Thank you for inviting me to be here with you in Iowa to talk about consumer protection in the digital world. The pandemic accelerated the digitization of our daily lives. Health, transportation, education, and much more have been transformed.
Financial services are no different. Banks are opening up storefronts in the metaverse. Relationship banking is at risk of being completely replaced by algorithmic banking.
While financial privacy and secrecy were seen as touchstones of the banking system, there is a growing interest from Big Tech firms to find new ways to harvest and monetize our personal financial data. Many tech firms are on the hunt for data about what we spend our money on and where we make our purchases.
Over the years, state attorneys general have often led the charge when it comes to abuses by financial and technology firms. Increasingly, both industries’ activities are converging.
Today, I want to discuss the evolution of advertising models over time. I’ll then discuss former Secretary of Housing and Urban Development Ben Carson’s complaint against Facebook, which illustrates the stark differences between traditional advertising and today’s digital marketing. Finally, I will conclude with a discussion on the role of state enforcers in policing unlawful conduct at the intersection of consumer finance and digital marketing.
A Shift Away from “Time” or “Space”
Advertising has long been a way for companies to build awareness about their products and brands. For decades, radio, TV, and newspapers offered some of the best advertising spaces. Broadcasters would sell ad time on radio and TV programs, and newspapers would sell space on their pages.
A generation ago, we began to see the ad business in the digital world take shape. The “banner ad” and the “pop-up” were digital versions of a newspaper ad. While this was a major shift in advertising markets, in many ways, the basics remained the same: companies purchased time or space for their advertising.
Today’s digital world is far different. When you watch a video on YouTube, the ads you see are not like broadcast television commercials. YouTube is targeting a commercial at you, and it may earn money not just from you watching, but also from your behavior, like ad clicks.
When two people watch the same YouTube video, they will see different ads, personalized based on the psychographic profile developed on each individual user through surveillance across devices and services accessed across the digital world. And today’s banner advertisements are not like rotating billboards that you see in a stadium. The banner ad is targeted at an individual, and networks run by Big Tech firms and other digital marketing players can use technology to essentially follow you across the digital world with the same ad. More and more Americans are experiencing the feeling of being digitally stalked by specific ad content.
Instead of rebroadcasting the same sales pitch over and over (as with TV commercials), digital marketing technologies can deploy a digital sales force armed with personalized and detailed dossiers on each consumer they sell to. The platforms with the greatest ability to target ads are those who amass voluminous amounts of personal data. For most of the public, they increasingly understand that this is not passive, traditional advertising. It is an amalgam of an ad, a private investigator, and a digital door-to-door sales force.
Notably, while a publisher of a print magazine purchased at a newsstand sells space to give an advertiser access to “eyeballs,” today’s digital marketing often monetizes user behavior, including by tracking sales conversions. This is more akin to a commission paid to a sales force than a typical ad. Social media platforms and other ad networks are not in the business of simply displaying ads, they are part of the persuasion, often playing the role long held by corporate marketing and product development departments.
The Carson Complaint
The differences between merely providing “time” or “space” for advertising versus providing a material service were put center-stage in then-Secretary of Housing and Urban Development Ben Carson’s charges against Facebook alleging violations of the Fair Housing Act in 2019.
According to Secretary Carson’s complaint, Facebook helped advertisers limit the audience for ads and enabled advertisers to target specific groups of people to the exclusion of protected classes.
Some examples included in Carson’s complaint: allowing advertisers to show ads to only men or women, to not show ads to people who may be disabled, and to not show ads to people interested in certain countries. Facebook allowed advertisers to not show ads to people within certain geographic regions or zip codes.
Secretary Carson’s complaint also described how Facebook’s tools were designed to maximize consumer engagement with ads. Its Lookalike Audience feature, for example, uses extensive behavioral data to create a composite consumer most likely to engage with the ad. Facebook can then identify users that look like the composite and target and deliver ads to them. This feature can effectively exclude people if they’re deemed to not look like the composite consumer.
