The Consumer Financial Protection Bureau said that digital marketing firms that use algorithms or other analytics to target specific customers with ads or content can be held liable for abuses under federal law.
The CFPB on Wednesday issued an interpretive rule and CFPB Director Rohit Chopra gave a speech to the National Association of Attorneys General in which he urged state officials to lead the charge to police unlawful conduct by Big Tech firms.
Digital marketers can no longer claim an exemption from the Consumer Financial Protection Act, and are liable under the interpretive rule for “unfair, deceptive or abusive acts or practices,” known as UDAAP violations, Chopra said.
Digital marketers often are involved in the development of content strategy when they identify or select prospective customers and do not merely provide ad time and space that in the past would have qualified for an exception to the law, Chopra said.
“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,” Chopra said at the attorneys general summit in Des Moine, Iowa. “While they may be providing space for ads, these firms are commingling many other features that go well beyond the exemption.”
Claims for misconduct by digital marketers that act as service providers can be pursued by state attorneys general for consumer protection violations, he added.
The interpretive rule is just the latest in a string of changes to hold nonbank financial and technology firms accountable by bringing them under the CFPB’s authority.
Chopra, a former member of the Federal Trade Commission in the Trump administration, has been laying the groundwork to rein in Big Tech companies with expanded oversight — and potentially public rebuke — on how they collect and sell consumer data.
Unlike placing ads on websites and hoping a consumer sees them, digital marketing platforms identify and analyze consumers’ personal data and often get paid for converting interactions with users into revenue for the financial firm, the CFPB said. As a result, the services and tools provided by digital marketing firms are considered “material” because the data, algorithms and platforms allow for increased consumer engagement and “ad interactions,” the bureau said.
“Depending on how these practices are designed and implemented, behavioral marketing and advertising could subject firms to legal liability,” the bureau said in a press release. He reiterated that the CFPA allows states to prosecute service providers for a range of misconduct.
Reining in Big Tech firms is one area where Democrats and Republicans can find some common ground.
Chopra said that “Congress has also long understood that service provider liability is critical to ensure a sound oversight regime for banks and other financial firms.”
“For most of the public, they increasingly understand that this is not passive, traditional advertising,” Chopra said. “It is an amalgam of an ad, a private investigator, and a digital door-to-door sales force. 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.”
Chopra devoted an entire section of his speech to Ben Carson, the former head of Housing and Urban Development under the Trump administration, who sued Facebook, now known as Meta Platforms Inc., in 2019 for discrimination.
Carson claimed that the social media platform targeted ads that discriminated on the basis of race in violation of the Fair Housing Act. Carson’s lawsuit alleged that Facebook allows advertisers to show ads only to men or women, to not show ads to disabled people, and to exclude entire geographic regions or zip codes.
“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,” Chopra said.
Carson’s complaint also described how Facebook’s tools were designed to maximize consumer engagement, Chopra said, with ads that included a so-called ‘Lookalike Audience’ feature that uses behavioral data to create a composite consumer most likely to engage with the ad.
“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,” Chopra told the audience of attorneys general. “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.”
Chopra said the interpretive rule is one of several actions the CFPB is taking to prepare for the future of consumer finance as technology firms expand their reach.
In October, Chopra ordered Amazon, Apple, Alphabet’s Google, Meta, PayPal and Square to turn over reams of information about their payments products and practices.
“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,” Chopra said.