Consumer Financial Protection Circular 2024-01

Question presented

Can operators of digital comparison-shopping tools or lead generators violate the Consumer Financial Protection Act (CFPA) by preferencing products or services based on financial or other benefits to the operator?

Response

Yes. Operators of digital comparison-shopping tools can violate the prohibition on abusive acts or practices if they distort the shopping experience by steering consumers to certain products or services based on remuneration to the operator. Similarly, lead generators can violate the prohibition on abusive practices if they steer consumers to one participating financial services provider instead of another based on compensation received. Where consumers reasonably rely on an operator of a digital comparison-shopping tool or a lead generator to act in their interests, the operator or lead generator can take unreasonable advantage of that reliance by giving preferential treatment to their own or other products or services through steering or enhanced product placement, for financial or other benefits.

Background

For many households, the process of shopping for a financial product or service now includes interactions with digital intermediaries. These intermediaries include websites, applications, or chatbots that operate as comparison-shopping tools, which consumers turn to for help with researching, comparing, and selecting consumer financial products or services.

Offering a comparison-shopping tool for consumers and generating leads for financial companies can and sometimes do operate as distinct business models, and for the purposes of this circular, comparison-shopping tools and lead generators are discussed separately. However, consumers often interact with them in similar ways and many digital intermediaries operate as both, presenting themselves as consumer-serving comparison-shopping tools while simultaneously increasing profits by directing leads based on financial benefit. Digital intermediaries commonly receive remuneration or other benefits, sometimes referred to as “bounties” by market participants.

Digital comparison-shopping tools

Consumers are increasingly using digital comparison-shopping tools to find consumer financial products or services that fit their interests.¹ These tools facilitate comparison shopping by presenting information about the costs, features, or other terms for a set of comparable financial products or services, such as credit cards, student loans, and savings accounts, offered by different providers. In addition to presenting options offered by third-party providers of financial products and services, some operators of digital comparison-shopping tools offer their own financial products and services and include their own options in the comparison-shopping tool.

Comparison-shopping information can be presented in a static or interactive format. In the latter case, some operators allow people who use the tool to sort options based on different criteria or to otherwise customize the presentation of information and options (sometimes after a default presentation). Also, some operators collect information from consumers and then purport to provide a list of options tailored to the consumers’ particular circumstances or preferences. In other cases, operators just present an ordered list of recommended providers. Increasingly, digital comparison-shopping tools are using algorithms that order recommendations or ranking lists based on multiple variables, such as consumer characteristics, product features, consumer ratings, the likelihood a consumer would be approved, various click-through and application completion or approval rates, and provider compensation or bids.

Operators of digital comparison-shopping tools enter various types of commercial arrangements with providers of consumer financial products and services that participate in a comparison-shopping tool. Some operators receive revenue in exchange for the provision of time or space for advertising that is clearly set apart from the content of the comparison-shopping tool, like banner ads or pop-up advertisements.² This kind of advertising is not at issue in this Circular.

Instead, this Circular focuses on compensation arrangements from providers for preferential treatment by an operator of a digital comparison-shopping tool. Operators are sometimes paid by product providers on a fee-per-action basis – for example, by receiving fees per click, per application, per conversion, per offer, or per sale. Often, operators allow firms to bid against each other for advantageous placement by paying bounties, which can be targeted at customers fitting the characteristics a provider wants to acquire or aimed at meeting certain volume goals. The degree to which these bounties affect product placement depends on the operator’s business model and the weight given to provider compensation over other factors.

Lead Generation

Lead generators in lending markets sell information about prospective customers to lenders. Lead generators sometimes perform this function without making any contact with the consumer—selling data on consumers as a specialty data broker. But these entities also collect data directly from consumers by advertising websites that present themselves as helping consumers get a loan or connect with lenders.³

When consumers submit their information to a lead generator indicating an interest in obtaining a loan, the lead generator sells the consumer’s information to lenders to complete a loan transaction. Lead generators decide which lender obtains a lead based on a variety of criteria depending on the firm. They sometimes deploy algorithms to use many variables simultaneously to make these automated decisions, similar to digital comparison-shopping tools. Sometimes lead generators collect more information from consumers to assist lenders in determining whether to purchase a lead, and lead generators sometimes perform underwriting or origination tasks on behalf of partner lenders. In fact, in some cases the automated decision on which a lender obtains a lead can be so quick that the consumer’s user experience between navigating to a lead generator’s website and obtaining a loan can be continuous.