To be clear: Non-selected groups, regardless of protected class, were not shown the ads. In fact, as described in the Carson complaint, Facebook’s ad delivery system prevented advertisers who wanted to reach a broad audience of users from doing so. Even if an advertiser tried to target an audience that broadly spans protected class groups, Facebook’s ad delivery system would not show the ad to a diverse audience if the system considers users with particular characteristics most likely to engage with the ad. The Carson complaint alleged this was discriminatory and in violation of the Fair Housing Act.
Like Secretary Carson’s complaint, state attorneys general have already begun to recognize that these platforms are not passive advertisers. The State of Washington alleged that Facebook’s development and operation of a digital marketing platform that targeted – or excluded – consumers on the basis of certain immutable characteristics was unfair under its state law prohibiting unfair or deceptive acts or practices.
State Enforcement in the Financial Services Arena
This brings me to the role of states to police illegal conduct in consumer financial services. As I’ve discussed with all of you before, Congress sought to correct the extreme abuses by the Office of the Comptroller of the Currency in the 2000s to undermine state legislatures and state law enforcement seeking to protect consumers. In particular, the Consumer Financial Protection Act explicitly authorizes states to bring law enforcement actions against covered financial firms and limits the ability for federal preemption abuses to recur.
Congress has also long understood that service provider liability is critical to ensure a sound oversight regime for banks and other financial firms, and the Consumer Financial Protection Act also allows states to prosecute service providers for a range of misconduct.
Of course, some service providers play absolutely no material role in the offering of a financial product or service. Accordingly, the Act exempts service providers that provide ministerial services, as well as those who “solely” provide “time or space” for an advertisement.
However, when it comes to modern digital marketing platforms, these companies are not providing space on a static billboard. Instead, they are identifying and analyzing potential users’ personal data, and often getting paid for converting interactions with users into revenue for the financial firm.
The services and tools provided by digital marketing firms are material because it is those services – the data, the algorithms, the platforms – that allow for increased consumer engagement and increased ad interactions. Without the services, financial firms would just be placing ads on websites and hoping their desired audiences see them.
Today, the CFPB has issued an interpretive rule explaining that the service provider exemption for “time or space” will typically not apply to the digital marketing services offered by major platforms. While they may be providing space for ads, these firms are commingling many other features that go well beyond the exemption.
This makes them liable for violations of the Consumer Financial Protection Act if any misconduct involves consumer financial products or services. These claims can be pursued by state attorneys general.
Today, relationship banking is under threat. In part, this is because our sensitive data is viewed as more valuable to firms than our actual selves. Advances in technology should help our economy and society advance, rather than incentivizing a rush to seize our sensitive financial data and to allow tech giants to evade existing laws that other firms must comply with. It is critical that we all work together to address this.
Our interpretive rule complements many other initiatives the CFPB is taking to prepare for the future of consumer finance, as tech firms expand their reach. For example, we have sought to limit abuse of immunity conferred under Section 230 of the Communications Decency Act. We have issued a legal interpretation affirming that firms cannot sidestep their obligation to give a clear statement of reasons on why they denied credit or otherwise gave an adverse decision simply because they used a complex algorithm that they can’t make sense of. We ordered Big Tech firms to turn over information on their plans to track our payments through digital wallets and how they decide to kick participants off their payment platforms. We have rebooted our whistleblower program to reach tech workers who have information about wrongdoing. We are bringing onboard technologists and other professionals to help us assess abuse and misuse of data, digital redlining, and more.
We are also working on new rules using a long unused authority to give consumers more control of their financial data. We are also examining how certain activities of technology companies might constitute consumer reporting under the Fair Credit Reporting Act.
And, of course, we are working to help all of you tackle the new challenges in the digital world and to fully support state enforcement of the Consumer Financial Protection Act. As you exercise or look to exercise your authorities under the Act, the CFPB will continue to be a partner in rooting out lawbreakers and keeping markets fair for consumers and honest businesses.