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Oct19 - 22

CFPB Sues Global Payments Unit

Dive Brief:

  • The Consumer Financial Protection Bureau on Tuesday sued Active Network in U.S. District Court for Eastern Texas, saying the Plano, Texas unit of Global Payments used deceptive marketing to sign consumers up for club memberships that extracted $300 million in fees from enrollees, and provided only $8.4 million in benefits.

  • In an accompanying blog post, CFPB Director Rohit Chopra said the lawsuit provided a reminder of areas where the federal agency is cracking down, including on illegal payment schemes, junk fees and deceptive “dark patterns.”
  • “The CFPB is suing ACTIVE Network for illegally charging hundreds of millions of dollars in enrollment fees through its use of digital dark patterns and online trickery,” Chopra said in the agency’s press release. “People who thought they were just signing up to run in a charity race found out too late that the company was running away with their money.”

Dive Insight:

The payment services of Active Network were used by organizations, including the YMCA, to register consumers for events, like 5K runs, that sought to raise money for camps, cancer research, animal rescues and special needs children, among other causes, the CFPB said in the release. In the process of signing up for those events, Active Network used deception and unlawful marketing to funnel consumers into membership with its “discount club” Active Advantage, the CFPB said.

Atlanta-based Global Payments referred a request for comment to Active Network. A spokesperson for that company provided this comment by email: The “lawsuit by the CFPB against Active Network regarding a single product is frivolous and without merit.” Active Advantage “has been reviewed by multiple federal and state regulators, including the Federal Trade Commission,” and it has “nothing to do with the provision of consumer financial services, making the CFPB’s action outside the scope of the agency’s authority.”

Global Payments agreed to buy divisions of Active Network for $1.2 billion in cash and stock from Vista Equity Partners in August 2017, according to the Wall Street Journal.

The automatic Active Network trial membership, with an annual fee of $89.95, gave consumers 30 days to cancel the membership, leading to enrollment for many, according to the CFPB release. Ultimately, the membership didn’t provide the value that Active Network suggested, and the company increased the fee without notifying consumers, the CFPB said.

Those tactics in use over the past decade, since July 2011, generated the $300 million for Active Network, but only provided a fraction of that in benefits for consumers, the agency said.

The company “automatically and unlawfully enrolled families into its discount club by using digital duplicity,” the agency said in the release. “Consumers, many of whom just thought they were registering for a community race or event, ended up being enrolled into a costly membership club.”

The tactics add up to a violation of the Consumer Financial Protection Act by enrolling consumers and charging them for the memberships “without their knowledge, consent, or a full understanding of the material terms of the transaction,” the press release said.

The company 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 agency said.

The lawsuit and its allegations provided the CFPB with an opportunity to put companies on notice regarding three areas of scrutiny for the agency, Chopra said in a separate blog post on the agency’s action against Active Network.

First, the lawsuit should serve as a reminder that the agency is monitoring for “dark patterns” in which companies use “hidden tricks and trapdoors” to lure consumers into inadvertently clicking on links, signing up for services or buying products. Second, the move continues the agency’s campaign against junk fees that saddle consumers with fees they didn’t want or provide no value.

Finally, the agency is on the hunt for payments systems that unfairly subject consumers to data-harvesting or fees. “Technology should help Americans make payments seamlessly and know how much they are transferring and to whom,” Chopra said in the post.





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