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Thursday, October 20, 2022

CFPB slams Global's Active Network over alleged trickery

The Consumer Financial Protection Bureau is taking to task a payments company that helps register folks for fundraising events, alleging the firm tricked consumers into signing up for club memberships they never used, to the tune of about $300 million.

The CFPB disclosed this week it is suing Active Network LLC in U.S. District Court for the Eastern District of Texas, alleging the Plano, Texas-based firm tricked people registering for fundraising events into enrolling in its annual subscription discount club through the use of "digital dark patterns" and other forms of online deception.

Active Network has been in business since at least 2011 and is used by organizers of charity events, such as fundraising races and YMCA camps, to register and accept payments from participants. The company also operates Active Advantage, a paid membership club offering discounts for products and activities that are rarely related to fundraising events supported on the other side of the house.

Designed to deceive

In 2017, Active Network was acquired by Global Payments for $1.2 billion. In 2019, the company earned about $195 million in revenue, and had an equity value of roughly $1.2 billion, according to the CFPB's court filing.

Over the past decade, the CFPB alleges, Active Network has seen enrollments in Active Advantage skyrocket through the use of "dark patterns." Dark patterns are hidden tricks or trapdoors built into websites that trick consumers into clicking links that unknowingly get them to sign up for subscriptions or to purchase products and services.

In the case of Active, the consumer watchdog agency claims, a webpage built into its online event registration and payment process looked like an "accept" button registrants clicked to accept event participant charges, when in fact they were enrolling in an Active Advantage trial membership. Unless the person clicking proactively opted out of the trial, the annual enrollment fee for Active Avantage would kick in in 30 days.

"People who thought they were just signing up for a charity race found out too late that the company was running away with their money," said CFPB Director Rohit Chopra.

Since July 21, 2011, the CFPB claims, Active has generated more than $300 million in fees from about 3 million Active Advantage memberships through the challenged enrollment scheme, with members redeeming just a fraction of alleged membership benefits. Between July 2011 and early 2020, consumers who enrolled in Active Advantage through alleged trickery redeemed just $8.4 million in benefits.

Two states—Iowa and Vermont—have sanctioned Active Network for violating state consumer protection laws through this scheme, but the subsequent settlements apply only in those individual states.

Chargebacks, complaints mounted

The CFPB is alleging Active violated the Consumer Financial Protection Act by enrolling consumers in and charging them for discount club memberships they didn't even know existed. The company went so far as to conduct real-time marketing tests in developing this so-called "inserted offer" to determine how best to maximize enrollment rates, the CFPB asserted in its court filing.

Active also is alleged to have violated the Electronic Funds Transfer Act when it raised the annual Active Advantage membership fee, from $79.95 to $89.95, without providing any prior notice to members, according to the complaint.

"Active had multiple opportunities to stop its illegal practices given high rates of credit card chargebacks, numerous customer complaints, and Active's own data revealing that a significant number of consumers had been misled into Active Advantage enrollments," the CFPB said in a statement. "Nevertheless, Active continued to trick consumers with dark patterns and surprise charges."

The consumer watchdog agency wants the courts to put a halt to the practice, and award financial damages and restitution to the affected parties.

CFPB has eyes on payments

In a statement Chopra said the lawsuit against Active illustrates several areas of focus for the CFPB.

First, is the use of digital dark patterns by financial services firms. "Dark patterns are design features used to deceive, steer or manipulate users into behavior that is profitable for a company, but often harmful to users or contrary to their intent," Chopra said.

Earlier this year, the CFPB secured a $17 million settlement with credit reporting agency TransUnion for a similar trickery that got consumers to sign up for its credit monitoring service.

The bureau also is looking into ways to reduce unwanted junk fees. "Too many consumers are finding that they are charged fees for so-called services that they did not want or provide no value at all," Chopra said. He pointed to the Active lawsuit as an example.

"Finally, we are working to ensure our payments system is working safely and fairly," Chopra said. "Technology should help Americans make payments seamlessly and know how much they are transferring and to whom. We will continue to look at how payment platforms extract data and fees from their users." end of article

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