Bulletin 2022-05: Unfair and Deceptive Acts or Practices That Impede Consumer Reviews, 17143-17145 [2022-06446]
Download as PDF
17143
Rules and Regulations
Federal Register
Vol. 87, No. 59
Monday, March 28, 2022
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Chapter X
Bulletin 2022–05: Unfair and Deceptive
Acts or Practices That Impede
Consumer Reviews
Bureau of Consumer Financial
Protection.
ACTION: Compliance bulletin.
AGENCY:
Reviews of products and
services help to promote fair,
transparent, and competitive markets.
When firms frustrate the ability of
consumers to post honest reviews of
products and services that they use,
they may be engaged in conduct
prohibited by the Consumer Financial
Protection Act (CFPA). The Consumer
Financial Protection Bureau (Bureau) is
issuing this bulletin to remind regulated
entities of the CFPA’s requirements and
explain how the Bureau intends to
exercise its enforcement and
supervisory authorities on this issue.
DATES: This bulletin is applicable as of
March 28, 2022.
FOR FURTHER INFORMATION CONTACT:
Christopher Shelton, Senior Counsel,
Legal Division, at 202–435–7700. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
jspears on DSK121TN23PROD with RULES1
I. Background
A. Role of Consumer Reviews
Numerous studies and surveys have
confirmed the importance of online
reviews across the economy. For
example, one prominent study
estimated that a one-star rating increase
on Yelp.com translated to an increase of
5 to 9 percent in revenues for a
restaurant.1 Another study found that a
one-point boost in a hotel’s online
1 Michael Luca, Reviews, Reputation, and
Revenue: The Case of Yelp.com, Harv. Bus. Sch.
Working Paper No. 12–016, 14 (2016).
VerDate Sep<11>2014
15:58 Mar 25, 2022
Jkt 256001
ratings on travel sites is tied to an 11
percent jump in room rates, on average.2
To date, academic research has not
focused specifically on markets for
consumer financial products and
services. But online reviews are also
commonplace in many of those markets,
and the Bureau expects them to play an
increasing role in helping consumers
choose between financial providers.
This can create an incentive for
dishonest market participants to attempt
to manipulate the review process, rather
than compete based on the value of their
services, which can frustrate a
competitive marketplace.
The Bureau notes that consumer
reviews can be important to two groups
of consumers: The consumers who read
and rely upon reviews, as well as the
consumers who take the time to express
their viewpoints by writing them in the
first place. Of course, these groups can
be overlapping. Firms that interfere with
consumer reviews can harm both of
these groups.
B. Public Policy Regarding Consumer
Reviews
Congress unanimously enacted the
Consumer Review Fairness Act in 2016,
in response to abuses by companies that
restricted consumer reviews.3 As the
legislative history of the statute
explains, the ‘‘wide availability’’ of
consumer reviews ‘‘has caused
consumers to rely on them more heavily
as credible indicators of product or
service quality. In turn, businesses have
sought to avoid negative reviews . . .
through provisions of form contracts
with consumers restricting such
reviews. These provisions typically
impose monetary or other penalties for
publishing negative comments regarding
the provider’s services or products.’’ 4
The legislative history explains that
these ‘‘gag clauses or non-disparagement
clauses’’ are harmful to consumers.5
As discussed below, the Consumer
Review Fairness Act protects ‘‘covered
communications.’’ A covered
communication is defined as ‘‘a written,
oral, or pictorial review, performance
assessment of, or other similar analysis
of, including by electronic means, the
2 Chris Anderson, The Impact of Social Media on
Lodging Performance, 12(15) Cornell Hospitality
Report 6, 11 (2012).
3 Public Law 114–258, 130 Stat. 1355 (2016)
(codified at 15 U.S.C. 45b).
4 H.R. Rep. No. 114–731, at 5 (2016).
5 Id.
PO 00000
Frm 00001
Fmt 4700
Sfmt 4700
goods, services, or conduct of a person
by an individual who is party to a form
contract with respect to which such
person is also a party.’’ 6 For simplicity,
this bulletin will refer to ‘‘covered
communications’’ as consumer reviews.
Relatedly, a ‘‘form contract’’ is
defined as a contract with standardized
terms that is: ‘‘used by a person in the
course of selling or leasing the person’s
goods or services;’’ and ‘‘imposed on an
individual without a meaningful
opportunity for such individual to
negotiate the standardized terms.’’ 7
The Consumer Review Fairness Act
provides, with limited exceptions, that
‘‘a provision of a form contract is void
from the inception of such contract’’ if
the provision:
A. Prohibits or restricts the ability of an
individual who is a party to the form contract
to engage in a covered communication;
B. imposes a penalty or fee against an
individual who is a party to the form contract
for engaging in a covered communication; or
C. transfers or requires an individual who
is a party to the form contract to transfer to
any person any intellectual property rights in
review or feedback content, with the
exception of a non-exclusive license to use
the content, that the individual may have in
any otherwise lawful covered
communication about such person or the
goods or services provided by such person.8
For simplicity, this bulletin will refer
to these various types of provisions as
restrictions on consumer reviews.
