Payment processors: are you ready to discover “dark patterns”? | Venable LLP
Risk management personnel who underwrite e-commerce merchants must have a basic understanding of the types of marketing and sales practices of online merchants that are deceptive and misleading. More than a decade of enforcement actions by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) against payment processors that failed to act on red flags – high chargebacks, consumer complaints, shell companies with straw owners and other evidence of consumer harm – providing a catalog of merchant activity that regulators don’t want processors to support.
The latest buzz in consumer protection has focused on “dark models”, a term coined by a user experience designer in 2010 to describe manipulation tactics that induce consumers to perform an action that they otherwise would not have performed had they understood what they were acting on at the time. These actions can trick unwitting consumers into purchasing items, sharing information, and agreeing to legal terms without intending to.
Last year, the FTC breathed new life into “dark patterns” by hosting a workshop to examine how dark models affect consumer behavior, whether certain consumer groups are unfairly targeted by dark models, and how user interfaces can affect decision-making and choice. The FTC then issued a new application policy warning merchants against using illegal dark schemes to “trick or trick” consumers into subscription services. Most recently, in September 2022, the FTC released a comprehensive staff report, Highlight dark patternswhich concluded, among other things, that dark patterns are more dangerous to the consumer when used in combination. Read our summary here how the FTC classified the design elements that contribute to the dark patterns and key findings of the FTC report. The FTC has also asked online advertisers to weigh in on dark patterns when it comes to potential updates to the FTC’s “Dot.Com Disclosures”.”
The FTC is not alone in its mission. The The CFPB filed a complaint in April 2022 against a national credit bureau alleging that the features and design of the website obscured the nature of the offer – a monthly subscription to a credit monitoring service. Earlier this year, the New York Attorney General alleged that Reportage violated New York law prohibiting unfair and deceptive practices by creating a false sense of urgency with a “remaining tickets” message accompanying flight search results. Dark pattern allegations are also beginning to appear in private prosecutionincluding a case filed last year against Noom, Inc. in which the plaintiff described subscription sign-ups as being based on “deceptive system designs on websites and apps that exploit frailties in human cognitive processing” .
How to Spot Dark Patterns
If dark patterns haven’t hit your radar yet, the examples below are some of the most likely to pose risk management challenges for processors and payment facilitators, as they are some of the most likely to cause consumers to part with their money. For more examples and visuals, review our webinar on dark patterns.
- Sneak into the basket. This design results in adding an additional item to the consumer’s cart during checkout, or prompting consumers to add the additional item through a default choice. Consumers who rush through the checkout process and don’t catch the add-on will be charged for something they didn’t intend to order, or maybe even signed up for a subscription they didn’t. had no intention of trying.
- Motel Gardon. This design makes it easy for the consumer to get into a certain situation (like a subscription billing plan), but very difficult to get out of it. Note that a recent trend in state laws governing subscriptionsespecially in Californiais to require merchants to provide a simple cancellation mechanism that does not prevent the consumer from stopping an auto-renewing billing and shipping program.
- Forced continuity. Continuing with the subject of subscriptions and negative options, forced continuity can occur when a consumer provides credit card information to pay for a low-cost or free trial offer and later finds out they have been signed up. to a recurring billing program that can be difficult to stop. Although this concern has been around for years, it is now referred to as a “dark pattern” by regulators.
- Hidden costs. Have you ever wondered why the cheeseburger and fries you ordered were originally priced at $14.99 but cost you $35.99 to have it delivered? Service charges (which may or may not be a tip), delivery charges, “care and handling” and other creative but vague charges often show up at the last minute. It may only be a matter of time before a 3% surcharge added to a heavy restaurant bill, especially without proper signage or notice that you could avoid it by paying cash, is classified as a dark reason, even if Visa and Mastercard know the merchant is overcharging. Of course, merchants must adhere to card brand rules regarding fees and surcharges.
- Prevention of price comparison. What is the best deal: (a) bulk apples at $0.75 each; (2) a bag of apples at a price of $1.25 per pound; or (3) 6 pears for $4.45? When you take this concept and apply it to subscriptions to expensive skincare products of various sizes and types, add potentially confusing savings claims and trick consumers into choosing the most expensive offer because that it is better, regulars will see this as a dark pattern.
- Intentional misdirection. This practice occurs when the website is deliberately designed to draw the consumer’s attention to one thing in order to divert attention from something else. This can cause the consumer to miss extra or hidden charges, say yes to a continuity program, or add shipping insurance they didn’t want. The rule of thumb for providing necessary information and making adequate disclosures about a sale has always been to provide that information in a “clear and visible” manner. Intentional misdirection challenges that direction.
- Trick questions. Consumers are often asked to tick boxes to give their consent or accept the terms. But when the merchant crafts the question to trick the consumer into giving an answer they didn’t intend, it can be a dark pattern. Examples include confusing options to avoid receiving communications or products, such as two side-by-side checkboxes:
[ ] No, please do not send me marketing information about merchant sales and promotions.
[ ] No, please do not unsubscribe me from the subscription following the merchant’s free trial.
- Bait and switch. This tactic involves tricking the consumer into believing that their action will have a result, but instead a different or undesirable result occurs. For example, most of us use an “x” button in the upper right corner of a window to close the window. However, if clicking the “x” button causes the window to close and authorizing a download, agreement or purchase, this practice would be considered a bait and switch.
- False sense of urgency or scarcity. This marketing technique is as old as time, or at least as old as countdown timers that were first used on e-commerce checkout pages. In today’s regulatory climate, it is classified as a dark pattern. Marketers can give consumers a false sense of urgency or scarcity by urging them to act quickly for fear of missing out on a price or offer. An example: buy plane tickets online and see “There are only 2 left at this price!” next to some options, when this is not the case.
Of course, not all dark schemes can rise to the level of being deceptive or illegal. Consider, for example, “Confirmshaming” – used to describe circumstances in which a website attempts to pressure people into signing up for something by making them feel guilty or ashamed, often because the response refusal is worded in a way that shames people into signing up. Consider this Example:
Question: “Would you like our free guide to gardening?”
Response options: “Yes, please!” or “No thanks, I know all about gardening.”
This interaction, by itself, probably won’t hurt the feelings of most people who want to pass on the free guide. However, if clicking “yes” to get the free gardening guide deceptively enrolls the consumer in a subscription program that is barely disclosed in fine print, then the practice has crossed the line. Risk management and underwriting staff responsible for website reviews should be trained in spotting dark trends and evaluating them thoroughly.
What is the conclusion for payment companies?
When “dark patterns” lead consumers to make purchases or enroll in subscription programs, it is easy for the FTC or CFPB to allege that a processor knew or should have known that a merchant engaged in such manipulation tactics, especially if the merchant’s transaction processing history is accompanied by high chargebacks and consumer complaints. The FTC and CFPB have extensive experience in investigating and filing lawsuits against processors that facilitate payments for merchants who engage in illegal behavior. Cases involving Electronic payment solutions, Trade Proand First merchant data services give only a few examples of how allegations against contractors develop.
Finally, an additional caveat for payment platforms, payment facilitatorsand other intermediaries: Consumer protection regulators are already deeply concerned about whether the different layers of these models facilitate lax underwriting and provide more opportunities for deceptive merchants to gain access to payment networks.