[Federal Register Volume 88, Number 19 (Monday, January 30, 2023)]
[Rules and Regulations]
[Pages 5727-5730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01560]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Chapter X


Consumer Financial Protection Circular 2023-01: Unlawful Negative 
Option Marketing Practices

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Consumer financial protection circular.

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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) has 
issued Consumer Financial Protection Circular 2023-01, titled 
``Unlawful Negative Option Marketing Practices.'' In this circular, the 
Bureau responds to the question, ``Can persons that engage in negative 
option marketing practices violate the prohibition on unfair, 
deceptive, or abusive acts or practices in the Consumer Financial 
Protection Act (CFPA)? ''

DATES: The Bureau released this circular on its website on January 19, 
2023.

ADDRESSES: Enforcers, and the broader public, can provide feedback and 
comments to [email protected].

FOR FURTHER INFORMATION CONTACT: Colin Reardon, Senior Counsel, Office 
of Law & Policy, at (202) 570-6740. If you require this document in an 
alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION:

Question Presented

    Can persons that engage in negative option marketing practices 
violate the prohibition on unfair, deceptive, or abusive acts or 
practices in the Consumer Financial Protection Act (CFPA)?

Response

    Yes. ``Covered persons'' and ``service providers'' must comply with 
the prohibition on unfair, deceptive, or abusive acts or practices in 
the CFPA.\1\ Negative option marketing practices may violate that 
prohibition where a seller (1) misrepresents or fails to clearly and 
conspicuously disclose the material terms of a negative option program; 
(2) fails to obtain consumers' informed consent; or (3) misleads 
consumers who want to cancel, erects unreasonable barriers to 
cancellation, or fails to honor cancellation requests that comply with 
its promised cancellation procedures.
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    \1\ 12 U.S.C. 5481(6), (26), 5531, 5536. For simplicity, the 
remainder of this Circular refers to covered persons and service 
providers as ``sellers.'' The CFPB notes, however, that entities and 
individuals can be covered persons or service providers (and thus 
subject to liability under the CFPA) even if they do not themselves 
engage in ``selling'' a consumer financial product or service with a 
negative option feature.
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Background on Negative Option Marketing

    As used in this Circular, the phrase ``negative option'' refers to 
a term or condition under which a seller may interpret a consumer's 
silence, failure to take an affirmative action to reject a product or 
service, or failure to cancel an agreement as acceptance or continued 
acceptance of the offer.
    Negative option programs are common across the market, including in 
the market for consumer financial products and services, and such 
programs can take a variety of forms. For example, in automatic renewal 
plans, consumers' subscriptions are automatically renewed when they 
expire unless consumers affirmatively cancel their subscriptions by a 
certain date. In continuity plans, consumers agree in advance to 
receive a product or service, which they continue to receive until they 
cancel the agreements. In trial marketing plans, consumers receive 
products or services for free (or for a reduced fee) for a trial 
period. After the trial period, consumers are automatically charged a 
fee (or a higher fee) on a recurring basis unless they affirmatively 
cancel.
    Negative option programs can cause serious harm to consumers who do 
not wish to receive the products or services for which they are 
charged. Harm is most likely to occur when sellers mislead consumers 
about terms and conditions, fail to obtain consumers' informed consent, 
or make it difficult for consumers to cancel. The Consumer Financial 
Protection Bureau (CFPB) has received consumer complaints, including 
complaints from older

[[Page 5728]]