II. Violations of the Consumer
Financial Protection Act (CFPA)
Sections 1031 and 1036 of the CFPA
prohibit a covered person or service
provider from engaging in an ‘‘unfair,
deceptive, or abusive act or practice’’
that is ‘‘in connection with any
transaction with a consumer for a
consumer financial product or service,
or the offering of a consumer financial
product or service.’’ 9 There are a
6 15 U.S.C. 45b(a)(2). The statute clarifies that the
term ‘‘pictorial’’ includes pictures, photographs,
video, illustrations, and symbols. 15 U.S.C.
45b(a)(4).
7 15 U.S.C. 45b(a)(3)(A). However, the term ‘‘form
contract’’ does not include an employer-employee
or independent contractor contract. 15 U.S.C.
45b(a)(3)(B).
8 15 U.S.C. 45b(b)(1) (emphasis added). There are
additional rules of construction, 15 U.S.C. 45b(b)(2),
and exceptions, 15 U.S.C. 45b(b)(3).
9 12 U.S.C. 5531, 5536. For definitions of
‘‘covered person,’’ ‘‘service provider,’’ and
‘‘consumer financial product or service,’’ see
section 1002 of the CFPA, 12 U.S.C. 5481, and the
associated regulation, 12 CFR part 1001.
E:\FR\FM\28MRR1.SGM
28MRR1
17144
Federal Register / Vol. 87, No. 59 / Monday, March 28, 2022 / Rules and Regulations
number of ways that covered persons or
service providers could violate this
prohibition by interfering with
consumer reviews.
jspears on DSK121TN23PROD with RULES1
A. Deceiving Consumers Who Wish To
Leave Consumer Reviews, Using
Purported Contractual Restrictions That
Are Unenforceable
‘‘An act or practice is deceptive if: (1)
There is a representation, omission, or
practice that (2) is likely to mislead
consumers acting reasonably under the
circumstances, and (3) the
representation, omission, or practice is
material.’’ 10
It is well-established that material
misrepresentations to consumers that
are unsupported under applicable law
can be deceptive.11 In particular,
including an unenforceable material
term in a consumer contract is
deceptive, because it misleads
consumers into believing the contract
term is enforceable. The Bureau’s
examiners have repeatedly cited such
unenforceable contract provisions in
their supervisory work.12 Moreover,
disclaimers in a contract such as
‘‘subject to applicable law’’ do not cure
the misrepresentation caused by the
inclusion of an unenforceable contract
term. Additionally, subsequent
disclaimers cannot cure a
misrepresentation.13
Consistent with these principles, it
would generally be deceptive to include
a restriction on consumer reviews in a
form contract, given that the restriction
would be void under the Consumer
Review Fairness Act. Consumers can be
expected to read the language to mean
what it says: That they are restricted in
their ability to provide consumer
reviews. But that is not the case, since
the provision is void under applicable
law. And the option to post candid
reviews about products or services
would be material to the many
American consumers who do so.
Moreover, the Bureau believes that
enforcing the deception prohibition is
particularly important in this context,
10 CFPB v. Gordon, 819 F.3d 1179, 1192 (9th Cir.
2016) (internal quotation marks and punctuation
omitted).
11 See, e.g., FTC v. World Media Brokers, 415 F.3d
758, 763 (7th Cir. 2005).
12 See, e.g., Supervisory Highlights: Summer
2017, 82 FR 48703, 48708 (Oct. 19, 2017) (deceptive
waivers of borrowers’ rights in loss mitigation
agreements that were unenforceable under 12 CFR
part 1026 (Regulation Z), implementing the Truth
in Lending Act); Supervisory Highlights, Issue 24,
Summer 2021, 86 FR 36108, 36117 (July 8, 2021)
(deceptive waivers of rights in security deed riders
that were unenforceable under 12 CFR part 1024
(Regulation X), implementing the Real Estate
Settlement Procedures Act).
13 See, e.g., FTC v. IAB Marketing Assoc., LP, 746
F.3d 1228, 1233 (11th Cir. 2014).
VerDate Sep<11>2014
15:58 Mar 25, 2022
Jkt 256001
given that consumer reviews are a
significant driver of competition in the
modern economy.
