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A Warning to Payment Processors

Are you prepared to uncover 'dark patterns?'

Risk management personnel who underwrite e-commerce merchants should have some basic understanding of the types of online merchant marketing and sales practices that are deceptive and misleading. More than a decade of law 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—provide a catalog of merchant activities that regulators do not want processors to support.

The latest buzz in consumer protection has focused on "dark patterns," a term coined by a user experience designer in 2010 to describe manipulative tactics that induce consumers to complete an action that they would not have otherwise completed if they had understood what they were acting on at the time. These actions may drive unwitting consumers to purchase items, share information, and agree to legal terms without intending to do so.

Last year, the FTC gave new life to "dark patterns" by hosting a workshop to examine how dark patterns affect consumer behavior, whether some groups of consumers are unfairly targeted by dark patterns, and ways in which user interfaces can effect decision-making and choice. The FTC then issued a new enforcement policy warning merchants against using illegal dark patterns to "trick or trap" consumers into subscription services. More recently, in September 2022, the FTC issued a comprehensive staff report, Bringing Dark Patterns to Light, that concluded, among other things, that dark patterns are more dangerous to consumer when used in combination. Read our summary here of how the FTC classified design elements that contribute to dark patterns and key takeaways from the FTC's report. The FTC has also asked online advertisers to weigh in on dark patterns with respect to potential updates to the FTCs' "Dot.Com Disclosures."

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