Behavioral marketing exposes tech firms to consumer financial protection law violations, rule asserts

Tech firms that use behavioral targeting in their marketing of individual consumers regarding financial products are liable for violations if they do not comply with federal consumer finance protections, the federal consumer financial protection agency warned in an interpretive rule Wednesday.

In a release, the Consumer Financial Protection Bureau (CFPB) said digital marketers are typically service providers for purposes of the law when they are involved in the identification or selection of prospective customers or the selection or placement of content to affect consumer behavior. “Digital marketers acting as service providers can be held liable by the CFPB or other law enforcers for committing unfair, deceptive, or abusive acts or practices as well as other consumer financial protection violations,” the agency said.

The bureau highlighted two areas of its rule. First, the agency said its rule states that digital marketers provide “material services” (those that are “significant or important”) to financial firms. “Digital marketing providers are typically materially involved in the development of content strategy when they identify or select prospective customers or select or place content in order to encourage consumer engagement with advertising,” the agency stated. “Digital marketers engaged in this type of ad targeting and delivery are not merely providing ad space and time, and they do not qualify under the ‘time or space’ exception.”

Second, the agency said its rule explains that it, the various states, and other consumer protection enforcers can sue digital marketers to stop violations of consumer financial protection law. “Service providers are liable for unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Act. When digital marketers act as service providers, they are liable for consumer protection law violations,” the agency said.

The CFPB said that digital marketers go beyond the “traditional” form of advertising practices (relying on methods for exposing a product or service to as wide an audience as possible, such as by purchasing time and space for a TV commercial on the most watched station or show).

By contrast, digital marketers, the agency asserted, work to maximize individuals’ interactions with ads. “They may harvest personal data to feed their behavioral analytics models that can target individuals or groups that they predict are more likely to interact with an ad or sign up for a product or service,” the agency said.

“When digital marketing providers go beyond traditional advertising, they are typically covered by the Consumer Financial Protection Act as service providers,” the agency stated. “The Act contains an exception for companies that solely provide time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.”

However, the CFPB said its rule states that the exception does not cover firms that are materially involved in the development of content strategy.

CFPB Warns that Digital Marketing Providers Must Comply with Federal Consumer Finance Protections