On August 10, 2022, the Consumer Financial Protection Bureau (CFPB) issued new interpretive guidance1 clarifying that certain digital marketing providers fall within the CFPB's jurisdiction to prevent unfair, deceptive, or abusive acts or practices (each a UDAAP), including discrimination against protected classes. The new guidance signals that the CFPB may soon ramp up its enforcement of "digital redlining," a phrase used to describe technology-based discrimination, to reach beyond financial services companies to discipline the digital marketing providers that work with them.
The New Guidance
Under the Consumer Financial Protection Act of 2010 (CFPA), the CFPB has the authority to take action to prevent any "covered person"2 (typically a financial services company) or "service provider" from engaging in UDAAPs in connection with the offering or sale of a consumer financial product or service,3 which, according to the CFPB, includes discrimination against members of traditionally protected classes (e.g., racial or religious minorities, persons with disabilities, etc.).4
A "service provider" is any person that provides a material service to a covered person in connection with the offering or sale of a consumer financial product or service. But the definition of the term "service provider" contains an exception for an entity that is "solely" involved in offering or providing "time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media."5
The CFPB's new guidance clarifies that the "time and space" exception does not exempt from the CFPA digital marketing providers that are actively involved in targeting ads, even if the providers "commingle the service of targeting and delivering advertisements with the activities of traditional media sources in providing airtime or physical space."6
Whether a given digital marketing provider will fall within the "time and space" exception depends on whether the digital marketing provider is solely engaged in passively offering ad space (e.g., a single website that offers ad space to a covered person where the ad can be seen by any visitor to the website)7 or whether the digital marketing provider is "materially involved in the development of content strategy by identifying or selecting prospective customers and/or selecting or placing content to affect consumer engagement."8
If a digital marketing provider plays a "role in determining which specific consumers see digital advertisements, such as by determining or suggesting to the covered person which users are the most appropriate audience for the covered person's advertisements," they are playing the role of a service provider.9 This includes digital marketing providers that "target and deliver advertisements to users with certain characteristics, even if those characteristics are specified by the covered person,"10 as well as digital marketing providers that target and deliver advertisements to particular users that a covered person already identified by name if the digital marketer "targets and delivers the advertisements to those users at specific times to increase or maximize engagement."11 In his remarks to an association of state attorneys general, Director Chopra elaborated on the CFPB's interpretation, asserting that "[s]ocial 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."12
Forms of Discriminatory Digital Advertising
The CFPB has not yet brought a public enforcement action alleging that any company has engaged in digital redlining,13 but the recent Department of Justice action against Meta Platforms, Inc.14 (formerly known as Facebook, Inc.) identifies three primary forms of discrimination in the digital marketing context, which may be suggestive of what the CFPB would deem unlawful:
- Protected Trait-Based Targeting: Targeting advertisements to an audience that excludes persons with protected characteristics, such as race, color, religion, sex, or national origin or close proxies for protected characteristics.15
- Delivery Determinations Based on Protected Traits: Deciding where, when, and to whom an advertisement will be shown based on protected characteristics or close proxies for protected characteristics.16 In this model, even if a company requests that its advertisements be shown to a broad and diverse audience, the digital marketing provider may show the advertisements to a subset of that audience based in part on protected characteristics or close proxies for protected characteristics.17
- "Lookalike" Targeting: Targeting advertisements to persons who "look like" a "source audience" (e.g., existing customers) based, at least in part, on protected characteristics or close proxies for protected characteristics.18
Of course, this should not be considered an exhaustive list of ways that digital marketing can be discriminatory.
The Bigger Picture
Over the last year, the CFPB has been vocal about its concerns with digital redlining,19 including the use of ostensibly neutral algorithms that target advertisements to certain consumers and by so doing, exclude others, including members of protected classes. The new guidance builds20 on the CFPB's March 2022 announcement21 that it considers discrimination to be an "unfair" practice. The CFPB is also signaling that it will consider, in partnership with state attorneys general, pursuing UDAAP and discrimination claims against digital marketing providers that work with financial services companies.22
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Financial institutions or digital marketing providers with questions about the new guidance can reach out to any of the authors or their usual Arnold & Porter contact.
Footnotes
1. CFPB, Limited Applicability of Consumer Financial Protection Act's "Time or Space" Exception with Respect to Digital Marketing Providers (Aug. 10, 2022) (CFPB Guidance).
