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CFPB Warns Digital Marketing Providers They Are Potential Targets Of Actions Against “Digital Redlining” – Financial Services


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

* * * * *

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.

12. SeeDirector Chopra’s Prepared Remarks at the
2022 National Association of Attorneys General Presidential
Summit
(Aug. 10, 2022)
.

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).

22. See Director Chopra’s Prepared Remarks at the
2022 National Association of Attorneys General Presidential
Summit
(Aug. 10, 2022)
.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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