In addition, if a covered person or
service provider attempts to pressure a
consumer to remove an already posted
negative review, by invoking a
restriction on consumer reviews that is
void under the Consumer Review
Fairness Act, that would also generally
be a deceptive act or practice. Note that
this would be an additional deceptive
act or practice, not a precondition for
establishing the kind of deceptive act or
practice already described. Damage can
be done by chilling consumers’ reviews
even if, unknown to the consumer, the
covered person or service provider does
not later follow up by invoking the
contract provision against consumers
who post negative reviews. Accordingly,
in other contexts, Bureau examiners
have found unenforceable contract
provisions to be deceptive regardless of
whether the provision is ultimately
enforced.14 But if a covered person or
service provider does invoke the void
contract provision against the consumer
(for example, by claiming that the
consumer is contractually required to
remove a negative review, or that the
consumer is contractually required to
stop posting such reviews, or assessing
a penalty or fee if the consumer does not
remove a negative review), that can be
expected to further deepen the
materially misleading impression that
the affected consumers would have. It
would be natural for consumers to
believe that they need to remove
existing negative reviews, stop posting
such reviews, or pay the purported
penalty or fee, which is not the case.
B. Unfairly Depriving Consumers of
Information Using Restrictions on
Consumer Reviews
In addition to deceiving consumers
who wish to leave reviews, purported
contractual restrictions on consumer
reviews can unfairly harm the many
other consumers who rely upon reviews
when deciding what products and
services to purchase.
Under section 1031(c) of the CFPA, an
act or practice is unfair if: (A) It causes
or is likely to cause substantial injury to
consumers which is not reasonably
avoidable by consumers; and (B) such
substantial injury is not outweighed by
countervailing benefits to consumers or
to competition.15
In applying the CFPA’s unfairness
prohibition, the Bureau finds persuasive
the reasoning of the Federal Trade
Commission (FTC) in FTC v. Roca Labs,
14 See
15 12
PO 00000
matters cited in note 12.
U.S.C. 5531(c).
Frm 00002
Fmt 4700
Sfmt 4700
Inc.16 Roca Labs was an enforcement
action that predated the Consumer
Review Fairness Act, but it was cited in
the that statute’s legislative history.17 In
Roca Labs, the FTC alleged that the
Defendants’ use of ‘‘contractual
provisions that prohibit purchasers from
speaking or publishing truthful or
nondefamatory negative comments or
reviews about the Defendants, their
products, or their employees’’ was
unfair under the Federal Trade
Commission Act.18 The defendants’
conduct ‘‘caused or are likely to cause
purchasers to refrain from commenting
negatively about the Defendants or their
products. By depriving prospective
purchasers of this truthful, negative
information, Defendants’ practices have
resulted or are likely to result in
consumers buying Roca Labs products
they would not otherwise have
bought.’’ 19 This substantial injury was
not reasonably avoidable by consumers
or outweighed by countervailing
benefits to consumers or to
competition.20 The Bureau intends to
apply similar unfairness principles if it
encounters a covered person or service
provider, acting within the scope of the
CFPA, who uses contractual restrictions
to restrict consumer reviews.
C. Deceiving Consumers Who Read
Consumer Reviews About the Nature of
Those Reviews
Whether or not there are any
contractual restrictions on consumer
reviews, covered persons or service
providers can engage in a deceptive act
or practice by manipulating consumers’
comprehension of the set of reviews that
are available. Two recent FTC matters
illustrate this concern.
First, in the Sunday Riley matter, the
FTC alleged that a company instructed
its employees to leave reviews of its
products on a third-party website, and
also to ‘‘dislike’’ negative reviews left by
real customers.21 The FTC found that
this was deceptive. By engaging in this
conduct, the company had
‘‘represented, directly or indirectly,
expressly or by implication, that certain
reviews . . . reflected the experiences
16 Complaint, FTC v. Roca Labs, Inc., No. 8:15–
cv–02231 (M.D. Fla. filed Sept. 24, 2015), https://
www.ftc.gov/system/files/documents/cases/
150928rocalabscmpt.pdf.
17 H.R. Rep. No. 114–731, at 5 (2016) (citing id.).
18 Complaint at 27, FTC v. Roca Labs, Inc., No.
8:15–cv–02231.
19 Id. at 22.
20 Id. at 27.
21 Complaint, In the Matter of Sunday Riley
Modern Skincare, LLC, File No. 192–3008 (F.T.C.
Nov. 6, 2020), https://www.ftc.gov/system/files/
documents/cases/192_3008_c4729_sunday_riley_
complaint.pdf.
