CFPB Cracks Down on Subscription Fees

Source: S&P Global Markt Intelligence

The Consumer Financial Protection Bureau on Jan. 19 told companies they need to "clearly and conspicuously" disclose terms of subscription services that automatically renew or those with recurring fees—a move that could have a significant impact on banks and financial services companies.

The CFPB issued a circular targeting "negative option" subscription services that automatically renew unless the consumer affirmatively cancels. The guidance also includes trial marketing programs that charge a reduced fee for an initial period and then automatically begin charging a higher fee.

"Companies risk violating the law if they do not clearly and conspicuously disclose the terms of their subscription services and obtain consumers' informed consent, or if they make it unreasonably difficult for consumers to cancel," the CFPB said in a news release.

The agency indicated concern about practices at banks and financial services companies by referring to previous legal action against TransUnion for deceptive marketing and against payment platform ACTIVE Network.

Attorneys said the circular could have a big impact on the financial community.

"'Negative option' subscription programs, such as automatic renewal plans, continuity plans, or trial marketing plans, are common across the market, including in the market for consumer financial products and services, and such programs can take a variety of forms," Eamonn Moran, senior counsel at Norton Rose Fulbright, said in written comments.

James Kim, a partner at Troutman Pepper who formerly worked on enforcement matters at the consumer watchdog, said the circular "signals that the CFPB will look at these issues during examinations of banks and other companies" under the agency's supervisory authority. He noted that while the Federal Trade Commission has been "leading the charge" on negative options and recurring fees, the CFPB adds to that analysis by saying companies must comply with the "abusive" prong of the prohibition against unfair, deceptive or abusive acts or practices.