consumers, about being repeatedly charged for services they did not 
intend to buy or no longer want to continue purchasing. Some consumers 
have reported that they were enrolled in subscriptions without 
knowledge of the program and its cost.\2\ Consumers have also 
complained about the difficulty of cancelling subscription-based 
services and about charges made to their credit card or bank account 
after they requested cancellation.\3\
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    \2\ See Consumer Response Annual Report at 25 (CFPB Mar. 2018), 
https://files.consumerfinance.gov/f/documents/cfpb_consumer-response-annual-report_2017.pdf; Monthly Complaint Report at 16 
(CFPB May 2017), https://files.consumerfinance.gov/f/documents/201705_cfpb_Monthly_Complaint_Report.pdf.
    \3\ See Consumer Response Annual Report at 67 (CFPB Mar. 2022), 
https://files.consumerfinance.gov/f/documents/cfpb_2021-consumer-response-annual-report_2022-03.pdf; Consumer Response Annual Report 
at 88 (CFPB Mar. 2021), https://files.consumerfinance.gov/f/documents/cfpb_2020-consumer-response-annual-report_03-2021.pdf.
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    In recent decades, the Federal Trade Commission (FTC) has brought 
numerous enforcement cases challenging harmful negative option 
practices using its authority under section 5 of the FTC Act, which 
prohibits unfair or deceptive acts or practices.\4\ The FTC's 
enforcement cases have also frequently relied on the Restore Online 
Shoppers' Confidence Act (ROSCA) \5\ and the Telemarketing Sales Rule 
(TSR).\6\ The FTC recently summarized its enforcement work regarding 
negative option marketing in a policy statement, which noted that its 
cases have ``involve[d] a range of deceptive and unfair practices, 
including inadequate disclosures of hidden charges in ostensibly `free' 
offers and other products or services, enrollment without consumer 
consent, and inadequate or overly burdensome cancellation and refund 
procedures.'' \7\
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    \4\ See, e.g., FTC v. Vonage Holdings Corp., No. 3:22-cv-6435 
(D.N.J. 2022); FTC v. Age of Learning, Inc., No. 2:20-cv-07996 (C.D. 
Cal. 2020); FTC v. Apex Capital Group, LLC, No. 2:18-cv-09573 (C.D. 
Cal. 2018); FTC v. Triangle Media Corp., No. 3:18-cv-01388 (S.D. 
Cal. 2018); FTC v. AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 2017); 
FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D. Nev. 2017); FTC v. 
Health Formulas, LLC, No. 2:14-cv-01649 (D. Nev. 2016); FTC v. JDI 
Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 2014); FTC v. Complete 
Weightloss Center, No. 1:08-cv-00053 (D.N.D. 2008); FTC v. 
Consumerinfo.com, No. 05-cv-801 (C.D. Cal. 2005); see also 15 U.S.C. 
45.
    \5\ 15 U.S.C. 8401 et seq.
    \6\ 16 CFR part 310.
    \7\ Enforcement Policy Statement Regarding Negative Option 
Marketing, 86 FR 60822, 60823 (Nov. 4, 2021) (hereafter, FTC Policy 
Statement).
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    Since it began enforcement in 2011, the CFPB has brought 
enforcement actions to halt a variety of harmful negative option 
practices, which have primarily relied on the CFPA's prohibition on 
unfair, deceptive, and abusive acts or practices.\8\ For example, the 
CFPB has brought multiple enforcement actions involving optional ``add-
on'' products offered to credit card users, such as debt protection and 
identity protection products, which featured recurring fees that 
continued until consumers affirmatively cancelled.\9\ In other 
enforcement actions involving negative option practices, the CFPB has 
found or alleged that consumer reporting companies,\10\ debt relief 
companies,\11\ credit repair companies,\12\ payment processors,\13\ and 
service providers \14\ have engaged in unfair, deceptive, and abusive 
acts or practices.
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    \8\ 12 U.S.C. 5531, 5536.
