The upshot, for busy people:

  • On March 22, 2022, the US Consumer Financial Protection Bureau (CFPB) released a compliance bulletin on “Unfair and Deceptive Acts or Practices That Impede Consumer Reviews.” The bulletin announced that the CFPB would view practices that discourage or hide consumer reviews as unfair or deceptive practices under Sections 1031 and 1036 of the Consumer Financial Protection Act.
  • The CFPB did not rely on any of its own precedents but rather imported concepts from the 2016 Consumer Review Fairness Act (which the CFPB does not enforce) and FTC enforcement actions to inform its analysis.
  • This move raises the stakes for compliance. Director Rohit Chopra is eager to use all of the CFPB’s enforcement tools against companies within the CFPB’s jurisdiction, including the agency’s monetary authority. Companies should review how they handle consumer reviews and make sure that they are not discouraging consumers from leaving negative reviews or engaging in practices that artificially inflate the number of positive reviews.

Background. The bulletin begins with a recognition of the importance of consumer reviews in today’s market, highlighting interesting studies showing the relationship between marginal increases in Yelp scores and revenues. The CFPB then examined US “public policy” regarding consumer reviews, which amounted to nothing more than an explanation of the 2016 statute called the Consumer Review Fairness Act, 15 U.S.C. § 45b. That law prohibits companies from putting into form contracts clauses that restrict a consumer’s ability to write reviews, declaring those terms “void from the inception.” Notably, the CFPB does not enforce this statute. The law allows the Federal Trade Commission (FTC) to enforce the law, including with civil penalties and restitution; states also may enforce the law, albeit with a proviso that the FTC can participate in any state-brought action.

With this background, the CFPB identified three specific legal theories it will enforce in this area.

First, including a provision in a form contract limiting consumer reviews will be deemed a “deceptive” practice. The theory here is that including an unenforceable contract term—here, a provision that violates the Consumer Review Fairness Act—deceptively represents to consumers that the term is enforceable. The CFPB did not provide citations supporting this theory of deception, though the agency has brought enforcement actions using similar theories, for example, in cases against debt collectors for attempting to collect on debts that consumers did not legally owe because the loan terms violated state law. This theory also is consistent with the FTC’s long-standing practice to double plead unauthorized billing cases—which normally are pleaded as “unfair” practices—as deception on the theory that putting charges on a bill impliedly represents that customers had authorized those fees.

Second, the use of non-disparagement clauses in form contracts will be deemed an “unfair” practice. Under the Consumer Financial Protection Act (and also the FTC Act), an unfair practice is one that causes or is likely to cause substantial injury to consumers that is not reasonably avoidable and which is not outweighed by countervailing benefits to consumers or competition. This inquiry also can take public policy into consideration. The CFPB did not conduct independent analysis or rely on CFPB precedents. Rather, the CFPB relied on an FTC settlement pre-dating the Consumer Review Fairness Act, in which the FTC alleged that such clauses injure prospective consumers by depriving them of truthful information without any countervailing benefits.

Third (and approaching the issue from a different angle), an effort to hide negative reviews from prospective customers will be deemed a “deceptive” practice. Without purporting to describe all the ways in which this circumstance could arise, the bulletin cited to two FTC enforcement actions, one of which we wrote about earlier this year. These cases allege that instructing employees to post positive reviews, and failing to post negative reviews, deceives prospective customers regarding the ratings that consumers have left.

What is notable here? This third category is a significant development. The two FTC cases CFPB cited rely on Section 5 of the FTC Act, which the Supreme Court recently held cannot serve as the predicate for monetary relief for first-time violations. But violations of the Consumer Financial Protection Act come with hefty penalties, including civil penalties. Moreover, the CFPB can litigate these novel theories in their own name. This is in contrast to the FTC, which must give the Department of Justice the right of first refusal to take over any case involving civil penalties.

What does this mean for my business? Federal consumer protection authorities are laser-focused on ensuring the integrity and truthfulness of consumer reviews. The CFPB’s actions here underscore the importance of companies reviewing their practices with respect to consumer reviews, particularly given the potential monetary penalties. Companies can start with a few common sense first principles: don’t include non-disparagement provisions in your form contracts with consumers; don’t post fake reviews; don’t hide negative reviews; and don’t encourage reviews only from customers who you think might have had good experiences.