E:\FR\FM\28MRR1.SGM
28MRR1
Federal Register / Vol. 87, No. 59 / Monday, March 28, 2022 / Rules and Regulations
or opinions of users of the products.’’ 22
But the company ‘‘failed to disclose that
the online consumer reviews were
written by’’ the company’s employees,
which ‘‘would be material to consumers
. . . in connection with a purchase or
use decision.’’ 23 And, although in
Sunday Riley the posters were the
company’s own employees, the Bureau
notes that another way that companies
can deceive consumers is by paying
non-employees to post reviews that are
materially misleading.
Second, in the Fashion Nova matter,
a company that sold products through a
website allegedly had ‘‘four- and fivestar reviews automatically post to the
website, but did not approve or publish
hundreds of thousands lower-starred,
more negative reviews.’’ 24 The FTC
found that this was a deceptive act or
practice, misleading consumers who
read the website into believing that the
posted ratings accurately reflected the
consumer reviews submitted.25
Of course, there are also numerous
other ways that firms could improperly
manipulate consumer reviews. The
Bureau intends to carefully scrutinize
whether covered persons or service
providers are skewing consumers’
understanding of consumer reviews in a
manner that is deceptive (or unfair or
abusive).
III. Conclusion
In summary, covered persons and
service providers are liable under the
CFPA if they deceive consumers using
restrictions on consumer reviews that
are unenforceable under the Consumer
Review Fairness Act, if they unfairly
deprive consumers of information by
using such restrictions, or if they
deceive consumers who read reviews
about the nature of those reviews. If the
Bureau identifies a violation of the
CFPA, it intends to use its authorities to
hold the violators accountable.
jspears on DSK121TN23PROD with RULES1
IV. Regulatory Matters
This is a general statement of policy
under the Administrative Procedure Act
(APA). It provides background
information about applicable law and
articulates considerations relevant to the
Bureau’s exercise of its authorities. It
does not confer any rights of any kind.
As a general statement of policy, it is
exempt from the APA’s notice-andcomment rulemaking requirements.26
22 Id.
at 4.
23 Id.
24 Complaint at 2, In the Matter of Fashion Nova,
LLC, File No. 192–3138 (F.T.C. Jan. 25, 2022),
https://www.ftc.gov/system/files/documents/cases/
192_3138_fashion_nova_complaint.pdf.
25 Id.
26 5 U.S.C. 553(b).
VerDate Sep<11>2014
15:58 Mar 25, 2022
Jkt 256001
Because no notice of proposed
rulemaking is required, the Regulatory
Flexibility Act does not require an
initial or final regulatory flexibility
analysis.27 It also does not impose any
new or revise any existing
recordkeeping, reporting, or disclosure
requirements on covered entities or
members of the public that would be
collections of information requiring
approval by the Office of Management
and Budget under the Paperwork
Reduction Act of 1995.28
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2022–06446 Filed 3–25–22; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 21
[Docket No. FAA–2020–1092]
Airworthiness Criteria: Special Class
Airworthiness Criteria for the
Airobotics Inc. OPTIMUS 1–EX
Unmanned Aircraft
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Issuance of final airworthiness
criteria.
AGENCY:
The FAA announces the
special class airworthiness criteria for
the Airobotics Inc. Model OPTIMUS
1–EX unmanned aircraft (UA). This
document sets forth the airworthiness
criteria the FAA finds to be appropriate
and applicable for the UA design.
DATES: These airworthiness criteria are
effective April 27, 2022.
FOR FURTHER INFORMATION CONTACT:
Christopher J. Richards, Emerging
Aircraft Strategic Policy Section, AIR–
618, Strategic Policy Management
Branch, Policy and Innovation Division,
Aircraft Certification Service, Federal
Aviation Administration, 6020 28th
Avenue South, Room 103, Minneapolis,
MN 55450, telephone (612) 253–4559.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
Airobotics Inc. (Airobotics) applied to
the FAA on September 25, 2019, for a
special class type certificate under title
14, Code of Federal Regulations (14
CFR), § 21.17(b) for the Model
27 5
U.S.C. 603(a), 604(a).
U.S.C. 3501–3521.
28 44
PO 00000
Frm 00003
Fmt 4700
Sfmt 4700
17145
OPTIMUS 1–EX unmanned aircraft
system (UAS).
