June 25, 2022

Volume XII, Number 176

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CFPB Issues Warning About Contractual Gag Clauses and Consumer Reviews

On March 22, 2022 the CFPB issued a policy statement on contractual “gag” clauses and fake review fraud.  While the bulleting indicates that financial companies will face consequences for illegally manipulating or suppressing consumer reviews, the message is one with broader implications for all digital marketers.

The policy guidance regarding potentially illegal practices related to consumer reviews seeks to ensure that customers can write reviews, particularly ones posted online, about financial products and services that accurately reflect their opinions and experiences.  The guidance also highlights that practices such as posting fake reviews or inserting clauses that forbid a customer from publishing an honest review may violate the Consumer Financial Protection Act.

“In America, no corporation should be able to silence a customer from posting an honest review online,” said CFPB Director Rohit Chopra.  “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 guidance describes certain business practices related to customer reviews that are generally unlawful under the Consumer Financial Protection Act, including: (i) Contractual ‘gag’ clauses: attempting to silence consumers from posting an online review can undermine fair competition.  Banks and financial companies that include clauses in form contracts that forbid a consumer from posting an honest review may be engaged in unfair or deceptive practices; (ii) Fake Reviews: Markets can be harmed if consumers cannot trust that online reviews are legitimate.  Laundering fake reviews in ways that appear completely independent from the company to improve their ratings may constitute a deceptive practice; and (iii) Review Suppression or Manipulation: Consumers cannot easily shop and compare products and services when firms engage in practices to limit the posting of negative reviews or manipulate reviews to trick or confuse consumers.

Importantly, companies can engage in unfair, deceptive and abusive acts and practices by manipulating consumers’ understanding of consumer reviews by, for example: (i) instructing employees to leave reviews of its products on a third-party website, and also to ”dislike” negative reviews left by genuine customers; and failing to approve or publish hundreds of thousands lower-starred, more negative reviews.

The CFPB’s policy statement is related to the efforts taken by the Federal Trade Commission in order to deter fake reviews and related fraud across the digital economy.  In fact, the FTC recently voted  to put hundreds of businesses on notice about fake reviews and misleading endorsements, which may result in significant penalties against marketers that engage in this misconduct.

Banks and financial companies should also ensure that their customer review practices comply with all applicable laws, including the Consumer Financial Protection Act.  Violations are subject to civil penalties and other legal consequences.

Regardless of the specific vertical, digital marketers should consider consulting with an experienced FTC attorney in order to design and implement best practices, including, but not limited to, responsible contracting, and ensuring first and third party compliance with FTC endorsement guidance.

© 2022 Hinch Newman LLPNational Law Review, Volume XII, Number 89
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About this Author

Richard Newman, FTC Defense Lawyer, Internet Marketing, Hinch Newman Law Firm

Richard B. Newman is a nationally recognized FTC defense lawyer and advertising compliance attorney.  He regularly provides advertising counsel and represents clients in high-profile investigations (CIDs) and enforcement proceedings initiated by the Federal Trade Commission, state attorneys general, departments of consumer affairs, and other federal and state agencies with jurisdiction over advertising and marketing practices.  Richard’s practice also concentrates upon transactional matters relating to the dissemination of national advertising campaigns, including the...

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