InfoBytes Blog

California Court Holds Website Link To Fair Usage Policy Not Conspicuous Enough To Indicate Limits to Term "Unlimited"

On October 4, the California Court of Appeal held that the disclosure of limits to an “unlimited” calling plan in a linked Fair Usage Policy was not sufficiently conspicuous to support a lower court’s judgment as a matter of law that the calling plan was not misleading.  Chapman v. Skype, Inc., B241398, 2013 WL 5502960 (Cal. Ct. App. Oct. 4, 2013). The putative class action complaint alleged violations of California’s Unfair Competition Law, false advertising law, and Consumer Legal Remedies Act, in addition to common law intentional and negligent misrepresentation and unjust enrichment claims. The calling plan in question was advertised as “unlimited,” but included a link to a Fair Usage Policy that explained that the plain was limited to 6 hours per day, 10,000 minutes per month, and 50 numbers called each day. The defendant argued that it had adequately disclosed these limits, but the plaintiff claimed that the terms in the Fair Usage Policy contradicted the word “unlimited” in the plan’s description. The trial court had dismissed all claims without leave to amend. The Court of Appeal held that plaintiff had adequately alleged violations of the statutory provisions, and should be permitted to amend her complaint as to her inadequately pled common law claims. The court concluded that the plaintiff had alleged sufficient facts to create a question of fact as to whether consumers were likely to be deceived by the plan terms, noting that under the applicable laws the plaintiff did not need to show that the use of the word “unlimited” was actually false, but rather that such use was misleading. The court thus instructed the trial court to vacate its order sustaining the defendant’s demurrer as to the statutory claims, and to allow plaintiff to amend the complaint as to the common law claims.

Disclosures

CFPB Finalizes Trial Disclosure Policy

On October 3, the CFPB finalized the trial disclosure policy proposed in December 2012 as part of Project Catalyst, which allows companies to apply for a waiver to test potential disclosure improvements on a trial basis.  The Bureau did not make substantive changes to the final policy but clarified certain aspects based on the public comments.

Most comments to the proposed policy concerned the approval process for trial disclosure programs.  First, the Bureau clarified that it would welcome collaboration and cost-sharing among participants, so long as all entities involved are specifically identified.  Second, the Bureau clarified that potential participants may use ProjectCatalyst@cfpb.gov as a point of contact to request a preliminary discussion of a potential trial disclosure prior to submitting an application.  Third, the Bureau clarified that the policy is intended to accommodate iterative testing of disclosures and that, in cases where subsequent iterations are appropriate, it will follow a staggered approach to waiver approval.

In response to requests for clarification on the scope of the safe harbor provision, the Bureau clarified that entities approved for a waiver will generally be shielded from private litigation under federal law by consumers and generally from enforcement proceedings by other federal regulators, so long as their conduct accords with the terms of approval.  The Bureau will work to coordinate with state regulators.  Entities will be given an opportunity to dispute a potential revocation of a waiver before it is issued.

The Bureau declined requests by consumer groups to subject proposed disclosures to full notice and comment, to make qualitative testing an absolute requirement for test approval, to provide consumers notice and the chance to opt out of testing, and to make test results public.

CFPB Disclosures

CFPB Credit Card Report Identifies Practices For Further Scrutiny

On October 2, the CFPB released its first review of the consumer credit card market. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act) requires the CFPB to prepare a report every two years to examine developments in the consumer credit card marketplace, including (i) the terms of credit card agreements and the practices of issuers, (ii) the effectiveness of disclosures, and (iii) the adequacy of UDAP protections. The CFPB also must review the impact of the CARD Act on (i) the cost and availability of credit, (ii) the safety and soundness of issuers, (iii) the use of risk-based pricing, and (iv) product innovation. In connection with this initial report, the CFPB hosted a credit card field hearing in Chicago, IL, at which Director Cordray reviewed the report’s findings and industry representatives and consumer advocates discussed the current state of the credit card market.