2. A "covered person" is "any person that engages in offering or providing a consumer financial product or service" and "any affiliate" of such a person if the "affiliate acts as a service provider" to the person. 12 U.S.C. § 5481(6).
3. See 12 U.S.C. § 5531.
4. CFPB Targets Unfair Discrimination in Consumer Finance (Mar. 16, 2022); see also CFPB UDAAP Exam Manual (updated Apr. 11, 2022).
5. "(26) Service provider.
(A) In general. The term "service provider" means any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service, including a person that—
(i) participates in designing, operating, or maintaining the consumer financial product or service; or
(ii) processes transactions relating to the consumer financial product or service (other than unknowingly or incidentally transmitting or processing financial data in a manner that such data is undifferentiated from other types of data of the same form as the person transmits or processes).
(B) Exceptions. The term "service provider" does not include a person solely by virtue of such person offering or providing to a covered person—
(i) a support service of a type provided to businesses generally or a similar ministerial service; or
(ii) time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.
(C) Rule of construction. A person that is a service provider shall be deemed to be a covered person to the extent that such person engages in the offering or provision of its own consumer financial product or service."
12 U.S.C. § 5481(26).
6. CFPB Guidance at 2.
7. CFPB Guidance at 9.
8. CFPB Guidance at 9.
9. CFPB Guidance at 11-12.
10. CFPB Guidance at 10 (emphasis added).
11. CFPB Guidance at 11.
13. But see CFPB, DOJ Order Trident Mortgage Company to Pay More Than $22 Million for Deliberate Discrimination Against Minority Families (July 27, 2022) (mentioning "digital redlining" in the announcement of the enforcement action but not in the actual complaint); see also Complaint, CFPB and DOJ v. Trident Mortgage Company, 2:22-cv-02936 (E.D. Pa. July 27, 2022).
14. Complaint, U.S. v. Meta Platforms, Inc., 1.22-cv-05187 (S.D.N.Y. June 21, 2022) (Meta Complaint); see also Charge of Discrimination, H.U.D. v. Facebook, Inc., FHEO No. 01-18-0323-8 (Mar. 28, 2019); First Amended Complaint, National Fair Housing Alliance v. Facebook, Inc., 18-civ-2689-JGK (June 25, 2018).
15. Meta Complaint ¶¶ 2, 49-50, 54.
16. Meta Complaint ¶¶ 2, 74-75, 77.
17. Meta Complaint ¶¶ 85-87, 89-90, 97.
18. Meta Complaint ¶¶ 2, 62, 64, 66.
19. See Director Chopra's Prepared Remarks at the 2022 National Association of Attorneys General Presidential Summit (Aug. 10, 2022) ("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. . . . We are bringing onboard technologists and other professionals to help us assess abuse and misuse of data, digital redlining, and more."); Remarks of Deputy Director Zixta Martinez at Consumer Advisory Board Meeting (Nov. 3, 2021) ("While we all know technology can create innovative products that benefit consumers, we also know the dangers technology can foster, like black box algorithms perpetuating digital redlining and discrimination in mortgage underwriting."); Remarks of Director Rohit Chopra at a Joint DOJ, CFPB, and OCC Press Conference on the Trustmark National Bank Enforcement Action (Oct. 22, 2021) ("Trustmark's conduct was egregious, but at the CFPB, we will also be closely watching for digital redlining, disguised through so-called neutral algorithms, that may reinforce the biases that have long existed. . . . Given what we have seen in other contexts, the speed with which banks and lenders are turning lending and advertising decisions over to algorithms is concerning. . . . We should never assume that algorithms will be free from bias.").
20. The new guidance makes a point to note that "[a]s the CFPB has explained, discrimination may constitute an unfair act or practice that violates the CFPA's UDAAP prohibition." CFPB Guidance at 4, n.10.
21. CFPB Targets Unfair Discrimination in Consumer Finance (Mar. 16, 2022); see also CFPB UDAAP Exam Manual (updated Apr. 11, 2022). For additional analysis of the updates to the CFPB's UDAAP exam manual, see Arnold & Porter, Advisory, CFPB Updates UDAAP Exam Manual to Target Discrimination (Mar. 28, 2022).
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