The Model OPTIMUS 1–EX consists
of a rotorcraft UA and its associated
elements (AE) including communication
links and components that control the
UA. The Model OPTIMUS 1–EX UA has
a maximum gross takeoff weight of 23
pounds. It is approximately 70 inches in
width, 70 inches in length, and 13
inches in height. The Model OPTIMUS
1–EX UA uses battery-powered electric
motors for vertical takeoff, landing, and
forward flight. The UAS operations
would rely on high levels of automation
and may include multiple UA operated
by a single pilot, up to a ratio of 20 UA
to 1 pilot. Airobotics anticipates
operators will use the Model OPTIMUS
1–EX for surveying, mapping,
inspection of critical infrastructure, and
patrolling. The proposed concept of
operations (CONOPS) for the Model
OPTIMUS 1–EX identifies a maximum
operating altitude of 400 feet above
ground level (AGL), a maximum cruise
speed of 27 knots, operations beyond
the visual line of sight (BVLOS) of the
pilot, and operations over human
beings. Airobotics has not requested
type certification for flight into known
icing for the Model OPTIMUS 1–EX.
The FAA issued a notice of proposed
airworthiness criteria for the Airobotics
Model OPTIMUS 1–EX UAS, which
published in the Federal Register on
November 20, 2020 (85 FR 74280).
Summary of Changes From the
Proposed Airworthiness Criteria
Based on the comments received,
these final airworthiness criteria reflect
the following changes, as explained in
more detail under Discussion of
Comments: A new section containing
definitions; revisions to the CONOPS
requirement; changing the term ‘‘critical
part’’ to ‘‘flight essential part’’ in
D&R.135; changing the basis of the
durability and reliability testing from
population density to limitations
prescribed for the operating
environment identified in the
applicant’s CONOPS per D&R.001; and,
for the demonstration of certain
required capabilities and functions as
required by D&R.310.
Additionally, the FAA re-evaluated its
approach to type certification of lowrisk UA using durability and reliability
testing. Safe UAS operations depend
and rely on both the UA and the AE. As
explained in FAA Memorandum
AIR600–21–AIR–600–PM01, dated July
13, 2021, the FAA has revised the
airworthiness criteria to define a
boundary between the UA type
certification and subsequent operational
evaluations and approval processes for
E:\FR\FM\28MRR1.SGM
28MRR1
Agencies
[Federal Register Volume 87, Number 59 (Monday, March 28, 2022)]
[Rules and Regulations]
[Pages 17143-17145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06446]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 87, No. 59 / Monday, March 28, 2022 / Rules
and Regulations
[[Page 17143]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Chapter X
Bulletin 2022-05: Unfair and Deceptive Acts or Practices That
Impede Consumer Reviews
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Compliance bulletin.
-----------------------------------------------------------------------
SUMMARY: Reviews of products and services help to promote fair,
transparent, and competitive markets. When firms frustrate the ability
of consumers to post honest reviews of products and services that they
use, they may be engaged in conduct prohibited by the Consumer
Financial Protection Act (CFPA). The Consumer Financial Protection
Bureau (Bureau) is issuing this bulletin to remind regulated entities
of the CFPA's requirements and explain how the Bureau intends to
exercise its enforcement and supervisory authorities on this issue.
DATES: This bulletin is applicable as of March 28, 2022.
FOR FURTHER INFORMATION CONTACT: Christopher Shelton, Senior Counsel,
Legal Division, at 202-435-7700. If you require this document in an
alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
A. Role of Consumer Reviews
Numerous studies and surveys have confirmed the importance of
online reviews across the economy. For example, one prominent study
estimated that a one-star rating increase on Yelp.com translated to an
increase of 5 to 9 percent in revenues for a restaurant.\1\ Another
study found that a one-point boost in a hotel's online ratings on
travel sites is tied to an 11 percent jump in room rates, on
average.\2\ To date, academic research has not focused specifically on
markets for consumer financial products and services. But online
reviews are also commonplace in many of those markets, and the Bureau
expects them to play an increasing role in helping consumers choose
between financial providers. This can create an incentive for dishonest
market participants to attempt to manipulate the review process, rather
than compete based on the value of their services, which can frustrate
a competitive marketplace.
---------------------------------------------------------------------------
\1\ Michael Luca, Reviews, Reputation, and Revenue: The Case of
Yelp.com, Harv. Bus. Sch. Working Paper No. 12-016, 14 (2016).
\2\ Chris Anderson, The Impact of Social Media on Lodging
Performance, 12(15) Cornell Hospitality Report 6, 11 (2012).
---------------------------------------------------------------------------
The Bureau notes that consumer reviews can be important to two
groups of consumers: The consumers who read and rely upon reviews, as
well as the consumers who take the time to express their viewpoints by
writing them in the first place. Of course, these groups can be
overlapping. Firms that interfere with consumer reviews can harm both
of these groups.
