Readers of this blog know that market testing can be one of the most efficient ways to gauge the viability of an advertising and marketing pitch. Financial institutions can now take advantage of a program launched by the Consumer Financial Protection Bureau (“CFPB”) that permits companies to market test pre-approved disclosures about consumer financial products.
Under the CFPB’s Trial Disclosure Program and Information Collection Policy, companies can seek the CFPB’s approval to use a specific disclosure while being deemed to be in compliance with applicable federal disclosure requirements – at least by the CFPB.
The Program is notable because it allows companies to use “in-market” testing, something the Federal Trade Commission (“FTC”) and other regulators do not presently have a mechanism to allow. As a result, the ability to truly “test” a disclosure combined with the safe harbor that approved companies obtain, provide a strong incentive for participating in the Program. It’s not at all clear, however, if the “safe harbor” that would be granted by the CFPB would be recognized by the FTC, federal banking agencies, and state Attorneys General and regulators, let alone private litigants.
The CFPB believes the Program may “enhance consumer protection by facilitating innovation…by enabling companies to research informative, cost effective disclosures,” and that “in-market testing…may offer particularly valuable information with which to improve disclosure rules and model forms.”
Key Elements of the Program
- Eligibility – A financial institution seeking a waiver will have to, among other things:
- describe the new disclosures or delivery methods that are to be tested;
- explain how the changes are expected to improve existing disclosures;
- identify the duration of the test, size, location, and nature of the consumer population involved;
- identify any risks of consumer harm;
- list which current rules or laws are to be waived;
- identify any third-party vendors to be used with the proposed test disclosure; and
- explain how the testing company will address disclosure requirements for the test population at the conclusion of the test period.
- Approval Process – The CFPB will consider the following factors when deciding whether to approve a proposed trial disclosure:
- the extent to which the program may help the Bureau develop disclosures;
- the strength and record of the company’s compliance management system; and
- the extent to which the company intends to permit public disclosure of test results.
- Procedures for Issuing Waivers – Companies or groups of companies that receive a waiver will be provided with specific terms and conditions of its approval.
- Public Disclosure of Trial Program – The Bureau will publish notice on its website of any trial disclosure program that it approves for a waiver.
CFPB’s Focus on Disclosures
The finalization of the trial disclosure policy comes on the heels of signaling increased scrutiny of disclosures in credit card advertising and marketing. The Program is part of the CFPB’s Project Catalyst, an initiative designed to support innovation in the creation and servicing of consumer financial products and services, consistent with the agency’s reputation as a “Beltway Startup,” as related in this article by Jonathan Pompan.
As noted in our October 15 blog, the CFPB has signaled that it will be scrutinizing the effectiveness of disclosures made to consumers. While many consumer financial laws mandate specific disclosures, financial institutions regulated by the CFPB still have to adhere to basic advertising principles that all express and implied claims conveyed to consumers must be truthful and substantiated. Per the FTC’s longstanding guidance in this area, a disclosure can only qualify or limit a claim to avoid a misleading impression; it cannot cure a false claim. In addition, if a disclosure is required to prevent a claim from being misleading or deceptive or to assist consumers in making better-informed decisions, the disclosure must be clear and conspicuous.