    \9\ See CFPB v. Sterling Jewelers, Inc., No. 1:19-cv-00448 
(S.D.N.Y. 2019); First National Bank of Omaha, File No. 2016-CFPB-
0014 (Aug. 25, 2016) (consent order); Citibank, N.A., File No. 2015-
CFPB-0015 (July 21, 2015) (consent order); Synchrony Bank, f/k/a GE 
Capital Retail Bank, No. 2014-CFPB-0007 (June 19, 2014) (consent 
order); Bank of America, N.A., File No. 2014-CFPB-0004 (Apr. 9, 
2014) (consent order); American Express Centurion Bank, File No. 
2013-CFPB-0011 (Dec. 24, 2013) (consent order); Discover Bank, File 
No. 2012-CFPB-0005 (Sept. 24, 2012) (joint consent order with FDIC); 
Capital One Bank, (USA) N.A., 2012-CFPB-0001 (July 18, 2012) 
(consent order). For a description of consumer protections 
applicable to credit card add-on products and the CFPB's compliance 
expectations regarding such products, see Marketing of Credit Card 
Add-on Products, CFPB Bulletin 2012-06 (July 18, 2012).
    \10\ CFPB v. Transunion, No. 1:22-cv-01880 (N.D. Ill. 2022); 
Equifax Inc., File No. 2017-CFPB-0001 (Jan. 3, 2017) (consent 
order); Transunion Interactive, Inc., File No. 2017-CFPB-0002 (Jan. 
3, 2017) (consent order).
    \11\ CFPB v. Student Financial Aid Services, Inc., No. 2:15-cv-
00821 (E.D. Cal. 2015).
    \12\ CFPB v. Prime Marketing Holdings, LLC, No. 2:16-cv-07111 
(C.D. Cal. 2016).
    \13\ CFPB v. ACTIVE Network, LLC, No. 4:22-cv-00898 (E.D. Tex. 
2022).
    \14\ CFPB v. Affinion Group Holdings, Inc., No. 5:15-cv-01005 
(D. Conn. 2015); CFPB v. Intersections Inc., No. 1:15-cv-835 (E.D. 
Va. 2015).
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    The CFPB has also relied on other Federal consumer financial laws 
that it enforces to address certain harmful negative option marketing 
practices. The Electronic Fund Transfer Act (EFTA) and Regulation E 
prohibit preauthorized electronic fund transfers from a consumer's bank 
account without written authorization.\15\ The TSR also prohibits 
deceptive acts or practices by telemarketers, including failing to 
disclose the material terms of a negative option feature of an offer 
and misrepresenting the total cost to purchase goods or services.\16\
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    \15\ See 15 U.S.C. 1693e(a); 12 CFR 1005.10(b); see also CFPB v. 
Student Financial Aid Services, Inc., No. 2:15-cv-00821 (E.D. Cal. 
2015). The CFPB described these requirements in more detail in a 
2015 compliance bulletin. See Requirements for Consumer 
Authorization for Preauthorized Electronic Fund Transfers, CFPB 
Compliance Bulletin 2015-06 (Nov. 23, 2015).
    \16\ 16 CFR 310.3(a)(1)(vii), (a)(2)(i); see also CFPB v. Prime 
Marketing Holdings, LLC, No. 2:16-cv-07111 (C.D. Cal. 2016); 
Citibank, N.A., File No. 2015-CFPB-0015 (July 21, 2015) (consent 
order); CFPB v. Student Financial Aid Services, Inc., No. 2:15-cv-
00821 (E.D. Cal. 2015).
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    Recently, the CFPB and FTC have taken action to combat the rise of 
digital dark patterns, which are design features used to deceive, 
steer, or manipulate users into behavior that is profitable for a 
company, but often harmful to users or contrary to their intent.\17\ 
Dark patterns can be particularly harmful when paired with negative 
option programs, causing consumers to be misled into purchasing 
subscriptions and other services with recurring charges and making it 
difficult for consumers to cancel and avoid such charges.\18\
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    \17\ See, e.g., FTC v. Age of Learning, Inc., No. 2:20-cv-07996 
(C.D. Cal. 2020); Statement of CFPB Director Rohit Chopra on 
Complaint Against ACTIVE Network (Oct. 18, 2022), https://www.consumerfinance.gov/about-us/newsroom/statement-of-cfpb-director-rohit-chopra-on-complaint-against-active-network/.
    \18\ See Bringing Dark Patterns to Light at 11-15 (FTC Sept. 
2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf.
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Analysis