B. Public Policy Regarding Consumer Reviews
Congress unanimously enacted the Consumer Review Fairness Act in
2016, in response to abuses by companies that restricted consumer
reviews.\3\ As the legislative history of the statute explains, the
``wide availability'' of consumer reviews ``has caused consumers to
rely on them more heavily as credible indicators of product or service
quality. In turn, businesses have sought to avoid negative reviews . .
. through provisions of form contracts with consumers restricting such
reviews. These provisions typically impose monetary or other penalties
for publishing negative comments regarding the provider's services or
products.'' \4\ The legislative history explains that these ``gag
clauses or non-disparagement clauses'' are harmful to consumers.\5\
---------------------------------------------------------------------------
\3\ Public Law 114-258, 130 Stat. 1355 (2016) (codified at 15
U.S.C. 45b).
\4\ H.R. Rep. No. 114-731, at 5 (2016).
\5\ Id.
---------------------------------------------------------------------------
As discussed below, the Consumer Review Fairness Act protects
``covered communications.'' A covered communication is defined as ``a
written, oral, or pictorial review, performance assessment of, or other
similar analysis of, including by electronic means, the goods,
services, or conduct of a person by an individual who is party to a
form contract with respect to which such person is also a party.'' \6\
For simplicity, this bulletin will refer to ``covered communications''
as consumer reviews.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 45b(a)(2). The statute clarifies that the term
``pictorial'' includes pictures, photographs, video, illustrations,
and symbols. 15 U.S.C. 45b(a)(4).
---------------------------------------------------------------------------
Relatedly, a ``form contract'' is defined as a contract with
standardized terms that is: ``used by a person in the course of selling
or leasing the person's goods or services;'' and ``imposed on an
individual without a meaningful opportunity for such individual to
negotiate the standardized terms.'' \7\
---------------------------------------------------------------------------
\7\ 15 U.S.C. 45b(a)(3)(A). However, the term ``form contract''
does not include an employer-employee or independent contractor
contract. 15 U.S.C. 45b(a)(3)(B).
---------------------------------------------------------------------------
The Consumer Review Fairness Act provides, with limited exceptions,
that ``a provision of a form contract is void from the inception of
such contract'' if the provision:
A. Prohibits or restricts the ability of an individual who is a
party to the form contract to engage in a covered communication;
B. imposes a penalty or fee against an individual who is a party
to the form contract for engaging in a covered communication; or
C. transfers or requires an individual who is a party to the
form contract to transfer to any person any intellectual property
rights in review or feedback content, with the exception of a non-
exclusive license to use the content, that the individual may have
in any otherwise lawful covered communication about such person or
the goods or services provided by such person.\8\
---------------------------------------------------------------------------
\8\ 15 U.S.C. 45b(b)(1) (emphasis added). There are additional
rules of construction, 15 U.S.C. 45b(b)(2), and exceptions, 15
U.S.C. 45b(b)(3).
For simplicity, this bulletin will refer to these various types of
provisions as restrictions on consumer reviews.
II. Violations of the Consumer Financial Protection Act (CFPA)
Sections 1031 and 1036 of the CFPA prohibit a covered person or
service provider from engaging in an ``unfair, deceptive, or abusive
act or practice'' that is ``in connection with any transaction with a
consumer for a consumer financial product or service, or the offering
of a consumer financial product or service.'' \9\ There are a
[[Page 17144]]
number of ways that covered persons or service providers could violate
this prohibition by interfering with consumer reviews.
---------------------------------------------------------------------------
\9\ 12 U.S.C. 5531, 5536. For definitions of ``covered person,''
``service provider,'' and ``consumer financial product or service,''
see section 1002 of the CFPA, 12 U.S.C. 5481, and the associated
regulation, 12 CFR part 1001.
---------------------------------------------------------------------------
A. Deceiving Consumers Who Wish To Leave Consumer Reviews, Using
Purported Contractual Restrictions That Are Unenforceable
``An act or practice is deceptive if: (1) There is a
representation, omission, or practice that (2) is likely to mislead
consumers acting reasonably under the circumstances, and (3) the
representation, omission, or practice is material.'' \10\
---------------------------------------------------------------------------
\10\ CFPB v. Gordon, 819 F.3d 1179, 1192 (9th Cir. 2016)
(internal quotation marks and punctuation omitted).
