Last week, the CFPB filed a lawsuit against ACTIVE Network LLC (“Active”), an online event registration company, in a Texas federal district court alleging that the company is deceiving customers into joining its fee-based membership club, “Active Advantage.”  Event organizers seeking to host community activities such as youth camps and charity race events contract with Active to provide online registration and payment processing services.  The Complaint alleges that, prior to the completion of those transactions, online consumers were presented an Active Advantage insert offer page through which many believed they were merely confirming their event enrollment but who were in actuality enrolling in the membership club and subsequently automatically charged annual fees following a short trial period. 

The Complaint alleges Active’s enrollment processes for this service are in violation of the Consumer Finance Protection Act’s prohibitions on deceptive and abusive acts or practices.  The Complaint further alleges that Active’s failure to timely notify enrollees of a recent subscription fee increase was a violation of the Electronic Fund Transfer Act.  The CFPB lawsuit seeks an order permanently enjoining Active from the allegedly unlawful enrollment and notification practices, reimbursement to consumers, and assessment of a civil penalty. 

The CFPB alleges Active should have been aware of the misleading nature of its enrollment practices due to consistently high rates of credit card chargeback requests, numerous consumer complaints, and its own internal data revealing confusion and an intent to mislead.  The Complaint alleges that the chargeback rates – the number of customers disputing the subscription fee – for the Active Advantage program were “exceedingly high,” at times more than quadruple the amount “major credit card network rules deem concerning.”  It claims that Active’s internal documents show that, for one year of the program’s existence, about 72% of the consumers who were enrolled in the program and requested refunds were “’unaware’ of their membership.”  The Complaint further alleges utilization of the programs benefits showed less than three percent of the fees collected were ever used for the programs’ benefits, which included “discounts for processing fees, beer and wine tastings, sports apparel, flowers, travel, lodging, and race registrations” (i.e. consumers allegedly redeemed only $8.4 million of the $300 million collected by Active). 

Finally, the Complaint alleges that the online enrollment “insert offer page” that was presented during the online registration and payment transaction was designed to mislead consumers.  According to the CFPB, internal Active documents show that it rejected more descriptive click button labels “Start Free Trial,” “Enroll,” and “Accept Membership” in favor of the more ambiguous label of “Accept,” after finding that the more descriptive terms resulted in “significantly lower enrollment rates.” 

In addition to alleging that Active’s enrollment practices were deceptive, the CFPB alleges that the practices were abusive.  According to the CFPB, the use of the “insert offer page” during the online payment transaction interfered with consumers’ ability to understand that by providing information on the enrollment page and clicking on the “Accept” button, the consumers would be enrolled in the fee-based “Active Advantage” membership club.

Active has not yet formally responded to the Complaint, but according to media sources, has called the CFPB’s lawsuit “frivolous and without merit.”  In addition, Active has challenged the CFPB’s authority to bring the action, stating that the company “has nothing to do with the provision of consumer financial services, making the CFPB’s action outside the scope of the agency’s authority.”  Director Chopra has framed the Complaint as part of the CFPB’s focus on discouraging industry “digital dark patterns,” reducing “junk fees” associated with goods that consumers did not intend to purchase or that ultimately have little value, and generally increasing transparency for digital payment platforms.  In January 2022, the CFPB launched a “junk fees” initiative by issuing a request for information on fees imposed by providers of consumer financial products or services.

Because it was filed in a federal district court in the Fifth Circuit, the lawsuit is likely to be stayed pending the ultimate resolution of Community Financial Services Association v. CFPB in which a Fifth Circuit panel held that the CFPB’s funding mechanism violates the Constitution’s Appropriations Clause and separation of powers principles.