Compliance management Consumer protection laws Fintech Primers

Fintech Web Ads Should Comply with Federal Consumer Finance Protections

Fintech Web Ads Should Comply with Federal Consumer Finance Protections

Are fintech marketers overlooking Consumer Finance laws? Would it cost fintech money and reputation if they were found to be neglecting, or worse, exploiting the gaps in way fintech web ads are monitored? In this article, we have highlighted the reasons why CFPB had to sternly warn fintech web ads and marketing teams against neglecting federal consumer finance protection laws.

Digital marketing and native advertising tactics for Fintech products work in similar fashion as that of any other product. However, there needs to be a stronger legal framework to govern fintech advertisers. Behavioral targeting of consumers using financial products and solutions could be violating federal consumer financial protection law. In order to bring all fintech advertisers under one roof of legal governance, the Consumer Financial Protection Bureau (CFPB) had announced an imperative rule. This rule lays down the various nuances of marketing and advertising of financial products in compliance with the existing federal consumer financial protection law.

Advertising Budgets in Fintech Space

It is impossible to think of customer experience management and automated notifications in fintech without targeted ads campaign. Fintech is one of the world’s biggest advertising market. Consumer now prefer to pay using mobile apps and fintech platforms instead of cash. In the wake of the pandemic lockdown, advertisers targeted fintech space to boost their targeting tactics and enhance their marketing visibility. In many ways, fintech advertisers have been at the forefront of technology use for behavioral targeting. The trends pertaining to gamification, LTV, CTV, live streaming and influencer marketing show how Fintech advertisers have not only manged to stay ahead of the technology curve during the pandemic but also distinctly hired most number of people in their marketing and advertising teams to grow business prospects during uncertain times. Whether you are a direct to consumer brand or core Fintech player, you are both competing in the same digital advertising ecosystem. With many Fintech companies looking to find, serve and retain the new group of audiences, web and mobile advertising using behavioral targeting strategies continue to grab eyeballs.

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And, that’s why federal law policy makers have found loop holes.

According to CFPB, Fintech-focused digital marketers that are involved in the identification or selection of prospective customers or the selection or placement of content to affect consumer behavior are typically service providers for purposes of the law. Digital marketers acting as service providers can be held liable by the CFPB or other law enforcers for committing unfair, deceptive, or abusive acts or practices as well as other consumer financial protection violations.

“When Big Tech firms use sophisticated behavioral targeting techniques to market financial products, they must adhere to federal consumer financial protection laws,” said CFPB Director Rohit Chopra. “Federal and state law enforcers can and should hold these firms accountable if they break the law.”

Today, every fintech players wants to be accessible on smartphone or smart devices. There are 22 billion smart devices, and having access to these devices means having a large database of information that could potentially be compared to gold mine of marketing analytics. Now, to reach this audience base and convert them into users and customers would require marketing muscle, which can only be derived from having more first party data mined through tactical advertising channels. So, Fintech is using Marketing technologies, Advertising technologies (Martech/ Adtech) with data science (AI, ML and NLP) to break the barriers in behavioral targeting.

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Digital marketing providers have transformed advertising. Traditional advertising relies on getting a product or service out to as wide an audience as possible. A traditional marketer, for example, may try to purchase time and space for a TV commercial on the most watched station or show. Digital marketers, on the other hand, seek to maximize individuals’ interactions with ads. They may harvest personal data to feed their behavioral analytics models that can target individuals or groups that they predict are more likely to interact with an ad or sign up for a product or service.

When digital marketing providers go beyond traditional advertising, they are typically covered by the Consumer Financial Protection Act as service providers. The Act contains an exception for companies that solely provide time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media. However, the CFPB stated today that the exception does not cover firms that are materially involved in the development of content strategy.

Financial firms rely on the expertise and tools of digital marketing providers that offer sophisticated analytic techniques, aided by machine learning and advanced algorithms, to process large amounts of personal data and deliver highly targeted ads. Financial firms use behavioral analytics to connect with potential customers. However, depending on how these practices are designed and implemented, behavioral marketing and advertising could subject firms to legal liability.

Today’s interpretive rule explains:

  • Digital marketers provide material services to financial firms: A material service is one that is significant or important. Digital marketing providers are typically materially involved in the development of content strategy when they identify or select prospective customers or select or place content in order to encourage consumer engagement with advertising. Digital marketers engaged in this type of ad targeting and delivery are not merely providing ad space and time, and they do not qualify under the “time or space” exception.
  • The CFPB, states, and other consumer protection enforcers can sue digital marketers to stop violations of consumer financial protection law: Service providers are liable for unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Act. When digital marketers act as service providers, they are liable for consumer protection law violations.

As new laws come into picture to govern Fintech web ads, we would need stronger knowledge management, and technology support to ensure data privacy and security of Fintech users and customers.

[To share your insights with us, please write to sghosh@martechseries.com]

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