;
B. imposes a penalty or fee against an individual who is a party
to the form contract for engaging in a covered communication; or
C. transfers or requires an individual who is a party to the
form contract to transfer to any person any intellectual property
rights in review or feedback content, with the exception of a non-
exclusive license to use the content, that the individual may have
in any otherwise lawful covered communication about such person or
the goods or services provided by such person.\8\
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\8\ 15 U.S.C. 45b(b)(1) (emphasis added). There are additional
rules of construction, 15 U.S.C. 45b(b)(2), and exceptions, 15
U.S.C. 45b(b)(3).
For simplicity, this bulletin will refer to these various types of
provisions as restrictions on consumer reviews.
II. Violations of the Consumer Financial Protection Act (CFPA)
Sections 1031 and 1036 of the CFPA prohibit a covered person or
service provider from engaging in an ``unfair, deceptive, or abusive
act or practice'' that is ``in connection with any transaction with a
consumer for a consumer financial product or service, or the offering
of a consumer financial product or service.'' \9\ There are a
[[Page 17144]]
number of ways that covered persons or service providers could violate
this prohibition by interfering with consumer reviews.
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\9\ 12 U.S.C. 5531, 5536. For definitions of ``covered person,''
``service provider,'' and ``consumer financial product or service,''
see section 1002 of the CFPA, 12 U.S.C. 5481, and the associated
regulation, 12 CFR part 1001.
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A. Deceiving Consumers Who Wish To Leave Consumer Reviews, Using
Purported Contractual Restrictions That Are Unenforceable
``An act or practice is deceptive if: (1) There is a
representation, omission, or practice that (2) is likely to mislead
consumers acting reasonably under the circumstances, and (3) the
representation, omission, or practice is material.'' \10\
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\10\ CFPB v. Gordon, 819 F.3d 1179, 1192 (9th Cir. 2016)
(internal quotation marks and punctuation omitted).
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It is well-established that material misrepresentations to
consumers that are unsupported under applicable law can be
deceptive.\11\ In particular, including an unenforceable material term
in a consumer contract is deceptive, because it misleads consumers into
believing the contract term is enforceable. The Bureau's examiners have
repeatedly cited such unenforceable contract provisions in their
supervisory work.\12\ Moreover, disclaimers in a contract such as
``subject to applicable law'' do not cure the misrepresentation caused
by the inclusion of an unenforceable contract term. Additionally,
subsequent disclaimers cannot cure a misrepresentation.\13\
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\11\ See, e.g., FTC v. World Media Brokers, 415 F.3d 758, 763
(7th Cir. 2005).
\12\ See, e.g., Supervisory Highlights: Summer 2017, 82 FR
48703, 48708 (Oct. 19, 2017) (deceptive waivers of borrowers' rights
in loss mitigation agreements that were unenforceable under 12 CFR
part 1026 (Regulation Z), implementing the Truth in Lending Act);
Supervisory Highlights, Issue 24, Summer 2021, 86 FR 36108, 36117
(July 8, 2021) (deceptive waivers of rights in security deed riders
that were unenforceable under 12 CFR part 1024 (Regulation X),
implementing the Real Estate Settlement Procedures Act).
\13\ See, e.g., FTC v. IAB Marketing Assoc., LP, 746 F.3d 1228,
1233 (11th Cir. 2014).
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Consistent with these principles, it would generally be deceptive
to include a restriction on consumer reviews in a form contract, given
that the restriction would be void under the Consumer Review Fairness
Act. Consumers can be expected to read the language to mean what it
says: That they are restricted in their ability to provide consumer
reviews. But that is not the case, since the provision is void under
applicable law. And the option to post candid reviews about products or
services would be material to the many American consumers who do so.
Moreover, the Bureau believes that enforcing the deception prohibition
is particularly important in this context, given that consumer reviews
are a significant driver of competition in the modern economy.
In addition, if a covered person or service provider attempts to
pressure a consumer to remove an already posted negative review, by
invoking a restriction on consumer reviews that is void under the
Consumer Review Fairness Act, that would also generally be a deceptive
act or practice. Note that this would be an additional deceptive act or
practice, not a precondition for establishing the kind of deceptive act
or practice already described. Damage can be done by chilling
consumers' reviews even if, unknown to the consumer, the covered person
or service provider does not later follow up by invoking the contract
provision against consumers who post negative reviews. Accordingly, in
other contexts, Bureau examiners have found unenforceable contract
provisions to be deceptive regardless of whether the provision is
ultimately enforced.\14\ But if a covered person or service provider
does invoke the void contract provision against the consumer (for
example, by claiming that the consumer is contractually required to
remove a negative review, or that the consumer is contractually
required to stop posting such reviews, or assessing a penalty or fee if
the consumer does not remove a negative review), that can be expected
to further deepen the materially misleading impression that the
affected consumers would have. It would be natural for consumers to
believe that they need to remove existing negative reviews, stop
posting such reviews, or pay the purported penalty or fee, which is not
the case.
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\14\ See matters cited in note 12.
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B. Unfairly Depriving Consumers of Information Using Restrictions on
Consumer Reviews
In addition to deceiving consumers who wish to leave reviews,
purported contractual restrictions on consumer reviews can unfairly
harm the many other consumers who rely upon reviews when deciding what
products and services to purchase.
Under section 1031(c) of the CFPA, an act or practice is unfair if:
(A) It causes or is likely to cause substantial injury to consumers
which is not reasonably avoidable by consumers; and (B) such
substantial injury is not outweighed by countervailing benefits to
consumers or to competition.\15\
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\15\ 12 U.S.C. 5531(c).