Similar to compensation agreements for operators of digital shopping tools, lead generators are paid by participating lenders using a variety of pricing models. Payments can similarly be charged as a fee-per-action, such as for each lead, or each completed application. Lenders sometimes pay for a number of leads, or a number of leads meeting certain criteria. And, similarly, some lead generators send leads to providers who bid the highest for a specific type of lead.⁴

Analysis

The CFPA prohibits covered persons or service providers from engaging in any unfair, deceptive, or abusive act or practice.⁵ An act or practice in connection with the provision of a consumer financial product or service is abusive if it “takes unreasonable advantage” of certain circumstances, including “the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”⁶

Protecting and facilitating people’s ability to effectively compare and choose among options for consumer financial products or services is among the core statutory objectives of the CFPB.⁷

Below, this Circular first addresses how an operator of a digital comparison-shopping tool or a lead generator might leverage consumer reliance to take unreasonable advantage of consumers where the operator or lead generator preferences particular providers or products over others in exchange for financial or other benefits to the operator, as opposed to making presentation or lead distribution decisions using other factors not relating to the operator or lead generator’s relative compensation from different providers. The Circular then provides examples of potentially abusive acts or practices by digital comparison-shopping tool operators.

CFPA Section 1031(d)(2)(C) Elements

Reasonable Reliance by the Consumer on a Covered Person to Act in the Interests of the Consumer

Digital comparison-shopping tool operators and lead generators can qualify as “covered persons” under CFPA section 1031(d)(2)(C). An operator or lead generator is a “covered person” if it offers or provides consumer financial products or services or is an affiliate of a person that offers or provides consumer financial products or services and acts as a service provider by including those products in the tool or providing leads.⁸ Depending on the role that a digital comparison-shopping tool or lead generator plays in a consumer’s shopping experience, it may be extending or brokering the credit products that consumers ultimately receive.⁹ In addition, some digital comparison-shopping tools and lead generators may be providing financial advisory services to consumers as well.¹⁰

Additionally, some operators or lead generators offer their own version of the consumer financial product or service that consumers seek to compare using the digital comparison-shopping tool or for which leads are generated—for example, where an operator of a credit-card digital comparison-shopping tool offers its own card on the tool. Other operators or lead generators offer consumer financial products or services of a different type from what consumers are using a tool to compare or for which leads are generated—for example, an operator of a credit-card digital comparison-shopping tool might use pop-up advertisements to promote credit-counseling or credit-repair services offered by itself or an affiliate.

Reasonable Reliance

Consumers sometimes reasonably rely on digital comparison-shopping tool operators or lead generators to act in their interests. Operators of digital comparison-shopping tools and lead generators can engender reasonable consumer reliance by virtue of playing the role of helping people select providers. They can also engender reasonable consumer reliance by virtue of their explicit and implicit representations and communications.

In particular, reasonable consumer reliance can exist because of a digital comparison-shopping tool’s function in a market, such as when a tool operator assumes the role of acting on behalf of consumers or helping them to select products or services based on the consumer’s interests.¹¹ The nature of people’s interactions with the tool informs an evaluation of the digital comparison-shopping tool’s function in the market. For example, consumers may reasonably rely on a tool that functions by “matching” people with consumer financial products or services, i.e., providing curated recommendations based partly on information provided by the consumer.

In addition, if an operator explicitly or implicitly holds its tool out as presenting information based on the interests of the consumer, it may be reasonable for consumers to rely on the tool to function accordingly. A tool operator sometimes explicitly holds itself out as presenting information based on the interests of the consumer by directly stating so, such as by, for example, claiming its recommendations are objective.

An operator can also implicitly hold itself out as presenting information based on the interests of the consumer even if it does not explicitly claim to make objective recommendations. For example, the operator may emphasize its “expertise” in helping consumers evaluate options; describe its tool as providing “research-based” rankings of options for consumers; state to consumers that it will “help you today” to “achieve your financial goals”; purport to match consumers with the “best” or “right” offers; or claim to “put consumers first” or to provide a “one stop shop” with all the information consumers need to make informed selections among potential providers.

In some contexts, background conditions, such as an association with a trusted institution, could factor into consumers’ reasonable reliance on a digital comparison-shopping tool (e.g., a financial aid and student loan advisory website that is associated with a college or university).¹² Other factors, such as evidence that consumers using the tool tend to not understand that elements of the tool’s rankings or recommendations are influenced by financial considerations, also contribute to establishing the existence of reasonable consumer reliance.

Relatedly, consumer-facing lead generators can engender reasonable consumer reliance within the meaning of CFPA section 1031(d)(2)(C) through their role as intermediating between consumers and lenders and their explicit or implicit communications to consumers. In particular, when lead generators conceal their real role in the market and present themselves as a tool for consumers to connect with trusted lenders or receive the best available terms for a consumer financial product or service, given the consumer’s individual circumstances, a consumer would likely be reasonable in relying on the entity to act in the consumer’s interests.¹³

Interests of the Consumer

Adjusting a digital comparison-shopping tool’s presentation of consumer financial products and services based on fees or other benefits to tool operators will often not be in the interests of the consumer. In many cases where consumers use digital comparison-shopping tools, consumers have an interest in navigating a complex financial market to obtain products that are best for them. Consumer interests are not served when they are steered toward more expensive or less favorable products because those products are offered by the tool operator or its affiliates or because those products generate more revenue for the tool operator.