    The CFPB is issuing this Circular to emphasize that covered persons 
and service providers who engage in negative option marketing are 
required to comply with the CFPA's prohibition on unfair, deceptive, 
and abusive acts or practices.\19\ The CFPB further emphasizes that its 
approach to negative option marketing is generally in alignment with 
the FTC's approach to section 5 of the FTC Act as set forth in its 
recent policy statement. In particular, the CFPB shares the view that a 
seller offering a negative option program risks violating the law if 
the seller (1) does not clearly and conspicuously disclose the material 
terms of the negative option offer to the consumer, (2) does not obtain 
the consumer's informed consent, or (3) misleads consumers who wish to 
cancel, erects unreasonable barriers to cancellation, or impedes the 
effective operation of promised cancellation procedures.\20\
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    \19\ Sellers should also comply with other consumer protection 
laws enforceable by the CFPB that may apply to their conduct, such 
as EFTA, Regulation E, and the TSR.
    \20\ See FTC Policy Statement, 86 FR 60823-25.
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    Disclosure. Sellers may violate the CFPA's prohibition on deceptive 
acts or practices if they misrepresent or fail to clearly and 
conspicuously disclose the material terms of an offer for a product or 
service with a negative option feature. Under the CFPA, a

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representation or omission is deceptive if it is likely to mislead a 
reasonable consumer and is material.\21\ A ``material'' representation 
or omission ``involves information that is important to consumers and, 
hence, likely to affect their choice of, or conduct regarding, a 
product.'' \22\ Where a seller makes a partial disclosure about the 
nature of a product or service, its failure to disclose other material 
information may be deceptive.\23\ In assessing the meaning of a 
representation or omission, the CFPB looks to the overall, net 
impression of the communication, meaning that it considers the context 
of the entire advertisement, transaction, or course of dealing rather 
than evaluating statements in isolation.\24\
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    \21\ See CFPB v. Gordon, 819 F.3d 1179, 1192-93 (9th Cir. 2016).
    \22\ Novartis Corp. v. FTC, 223 F.3d 783, 786 (D.C. Cir. 2000) 
(quoting In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 165 (1984)).
    \23\ See, e.g., Sterling Drug Inc. v. FTC, 741 F.2d 1146, 1154 
(9th Cir. 1984) (drug company's failure to disclose that its drug 
only contained ordinary aspirin was misleading when its 
advertisements implied that the drug did not contain aspirin); see 
also FTC v. Bay Area Business Council, Inc., 423 F.3d 627, 635 (7th 
Cir. 2005) (``[T]the omission of a material fact, without an 
affirmative misrepresentation, may give rise to an FTC Act 
violation.'').
    \24\ See, e.g., CFPB v. Aria, 54 F.4th 1168, 1173 (9th Cir. 
2022); Gordon, 819 F.3d at 1193; see also FTC v. E.M.A. Nationwide, 
Inc., 767 F.3d 611, 631 (6th Cir. 2014); Fanning v. FTC, 821 F.3d 
164, 170 (1st Cir. 2016).
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    The material terms of a negative option offer would typically 
include the following, to the extent applicable:
     That the consumer is enrolling in and will be charged for 
the product or service.
     The amount (or range of amounts) that the consumer will be 
charged.
     That charges will be on a recurring basis unless the 
consumer takes affirmative steps to cancel the product or service.
     That, in a trial marketing plan, charges will begin (or 
increase) after the trial period unless the consumer takes affirmative 
action.\25\
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    \25\ This list is not exhaustive, and additional terms of a 
negative option offer may be material depending on the facts and 
circumstances.
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    A seller would likely violate the CFPA by misrepresenting or 
failing to adequately disclose these material terms, as the CFPB's 
enforcement cases illustrate. For example, the CFPB found that consumer 
reporting agencies deceptively represented that credit-related products 
were ``free'' when, in reality, consumers who signed up for a ``free'' 
trial were automatically enrolled in a subscription program with a 
recurring monthly fee unless they cancelled.\26\ In those cases, 
disclosures about the negative option feature were often displayed in 
fine print, in low contrast, and were generally placed in a less 
prominent location, such as the bottom of a web page, grouped with 
other disclosures. Thus, the disclosures were neither clear nor 
conspicuous. Similarly, in several credit card add-on cases, the CFPB 
found that credit card issuers engaged in deceptive marketing and 
enrollment practices where they did not adequately inform consumers 
that they were purchasing add-on products or misrepresented the cost of 
the add-on products.\27\
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    \26\ Equifax Inc., File No. 2017-CFPB-0001 (Jan. 3, 2017) 
(consent order); Transunion Interactive, Inc., File No. 2017-CFPB-
0002 (Jan. 3, 2017) (consent order).
    \27\ See, e.g., First National Bank of Omaha, File No. 2016-
CFPB-0014 (Aug. 25, 2016) (consent order); Synchrony Bank, f/k/a GE 