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In applying the CFPA's unfairness prohibition, the Bureau finds
persuasive the reasoning of the Federal Trade Commission (FTC) in FTC
v. Roca Labs, Inc.\16\ Roca Labs was an enforcement action that
predated the Consumer Review Fairness Act, but it was cited in the that
statute's legislative history.\17\ In Roca Labs, the FTC alleged that
the Defendants' use of ``contractual provisions that prohibit
purchasers from speaking or publishing truthful or nondefamatory
negative comments or reviews about the Defendants, their products, or
their employees'' was unfair under the Federal Trade Commission
Act.\18\ The defendants' conduct ``caused or are likely to cause
purchasers to refrain from commenting negatively about the Defendants
or their products. By depriving prospective purchasers of this
truthful, negative information, Defendants' practices have resulted or
are likely to result in consumers buying Roca Labs products they would
not otherwise have bought.'' \19\ This substantial injury was not
reasonably avoidable by consumers or outweighed by countervailing
benefits to consumers or to competition.\20\ The Bureau intends to
apply similar unfairness principles if it encounters a covered person
or service provider, acting within the scope of the CFPA, who uses
contractual restrictions to restrict consumer reviews.
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\16\ Complaint, FTC v. Roca Labs, Inc., No. 8:15-cv-02231 (M.D.
Fla. filed Sept. 24, 2015), <a href="https://www.ftc.gov/system/files/documents/cases/150928rocalabscmpt.pdf">https://www.ftc.gov/system/files/documents/cases/150928rocalabscmpt.pdf</a>.
\17\ H.R. Rep. No. 114-731, at 5 (2016) (citing id.).
\18\ Complaint at 27, FTC v. Roca Labs, Inc., No. 8:15-cv-02231.
\19\ Id. at 22.
\20\ Id. at 27.
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C. Deceiving Consumers Who Read Consumer Reviews About the Nature of
Those Reviews
Whether or not there are any contractual restrictions on consumer
reviews, covered persons or service providers can engage in a deceptive
act or practice by manipulating consumers' comprehension of the set of
reviews that are available. Two recent FTC matters illustrate this
concern.
First, in the Sunday Riley matter, the FTC alleged that a company
instructed its employees to leave reviews of its products on a third-
party website, and also to ``dislike'' negative reviews left by real
customers.\21\ The FTC found that this was deceptive. By engaging in
this conduct, the company had ``represented, directly or indirectly,
expressly or by implication, that certain reviews . . . reflected the
experiences
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or opinions of users of the products.'' \22\ But the company ``failed
to disclose that the online consumer reviews were written by'' the
company's employees, which ``would be material to consumers . . . in
connection with a purchase or use decision.'' \23\ And, although in
Sunday Riley the posters were the company's own employees, the Bureau
notes that another way that companies can deceive consumers is by
paying non-employees to post reviews that are materially misleading.
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\21\ Complaint, In the Matter of Sunday Riley Modern Skincare,
LLC, File No. 192-3008 (F.T.C. Nov. 6, 2020), <a href="https://www.ftc.gov/system/files/documents/cases/192_3008_c4729_sunday_riley_complaint.pdf">https://www.ftc.gov/system/files/documents/cases/192_3008_c4729_sunday_riley_complaint.pdf</a>.
\22\ Id. at 4.
\23\ Id.
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Second, in the Fashion Nova matter, a company that sold products
through a website allegedly had ``four- and five-star reviews
automatically post to the website, but did not approve or publish
hundreds of thousands lower-starred, more negative reviews.'' \24\ The
FTC found that this was a deceptive act or practice, misleading
consumers who read the website into believing that the posted ratings
accurately reflected the consumer reviews submitted.\25\
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\24\ Complaint at 2, In the Matter of Fashion Nova, LLC, File
No. 192-3138 (F.T.C. Jan. 25, 2022), <a href="https://www.ftc.gov/system/files/documents/cases/192_3138_fashion_nova_complaint.pdf">https://www.ftc.gov/system/files/documents/cases/192_3138_fashion_nova_complaint.pdf</a>.
\25\ Id.
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Of course, there are also numerous other ways that firms could
improperly manipulate consumer reviews. The Bureau intends to carefully
scrutinize whether covered persons or service providers are skewing
consumers' understanding of consumer reviews in a manner that is
deceptive (or unfair or abusive).
III. Conclusion
In summary, covered persons and service providers are liable under
the CFPA if they deceive consumers using restrictions on consumer
reviews that are unenforceable under the Consumer Review Fairness Act,
if they unfairly deprive consumers of information by using such
restrictions, or if they deceive consumers who read reviews about the
nature of those reviews. If the Bureau identifies a violation of the
CFPA, it intends to use its authorities to hold the violators
accountable.
IV. Regulatory Matters
This is a general statement of policy under the Administrative
Procedure Act (APA). It provides background information about
applicable law and articulates considerations relevant to the Bureau's
exercise of its authorities. It does not confer any rights of any kind.
As a general statement of policy, it is exempt from the APA's notice-
and-comment rulemaking requirements.\26\ Because no notice of proposed
rulemaking is required, the Regulatory Flexibility Act does not require
an initial or final regulatory flexibility analysis.\27\ It also does
not impose any new or revise any existing recordkeeping, reporting, or
disclosure requirements on covered entities or members of the public
that would be collections of information requiring approval by the
Office of Management and Budget under the Paperwork Reduction Act of
1995.\28\
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\26\ 5 U.S.C. 553(b).
\27\ 5 U.S.C. 603(a), 604(a).
\28\ 44 U.S.C. 3501-3521.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-06446 Filed 3-25-22; 8:45 am]
BILLING CODE 4810-AM-P
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