---------------------------------------------------------------------------
It is well-established that material misrepresentations to
consumers that are unsupported under applicable law can be
deceptive.\11\ In particular, including an unenforceable material term
in a consumer contract is deceptive, because it misleads consumers into
believing the contract term is enforceable. The Bureau's examiners have
repeatedly cited such unenforceable contract provisions in their
supervisory work.\12\ Moreover, disclaimers in a contract such as
``subject to applicable law'' do not cure the misrepresentation caused
by the inclusion of an unenforceable contract term. Additionally,
subsequent disclaimers cannot cure a misrepresentation.\13\
---------------------------------------------------------------------------
\11\ See, e.g., FTC v. World Media Brokers, 415 F.3d 758, 763
(7th Cir. 2005).
\12\ See, e.g., Supervisory Highlights: Summer 2017, 82 FR
48703, 48708 (Oct. 19, 2017) (deceptive waivers of borrowers' rights
in loss mitigation agreements that were unenforceable under 12 CFR
part 1026 (Regulation Z), implementing the Truth in Lending Act);
Supervisory Highlights, Issue 24, Summer 2021, 86 FR 36108, 36117
(July 8, 2021) (deceptive waivers of rights in security deed riders
that were unenforceable under 12 CFR part 1024 (Regulation X),
implementing the Real Estate Settlement Procedures Act).
\13\ See, e.g., FTC v. IAB Marketing Assoc., LP, 746 F.3d 1228,
1233 (11th Cir. 2014).
---------------------------------------------------------------------------
Consistent with these principles, it would generally be deceptive
to include a restriction on consumer reviews in a form contract, given
that the restriction would be void under the Consumer Review Fairness
Act. Consumers can be expected to read the language to mean what it
says: That they are restricted in their ability to provide consumer
reviews. But that is not the case, since the provision is void under
applicable law. And the option to post candid reviews about products or
services would be material to the many American consumers who do so.
Moreover, the Bureau believes that enforcing the deception prohibition
is particularly important in this context, given that consumer reviews
are a significant driver of competition in the modern economy.
In addition, if a covered person or service provider attempts to
pressure a consumer to remove an already posted negative review, by
invoking a restriction on consumer reviews that is void under the
Consumer Review Fairness Act, that would also generally be a deceptive
act or practice. Note that this would be an additional deceptive act or
practice, not a precondition for establishing the kind of deceptive act
or practice already described. Damage can be done by chilling
consumers' reviews even if, unknown to the consumer, the covered person
or service provider does not later follow up by invoking the contract
provision against consumers who post negative reviews. Accordingly, in
other contexts, Bureau examiners have found unenforceable contract
provisions to be deceptive regardless of whether the provision is
ultimately enforced.\14\ But if a covered person or service provider
does invoke the void contract provision against the consumer (for
example, by claiming that the consumer is contractually required to
remove a negative review, or that the consumer is contractually
required to stop posting such reviews, or assessing a penalty or fee if
the consumer does not remove a negative review), that can be expected
to further deepen the materially misleading impression that the
affected consumers would have. It would be natural for consumers to
believe that they need to remove existing negative reviews, stop
posting such reviews, or pay the purported penalty or fee, which is not
the case.
---------------------------------------------------------------------------
\14\ See matters cited in note 12.
---------------------------------------------------------------------------
B. Unfairly Depriving Consumers of Information Using Restrictions on
Consumer Reviews
In addition to deceiving consumers who wish to leave reviews,
purported contractual restrictions on consumer reviews can unfairly
harm the many other consumers who rely upon reviews when deciding what
products and services to purchase.
Under section 1031(c) of the CFPA, an act or practice is unfair if:
(A) It causes or is likely to cause substantial injury to consumers
which is not reasonably avoidable by consumers; and (B) such
substantial injury is not outweighed by countervailing benefits to
consumers or to competition.\15\
---------------------------------------------------------------------------
\15\ 12 U.S.C. 5531(c).
---------------------------------------------------------------------------
In applying the CFPA's unfairness prohibition, the Bureau finds
persuasive the reasoning of the Federal Trade Commission (FTC) in FTC
v. Roca Labs, Inc.\16\ Roca Labs was an enforcement action that
predated the Consumer Review Fairness Act, but it was cited in the that
statute's legislative history.\17\ In Roca Labs, the FTC alleged that
the Defendants' use of ``contractual provisions that prohibit
purchasers from speaking or publishing truthful or nondefamatory
negative comments or reviews about the Defendants, their products, or
their employees'' was unfair under the Federal Trade Commission
Act.\18\ The defendants' conduct ``caused or are likely to cause
purchasers to refrain from commenting negatively about the Defendants
or their products. By depriving prospective purchasers of this
truthful, negative information, Defendants' practices have resulted or
are likely to result in consumers buying Roca Labs products they would
not otherwise have bought.'' \19\ This substantial injury was not
reasonably avoidable by consumers or outweighed by countervailing
benefits to consumers or to competition.\20\ The Bureau intends to
apply similar unfairness principles if it encounters a covered person
or service provider, acting within the scope of the CFPA, who uses
contractual restrictions to restrict consumer reviews.