Capital Retail Bank, No. 2014-CFPB-0007 (June 19, 2014) (consent 
order); Bank of America, N.A., File No. 2014-CFPB-0004 (Apr. 9, 
2014) (consent order).
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    Consent. Sellers engaged in negative option marketing would likely 
violate the CFPA where they fail to obtain the consumer's informed 
consent before charging the consumer.\28\ Consent will generally not be 
informed if, for example, a seller mischaracterizes or conceals the 
negative option feature, provides contradictory or misleading 
information, or otherwise interferes with the consumer's understanding 
of the agreement. The CFPB has brought deception and unfairness claims 
under the CFPA where sellers failed to obtain consumers' informed 
consent.\29\
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    \28\ Cf. FTC v. Kennedy, 574 F. Supp. 2d 714, 721 (S.D. Tex. 
2008) (defendant engaged in unfair practice in violation of section 
5 of the FTC Act by imposing charges on consumers' telephone bills 
without obtaining their informed consent).
    \29\ A seller offering a negative option program must also 
comply with 12 U.S.C. 5531(d), which provides that an act or 
practice is abusive if it (1) materially interferes with a 
consumer's ability to understand a term or condition of a consumer 
financial product or service or (2) takes unreasonable advantage of 
the consumer's (a) lack of understanding of the material risks, 
costs, or conditions of the product or service; (b) inability to 
protect their interests in selecting or using a consumer financial 
product or service; or (b) reasonable reliance on a covered person 
to act in the consumer's interests.
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    With respect to deception, as noted, a representation is deceptive 
if it is likely to mislead a reasonable consumer and is material.\30\ 
In the credit card add-on cases, the CFPB found that credit card 
issuers engaged in a deceptive practice when the card issuers falsely 
represented to consumers that they were agreeing to receive information 
about an add-on product rather than purchasing the product.\31\
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    \30\ See Gordon, 819 F.3d at 1192-93.
    \31\ Fifth Third Bank, File No. 2015-CFPB-0025 (Sept. 28, 2015) 
(consent order); Bank of America, N.A., File No. 2014-CFPB-0004 
(Apr. 9, 2014) (consent order).
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    With respect to unfairness, an act or practice is unfair if it 
causes or is likely to cause substantial injury to consumers which is 
not reasonably avoidable by consumers and the injury is not outweighed 
by countervailing benefits to consumers or to competition.\32\ Applying 
that standard, the CFPB alleged that a debt relief company engaged in 
an unfair practice by charging consumers on an automatic, recurring 
basis where the recurring charges were not clearly explained or 
disclosed to consumers at the time of purchase.\33\
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    \32\ 12 U.S.C. 5531(c).
    \33\ CFPB v. Student Financial Aid Services, Inc., No. 2:15-cv-
00821 (E.D. Cal. 2015). Specifically, the CFPB alleged that the 
company's practice caused injuries by subjecting consumers to 
charges they did not authorize or bargain for, those injuries were 
not reasonably avoidable because the fact of the recurring charges 
and negative option feature were not clearly explained or disclosed 
to consumers, and the injury was not outweighed by any 
countervailing benefits to consumers or competition.
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    Cancellation. It is understandable that sellers will generally 
prefer to retain their existing customers, but they must do so in a 
manner that complies with the CFPA. For purposes of the prohibition on 
deception, certain types of representations are presumed to be 
material, including express representations and representations 
regarding costs.\34\ Consistent with that principle, the CFPB found 
that a credit card issuer engaged in a deceptive practice when it 
represented that consumers could cancel an add-on product 
``immediately'' and with ``no questions asked'' but then directed sales 
representatives to repeatedly rebut requests to cancel, with the result 
that consumers were often unable to cancel unless they demanded 
cancellation multiple times in succession.\35\ The CFPB has also found 
that sellers engaged in deceptive practices by making 
misrepresentations about the costs and benefits of their products and 
services in order to persuade consumers not to cancel.\36\
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    \34\ See Novartis Corp., 223 F.3d at 786.
    \35\ First National Bank of Omaha, File No. 2016-CFPB-0014 (Aug. 
25, 2016) (consent order).
    \36\ Citibank, N.A., File No. 2015-CFPB-0015 (July 21, 2015) 
(consent order); Capital One Bank, (USA) N.A., 2012-CFPB-0001 (July 
18, 2012) (consent order).
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    In addition, the CFPB agrees with the FTC that sellers would likely 
violate the law if they erect unreasonable barriers to cancellation or 
fail to honor cancellation requests that comply with their promised 
cancellation procedures. Such conduct would include, for example, 
``[h]ang[ing] up on consumers who call to cancel; plac[ing] them on 
hold for an unreasonably long time; provid[ing] false information about 
how to cancel; or misrepresent[ing] the