In its review of the post-CARD Act market, the CFPB found that the CARD Act largely accomplished its intended goals. The CFPB reports that: (i) the total cost of credit declined by two percentage points between 2008 and 2012; (ii) overlimit fees and repricing actions have been effectively eliminated; (iii) the size of late fees has decreased; (iv) there is sufficient available credit, notwithstanding the impacts of the financial crisis, but less than in 2007; and (iv) the CARD Act’s ability-to-repay provisions have protected young consumers.

However, the CFPB identifies numerous concerns it has about the credit card market, including “practices that may pose risks to consumers and may warrant further scrutiny by the Bureau.” Those concerns include:

• Add-on products: The CFPB remains concerned about the ways these products are marketed and will continue to pursue allegedly deceptive practices. All of the CFPB’s major enforcement actions to date have involved add-on products, most of which related to credit cards.
• “Fee harvester” cards: The CFPB recognizes that some upfront fees that exceed 25% of the initial credit limit have been held not to be covered by the CARD Act because a portion of the fees are paid prior to account opening. Still, the CFPB plans to monitor the use of application fees in connection with account openings to determine if it should take action under its available authorities.
• Deferred interest products: The CFPB intends to study the risks and benefits of private label cards that finance purchases without interest for a period of time but then assess interest retroactively if the balance is not paid in full by a given date.
• Online disclosures: The CFPB intends to assess the methods by which card issuers provide consumers with disclosures when they access their accounts online.
• Rewards products disclosures: The CFPB will review whether disclosures for “highly complex” rewards products are being made in a clear and transparent manner and whether “additional action” is warranted.
• Grace period disclosures: The CFPB believes it may need to take action to ensure that disclosures sufficiently inform consumers that once they carry a credit card balance into a new billing cycle, they no longer enjoy the grace period on new purchases.

Credit Cards CFPB Disclosures Ancillary Products CARD Act

Ninth Circuit Affirms Preemption of State Law Claims Asserting National Bank Mislead Consumers by Failing to Make Material Disclosures

On May 22, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court's holding that the National Bank Act (NBA) preempts state disclosure requirements on a bank's deposit-related activities. Robinson v. Bank of Am., N.A., No. 11-57194, 2013 WL 2234073 (9th Cir. May 22, 2013). In this case, the bank charged a customer a fee for using a cash-access account, which could be avoided by withdrawing all funds from the account each month before the fee was assessed. The customer alleged that the failure to disclose the ability to avoid the fee violated, among other things, California's Consumer Legal Remedies Act and Unfair Competition Law. The district court dismissed the case, holding that the NBA preempts state laws that attempt to regulate disclosures of national banks on deposit accounts. The district court also rejected the customer’s argument that state laws that require all businesses generally (as opposed to banks in particular) to refrain from misrepresentations and from fraudulent, unfair, or illegal behavior cannot be preempted by the NBA. The Ninth Circuit affirmed the dismissal on the same grounds.

Disclosures National Bank Act

FTC Updates Guidance for Mobile and Internet Advertising Disclosures

Yesterday, the FTC released guidance for mobile and other online advertisers. The new guidance, “.com Disclosures: How to Make Effective Disclosures in Digital Advertising,” adapts and expands prior FTC guidance to account for a decade’s worth of additional experience with online marketing practices, consumers’ increasing use of smartphones, and merchants’ increasing use of social media marketing.

The new guidance highlights several key considerations for businesses as they develop advertisements for online and mobile media:

• The same consumer protection laws – e.g. UDAP – that apply to commercial activities in other media apply online and in the mobile marketplace.
• Limitations and qualifying information should be incorporated into any underlying claim, rather than provided as a separate disclosure qualifying the claim.
• Marketing materials that may be viewed on a variety of platforms, including handheld devices, should be designed so that required disclosures are effectively delivered on all of the platforms.
• Required disclosures must be clear and conspicuous, as determined by numerous factors.
• If a disclosure is necessary to prevent an advertisement from being deceptive, unfair, or otherwise violative of a FTC rule, and it is not possible to make the disclosure clearly and conspicuously, then that ad should not be disseminated.

