By Lyn Farrell and Kathryn Reimann
With the pandemic hopefully tapering, consumers are ready to re-engage in the marketplace. Now is a good time to reassess your organization’s marketing and advertising programs for fairness compliance.
While technical compliance with laws and regulations for financial services advertising and marketing is fairly straightforward, fairness (e.g., UDAAP) compliance is not always so clear. The regulatory actions that sanctioned financial institutions using negative option marketing to sell “add on” products, such as credit protection insurance, abundantly illustrated the risks of failing to consider fairness concepts in designing, executing and monitoring the results of marketing programs.
While the vast majority of regulated financial institutions in the U.S. have programs in place to prohibit deceptive advertising—as well as negative option schemes in which a consumer must actively decline goods or services that have been provided, or in which services automatically renew without sufficient disclosure—it also is important to be aware of, and consider the risks posed by, techniques employed by less upright commercial players. It’s especially important if your institution has vendors that may be less familiar with fairness standards—especially online.
Dark patterns
Some e-commerce companies (even some well-known ones) have engaged in so-called marketing “dark patterns” to try and get consumers to purchase products or services when they do not intend to do so. Some of these dark patterns are worse than others, and some large companies with good reputations have been caught engaging in them.
Generally, “dark patterns” can be defined as the use of behavioral techniques that manipulate consumers into behaviors that they do not intend. Most consumers have experience clicking through websites and therefore make certain assumptions as they do so. Dark patterns take advantage of these assumptions to trick consumers into buying products without being aware that they are doing so or agreeing to terms and conditions that consumers do not intend.
Some examples of dark patterns are:
- Inserting pop-up boxes on the screen that will not go away until the consumer clicks an acceptance button. Alternatively, the box could have a “close” button or an “X,” but it is made too tiny to see or camouflaged in the surrounding page.
- Offering an option with two choices, but with the choice that the seller does not want the buyer to choose grayed-out to imitate a disabled link. Even if the grayed-out link works, this is considered to be a dark pattern because the consumer naturally thinks that it is disabled and that they must click the other choice to proceed to the next screen.
- Making the process of signing up easier than the process of canceling the product or service, or otherwise obscuring the process for cancellation. This is sometimes called a “roach motel” because it is easy to get in and hard to get out.
- Presenting a toggle switch next to a choice that is presented in such a confusing way that the consumers believe they are making the opposite choice. For example: If the choice reads, “Do not sell my personal information to third parties” and the toggle appears to be activated, the consumer will believe that the choice has been made in their favor to prevent information sharing. However, we have seen instances where the text beneath the headline points the consumer to toggle the switch the other way in order to prevent information sharing. Marketers know from experience that the consumer is likely to just glance at the headline and the fact that the switch appears to be activated and assume that the default choice is NOT to share information. If consumers fail to read the fine print, they will make an unintended choice that is favorable to the advertiser.
- Pre-checking any box that is to the seller’s benefit, so that the consumer has to uncheck it to make the choice they want. In particular, banks should be wary of this activity, as the consumer-friendly practice of pre-filling forms with, for example, KYC information on file, makes consumers of financial services more likely to assume that the bank has made choices in favor of the consumer.
While most financial institutions do not intend to confuse consumers, these types of dark patterns could be considered to be confusing and therefore unfair or deceptive. Taking advantage of consumer behavioral patterns, such as short attention spans or assumptions that toggle switches and boxes that appear in certain formats mean particular things, is potentially deceptive. Making a product or service harder to cancel than it is to sign up for is potentially unfair. We all know that product and service disclosures must be clear, complete and accurate—so must the instructions, disclosures and cues on marketing and servicing web and mobile app pages.
What to look out for
Some examples of how financial institutions could employ dark patterns include:
- Allowing customers to sign up for recurring services, such as add-on products, automatic payments or credit card accounts, but requiring calling the organization to cancel such a service.
- Pre-checking a box that allows the organization to sell personal information or to sign up for overdrafts on debit card transactions.
- Having pop-up boxes advertising products or services appear on the consumer internet banking page and making the boxes hard to get rid of without clicking on the link that takes the consumer to get more information on the product or service.
While these are not as bad as some dark patterns that have been used by other companies, a financial regulator such as the CFPB could under some circumstances deem them to be a fairness or UDAAP violation. In any marketing effort, it is important to determine how an average consumer would be impacted by the messages and the way that they are conveyed.
- Compliance professionals reviewing marketing material should ask themselves these questions:
- Is the way the message is conveyed and are the modes of responding to it consistent with what an average adult would expect?
- Is there any request for response—switches to toggle, boxes to check, links to click—presented in a way that would confuse an average adult about the outcome of the response?
- Is any crucial element of the product, service or method that choices on the website or app operate hidden in fine print and not fully made clear in the copy?
- Can consumers cancel any product with the same ease that they sign up for it?
- Are there other hidden or unintended consequences as a consumer proceeds through screens?
- Are you receiving consumer complaints about the activity or its unintended impact on consumers?
If these questions cannot be answered in the way that favors the consumer, changes need to be made to the advertising copy.
Finally, compliance officers should ask themselves whether their institutions’ compliance risk assessment and monitoring regimes for on-line advertising reflect current pitfalls and standards—and prioritize making the necessary updates.
Lyn Farrell is a regulatory strategy advisor for Hummingbird Regtech. She is a regulatory attorney with 40 years of experience in banking regulation. She can be contacted at [email protected]. Kathryn Reimann is a regulatory advisor to Hummingbird Regtech and other institutions and has more than 25 years of experience leading compliance functions at public companies, most recently as the chief compliance officer for Citibank, N.A., and the Citi Global Consumer Bank.