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reasons for delays in processing consumers' cancellation requests.'' 
\37\ Depending on the facts and circumstances, such conduct may 
constitute an unfair, deceptive, or abusive act or practice in 
violation of the CFPA.
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    \37\ FTC Policy Statement, 86 FR 60823, 60826.
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About Consumer Financial Protection Circulars

    Consumer Financial Protection Circulars are issued to all parties 
with authority to enforce Federal consumer financial law. The CFPB is 
the principal Federal regulator responsible for administering Federal 
consumer financial law, see 12 U.S.C. 5511, including the Consumer 
Financial Protection Act's prohibition on unfair, deceptive, and 
abusive acts or practices, 12 U.S.C. 5536(a)(1)(B), and 18 other 
``enumerated consumer laws,'' 12 U.S.C. 5481(12). However, these laws 
are also enforced by State attorneys general and State regulators, 12 
U.S.C. 5552, and prudential regulators including the Federal Deposit 
Insurance Corporation, the Office of the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, and the National 
Credit Union Administration. See, e.g., 12 U.S.C. 5516(d), 5581(c)(2) 
(exclusive enforcement authority for banks and credit unions with $10 
billion or less in assets). Some Federal consumer financial laws are 
also enforceable by other Federal agencies, including the Department of 
Justice and the Federal Trade Commission, the Farm Credit 
Administration, the Department of Transportation, and the Department of 
Agriculture. In addition, some of these laws provide for private 
enforcement.
    Consumer Financial Protection Circulars are intended to promote 
consistency in approach across the various enforcement agencies and 
parties, pursuant to the CFPB's statutory objective to ensure Federal 
consumer financial law is enforced consistently. 12 U.S.C. 5511(b)(4).
    Consumer Financial Protection Circulars are also intended to 
provide transparency to partner agencies regarding the CFPB's intended 
approach when cooperating in enforcement actions. See, e.g., 12 U.S.C. 
5552(b) (consultation with CFPB by State attorneys general and 
regulators); 12 U.S.C. 5562(a) (joint investigatory work between CFPB 
and other agencies).
    Consumer Financial Protection Circulars are general statements of 
policy under the Administrative Procedure Act. 5 U.S.C. 553(b). They 
provide background information about applicable law, articulate 
considerations relevant to the Bureau's exercise of its authorities, 
and, in the interest of maintaining consistency, advise other parties 
with authority to enforce Federal consumer financial law. They do not 
restrict the Bureau's exercise of its authorities, impose any legal 
requirements on external parties, or create or confer any rights on 
external parties that could be enforceable in any administrative or 
civil proceeding. The CFPB Director is instructing CFPB staff as 
described herein, and the CFPB will then make final decisions on 
individual matters based on an assessment of the factual record, 
applicable law, and factors relevant to prosecutorial discretion.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-01560 Filed 1-27-23; 8:45 am]
BILLING CODE 4810-AM-P