Similarly, consumer interests are not served when consumers are steered to more expensive or less favorable products by lead generators because one provider is bidding more for the lead than another.¹⁴

Unreasonable Advantage

A digital comparison-shopping tool operator or lead generator can take unreasonable advantage of the reasonable consumer reliance described above when they operate a business model that gives preferential treatment, such as through steering, to particular consumer financial products or services to increase financial or other benefits to the tool operator. For example, the operator may be taking unreasonable advantage of the consumer’s reasonable reliance if the operator is able to generate more interest in its own financial products or services or is able to increase fees charged to third-party providers because the tool functions in a way that engenders the consumer’s reasonable, but misguided, reliance on the tool to present information in a manner consistent with the interests of the consumer. In addition, benefits that accrue to the operator or lead generator include direct financial compensation or indirect or non-financial benefits, such as the ability to gather data that indirectly increases the operator’s or lead generator’s ability to obtain financial or other benefits.¹⁵

Enforcers should closely examine the specific details of bounty or bidding schemes when making a determination of abusive conduct. If a digital comparison-shopping tool operator or lead generator requires providers to bid or set bounties for leads, and that compensation scheme increases overall revenue while impacting placement on a comparison-shopping website or mobile app or impacting who receives leads, that can suggest that the operator or lead generator is violating the prohibition on abusive acts or practices. The reason is commonsensical: if the tool operator or lead generator receives a higher fee from one provider than another and provides preferential treatment as a result, this can suggest that the lead generator or operator is making decisions based on its own benefit and not in consumers’ interests. This concern may be somewhat mitigated when a comparison-shopping tool operator or lead generator receives compensation from providers, but does not consider such compensation in its decisions regarding placement or, similarly, regarding which providers receive a lead.¹⁶

Unreasonable advantage-taking can also occur where the operator benefits by steering consumers toward products or services—including its own or those of its affiliates—that are more costly or otherwise less desirable than what consumers might otherwise prefer.¹⁷ In addition, it can occur where an operator leverages an affiliation or informal connection with a trusted institution, such as a college or university, to increase the operator’s revenue while making recommendations not based on factors likely to be consistent with consumer interests.

Examples of Preferencing or Steering Arrangements

The following is a non-exhaustive list of examples that illustrate arrangements where an operator of a digital comparison-shopping tool or a lead generator steers consumers to certain consumer financial products or services in exchange for financial or other benefits to the operator or lead generator, regardless of the interests of the consumer. These arrangements can be abusive if the operator or lead generator takes unreasonable advantage of the consumer’s reasonable reliance on the operator or lead generator to act in the interests of the consumer.

• A tool operator presents a product (or set of products) that is preferred because of financial considerations in a placement that is more likely to be seen, reflects a preferential ordering, has more dynamic design features, requires fewer clicks to access product information, or otherwise increases the likelihood that a consumer will consider or select the preferred product.¹⁸ This can include self-preferencing where the digital comparison-shopping tool promotes the products or services of the tool operator.
• A tool operator presents certain options as “featured” because they are provided by the operator or a third-party provider that paid for enhanced placement.¹⁹
• A tool operator directs consumers to the products that pay higher fees within a product category—for example, an operator routinely matches consumers with a loan provider because it pays the highest fee per application.
• A tool operator receives different payment based on whether the digital comparison-shopping tool meets a certain threshold volume allocation of leads generated within a set period of time, and uses steering practices to increase the likelihood the operator will satisfy volume allocation requirements. For example, in a 14-day period, a provider pays fees only if at least 1,000 applications are generated, and, on day 13, the operator is more likely to steer consumers to that provider’s products until the allocation is met.
• A tool operator or lead generator uses dynamic bidding or a bounty system to determine which offers are presented to consumers with certain demographic or other characteristics.
• A tool operator expressly or implicitly presents the total set of options featured on the tool as relatively comprehensive or based on criteria such as price, terms, quality of service, or security, when in fact the operator determines which options to include based on financial or other benefits obtained by the operator. For example, a set of lenders jointly establish a comparison-shopping tool that appears to present options based on criteria that further the consumer’s interests but that actually presents only a subset of products that are offered or provided by those lenders. Some sites preference certain products while also including other products, but with design features that ensure that only the preferred products receive preferred placement, regardless of whether that is in the interests of the consumer.
• A tool operator presents a preferred product as a “match” that is not the participating product that is most consistent with the expressed interests of a consumer. A comparison tool can prompt users to input information about their preferences through a survey, filtering options, or interactions with a chatbot. By eliciting input on consumer preferences, the operator creates the impression that results will be presented based on an objective evaluation of those preferences. However, the operator actually presents results based on financial or other benefits to the operator.
• A lead generator guarantees a certain number and quality of leads to multiple participating lenders and divides customers meeting those criteria up without regard to the fact that consumers with similar characteristics are receiving different offers.