[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]



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 Rules and Regulations
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  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.

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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.
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    \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).
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    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\
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    \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.
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    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.
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    \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).
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    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\
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    \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).
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    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\
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    \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.
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    \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.
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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\
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    \10\ CFPB v. Gordon, 819 F.3d 1179, 1192 (9th Cir. 2016) 
(internal quotation marks and punctuation omitted).
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    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\
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    \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).
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    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.
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    \14\ See matters cited in note 12.
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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\
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    \15\ 12 U.S.C. 5531(c).
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    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.
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    \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.
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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.
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    \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.
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    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\
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    \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.
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    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\
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    \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