CFPB’s Compliance Bulletin on UDAAP Issues with Online Consumer Review “Gag Clauses” and “Fake Review Fraud”
The Consumer Financial Protection Bureau (CFPB) on Tuesday, March 23, 2022, issued a new compliance bulletin stating that industry suppression of online consumer reviews and use of fake reviews, which the CFPB calls “gag clauses” and “fake review fraud,” may be an unfair, deceptive, or abusive act or practice (UDAAP) violation under the Dodd-Frank Act.
The CFPB stated that it was concerned about consumers’ ability to post accurate online reviews and their free speech rights. The CFPB Director Rohit Chopra stated that, “corporate disinformation campaigns that suppress legitimate reviews or manufacture fake reviews are not only a threat to free speech and fair competition, they are also illegal.”
The CFPB’s new compliance bulletin notes that the Consumer Review Fairness Act of 2016, which applies to “form contracts” for the sale or lease of goods, makes illegal and void contract provisions that prohibit or impose fees on individuals for posting reviews of a company. The bulletin states that including an unenforceable term in a consumer contract is deceptive under UDAAP, and that this would include provisions that are void under the Consumer Review Fairness Act. The CFPB states that “disclaimers in a contract such as ‘subject to applicable law’ do not cure the misrepresentation,” and also that, “subsequent disclaimers cannot cure a misrepresentation.” The bulletin states that such contact provisions are also unfair under UDAAP, citing a 2015 enforcement action by the FTC that made this argument.
The bulletin also states that if a company “attempts to pressure a consumer to remove an already posted negative review” by invoking such a void contract provision, “that would also generally be a deceptive act or practice.” The bulletin states that such an action would be “an additional deceptive act or practice,” in part because it “can be expected to further deepen the materially misleading impression that the affected consumers would have.”
The bulletin also states that in the absence of such contractual provisions, “manipulating consumers comprehension of the set of reviews that are available” is also deceptive under UDAAP. This can include paying employees or third parties to leave fake reviews or to dislike negative reviews, or simply not posting unfavorable reviews (e.g., reviews below four stars). The bulletin cites two recent FTC enforcement actions to illustrate such activity, In the Matter of Sunday Riley Modern Skincare, LLC, and In the Matter of Fashion Nova, LLC.
The CFPB stated that, “banks and financial companies should ensure that their customer review practices comply with all applicable laws, including the [Dodd-Frank Act],” and that, “violations are subject to civil penalties and other legal consequences.”
Although it is a positive development to see the CFPB interested in free speech rights, the publication of this bulletin could be a sign of planned future enforcement in this area. We know that the CFPB has historically been very active with UDAAP enforcement. It would be prudent to review your organization’s practices to ensure compliance with all applicable law, including UDAAP.
The press release and the compliance bulletin are available here: https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-policy-on-contractual-gag-clauses-and-fake-review-fraud/.
If you have any questions or would like to discuss any of the issues in this post, please email me at rich@garrishorn.com.
