CFPB Warns Digital Marketing Providers They Are Potential Targets of Actions Against “Digital Redlining”

On August 10, 2022, the Consumer Financial Protection Bureau (CFPB) issued new interpretive guidance¹ clarifying that certain digital marketing providers fall within the CFPB’s jurisdiction to prevent unfair, deceptive, or abusive acts or practices (each a UDAAP), including discrimination against protected classes. The new guidance signals that the CFPB may soon ramp up its enforcement of “digital redlining,” a phrase used to describe technology-based discrimination, to reach beyond financial services companies to discipline the digital marketing providers that work with them.

The New Guidance

Under the Consumer Financial Protection Act of 2010 (CFPA), the CFPB has the authority to take action to prevent any “covered person”² (typically a financial services company) or “service provider” from engaging in UDAAPs in connection with the offering or sale of a consumer financial product or service,³ which, according to the CFPB, includes discrimination against members of traditionally protected classes (e.g., racial or religious minorities, persons with disabilities, etc.).⁴

A “service provider” is any person that provides a material service to a covered person in connection with the offering or sale of a consumer financial product or service. But the definition of the term “service provider” contains an exception for an entity that is “solely” involved in offering or providing “time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.”⁵

The CFPB’s new guidance clarifies that the “time and space” exception does not exempt from the CFPA digital marketing providers that are actively involved in targeting ads, even if the providers “commingle the service of targeting and delivering advertisements with the activities of traditional media sources in providing airtime or physical space.”⁶

Whether a given digital marketing provider will fall within the “time and space” exception depends on whether the digital marketing provider is solely engaged in passively offering ad space (e.g., a single website that offers ad space to a covered person where the ad can be seen by any visitor to the website)⁷ or whether the digital marketing provider is “materially involved in the development of content strategy by identifying or selecting prospective customers and/or selecting or placing content to affect consumer engagement.”⁸

If a digital marketing provider plays a “role in determining which specific consumers see digital advertisements, such as by determining or suggesting to the covered person which users are the most appropriate audience for the covered person’s advertisements,” they are playing the role of a service provider.⁹ This includes digital marketing providers that “target and deliver advertisements to users with certain characteristics, even if those characteristics are specified by the covered person,”¹⁰ as well as digital marketing providers that target and deliver advertisements to particular users that a covered person already identified by name if the digital marketer “targets and delivers the advertisements to those users at specific times to increase or maximize engagement.”¹¹ In his remarks to an association of state attorneys general, Director Chopra elaborated on the CFPB’s interpretation, asserting that “[s]ocial media platforms and other ad networks are not in the business of simply displaying ads, they are part of the persuasion, often playing the role long held by corporate marketing and product development departments.”¹²

Forms of Discriminatory Digital Advertising

The CFPB has not yet brought a public enforcement action alleging that any company has engaged in digital redlining,¹³ but the recent Department of Justice action against Meta Platforms, Inc.¹⁴ (formerly known as Facebook, Inc.) identifies three primary forms of discrimination in the digital marketing context, which may be suggestive of what the CFPB would deem unlawful:

• Protected Trait-Based Targeting: Targeting advertisements to an audience that excludes persons with protected characteristics, such as race, color, religion, sex, or national origin or close proxies for protected characteristics.¹⁵
• Delivery Determinations Based on Protected Traits: Deciding where, when, and to whom an advertisement will be shown based on protected characteristics or close proxies for protected characteristics.¹⁶ In this model, even if a company requests that its advertisements be shown to a broad and diverse audience, the digital marketing provider may show the advertisements to a subset of that audience based in part on protected characteristics or close proxies for protected characteristics.¹⁷
•  “Lookalike” Targeting: Targeting advertisements to persons who “look like” a “source audience” (e.g., existing customers) based, at least in part, on protected characteristics or close proxies for protected characteristics.¹⁸

Of course, this should not be considered an exhaustive list of ways that digital marketing can be discriminatory.

The Bigger Picture

Over the last year, the CFPB has been vocal about its concerns with digital redlining,¹⁹ including the use of ostensibly neutral algorithms that target advertisements to certain consumers and by so doing, exclude others, including members of protected classes. The new guidance builds²⁰ on the CFPB’s March 2022 announcement²¹ that it considers discrimination to be an “unfair” practice. The CFPB is also signaling that it will consider, in partnership with state attorneys general, pursuing UDAAP and discrimination claims against digital marketing providers that work with financial services companies.²²

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Financial institutions or digital marketing providers with questions about the new guidance can reach out to any of the authors or their usual Arnold & Porter contact.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.