---------------------------------------------------------------------------
\16\ Complaint, FTC v. Roca Labs, Inc., No. 8:15-cv-02231 (M.D.
Fla. filed Sept. 24, 2015), https://www.ftc.gov/system/files/documents/cases/150928rocalabscmpt.pdf.
\17\ H.R. Rep. No. 114-731, at 5 (2016) (citing id.).
\18\ Complaint at 27, FTC v. Roca Labs, Inc., No. 8:15-cv-02231.
\19\ Id. at 22.
\20\ Id. at 27.
---------------------------------------------------------------------------
C. Deceiving Consumers Who Read Consumer Reviews About the Nature of
Those Reviews
Whether or not there are any contractual restrictions on consumer
reviews, covered persons or service providers can engage in a deceptive
act or practice by manipulating consumers' comprehension of the set of
reviews that are available. Two recent FTC matters illustrate this
concern.
First, in the Sunday Riley matter, the FTC alleged that a company
instructed its employees to leave reviews of its products on a third-
party website, and also to ``dislike'' negative reviews left by real
customers.\21\ The FTC found that this was deceptive. By engaging in
this conduct, the company had ``represented, directly or indirectly,
expressly or by implication, that certain reviews . . . reflected the
experiences
[[Page 17145]]
or opinions of users of the products.'' \22\ But the company ``failed
to disclose that the online consumer reviews were written by'' the
company's employees, which ``would be material to consumers . . . in
connection with a purchase or use decision.'' \23\ And, although in
Sunday Riley the posters were the company's own employees, the Bureau
notes that another way that companies can deceive consumers is by
paying non-employees to post reviews that are materially misleading.
---------------------------------------------------------------------------
\21\ Complaint, In the Matter of Sunday Riley Modern Skincare,
LLC, File No. 192-3008 (F.T.C. Nov. 6, 2020), https://www.ftc.gov/system/files/documents/cases/192_3008_c4729_sunday_riley_complaint.pdf.
\22\ Id. at 4.
\23\ Id.
---------------------------------------------------------------------------
Second, in the Fashion Nova matter, a company that sold products
through a website allegedly had ``four- and five-star reviews
automatically post to the website, but did not approve or publish
hundreds of thousands lower-starred, more negative reviews.'' \24\ The
FTC found that this was a deceptive act or practice, misleading
consumers who read the website into believing that the posted ratings
accurately reflected the consumer reviews submitted.\25\
---------------------------------------------------------------------------
\24\ Complaint at 2, In the Matter of Fashion Nova, LLC, File
No. 192-3138 (F.T.C. Jan. 25, 2022), https://www.ftc.gov/system/files/documents/cases/192_3138_fashion_nova_complaint.pdf.
\25\ Id.
---------------------------------------------------------------------------
Of course, there are also numerous other ways that firms could
improperly manipulate consumer reviews. The Bureau intends to carefully
scrutinize whether covered persons or service providers are skewing
consumers' understanding of consumer reviews in a manner that is
deceptive (or unfair or abusive).
III. Conclusion
In summary, covered persons and service providers are liable under
the CFPA if they deceive consumers using restrictions on consumer
reviews that are unenforceable under the Consumer Review Fairness Act,
if they unfairly deprive consumers of information by using such
restrictions, or if they deceive consumers who read reviews about the
nature of those reviews. If the Bureau identifies a violation of the
CFPA, it intends to use its authorities to hold the violators
accountable.
IV. Regulatory Matters
This is a general statement of policy under the Administrative
Procedure Act (APA). It provides background information about
applicable law and articulates considerations relevant to the Bureau's
exercise of its authorities. It does not confer any rights of any kind.
As a general statement of policy, it is exempt from the APA's notice-
and-comment rulemaking requirements.\26\ Because no notice of proposed
rulemaking is required, the Regulatory Flexibility Act does not require
an initial or final regulatory flexibility analysis.\27\ It also does
not impose any new or revise any existing recordkeeping, reporting, or
disclosure requirements on covered entities or members of the public
that would be collections of information requiring approval by the
Office of Management and Budget under the Paperwork Reduction Act of
1995.\28\
---------------------------------------------------------------------------
\26\ 5 U.S.C. 553(b).
\27\ 5 U.S.C. 603(a), 604(a).
\28\ 44 U.S.C. 3501-3521.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-06446 Filed 3-25-22; 8:45 am]
BILLING CODE 4810-AM-P