To meet the clear and conspicuous standard, the FTC reminds advertisers that, generally, a disclosure should be placed as close as possible to the trigger claim, and that they should take account of the devices and platforms consumers may use to view the advertisement and disclosure. The FTC offers other specific guidance, with corresponding examples, for complying with the clear and conspicuous standard in online and mobile advertisements:

• When a space-constrained ad requires a disclosure, incorporate the disclosure into the ad whenever possible. When it is not possible it may be acceptable to make the disclosure clearly and conspicuously on the page to which the ad links.
• Hyperlinks used to lead to a disclosure should (i) be obvious, (ii) be labeled appropriately to convey the importance and relevance of the information it leads to, and consistently formatted, (iii) be placed as close as possible to the relevant information it qualifies, (iv) take consumers directly to the disclosure on the click-through page, and (v) be monitored for effectiveness and changed, if necessary.
• Avoid requiring consumers to “scroll” in order to find a disclosure, or, when necessary, use text or visual cues to encourage consumers to scroll to view the disclosure.
• Determine screen placement based on empirical research about where consumers do and do not look.
• Recognize and respond to any technological limitations or unique characteristics of a communication method.
• Display disclosures before consumers make a decision to buy, and consider repeating disclosures before a purchase is finalized.
• Repeat disclosures, as needed, on lengthy websites and in connection with repeated claims.
• For products intended or able to be purchased from “brick and mortar” stores or from online retailers other than the advertiser itself, the disclosure should be presented in the ad itself.
• Prominently display disclosures, based on an evaluation of the size, color, and graphic treatment of the disclosure in relation to other parts of the webpage. Do not relegate disclosures to “terms of use” and similar contractual agreements.
• Review the entire ad to assess whether the disclosure is effective in light of other elements that might distract consumers’ attention from the disclosure.
• Use audio disclosures when making audio claims, and present them in a volume and cadence so that consumers can hear and understand them.
• Display visual disclosures for a duration sufficient for consumers to notice, read, and understand them.
• Use plain language and syntax so that consumers understand the disclosures.

The updated guidance, and especially the FTC’s emphasis on the ability of marketing materials to effectively deliver disclosures across multiple platforms, should lead businesses with online marketing programs to carefully review and re-assess their marketing materials and methods of presentation.

Fraud FTC Disclosures

CFPB Proposes Trial Consumer Disclosure Program

On December 13, as part of its Project Catalyst, the CFPB proposed a new policy that will allow financial institutions to conduct trial consumer disclosure programs. Participating firms would receive time-limited exemptions from federal disclosure laws in exchange for sharing with the CFPB the results of their trial disclosures. According to the proposed policy, firms seeking to participate in the program will need to submit to the CFPB information about the proposed disclosure program, including (i) the type of disclosure and laws to be waived in connection with the program, (ii) the proposed changes, expected improvements from the changes, and metrics for evaluating the improvements, (iii) the duration of the test and the size, location, and nature of the consumer population involved in the test, and (iv) the names and planned roles of any third-party vendors. In considering proposed trial disclosures, the CFPB will evaluate, among other factors, (i) how effectively and efficiently the proposed trial will test for potential improvements to consumer understanding about the costs, benefits, and risks of products and services, (ii) how the proposed trial will help develop more cost-effective disclosure rules or policies, (iii) the extent to which the program is designed to mitigate any risk to consumers, (iv) the extent to which the program may help the CFPB develop rules or policies to correct or mitigate market failure, and (v) the strength of the company’s compliance management system relative to the size, nature, and complexity of the company’s consumer business. The proposal is subject to a 60-day notice and comment period, which begins once the proposal is published in the Federal Register.

CFPB Disclosures