A goal of providing effective disclosures to consumers is to allow consumers to make informed decisions. But what must be done to make disclosures effective? This was the question the Federal Trade Commission (FTC) explored in the recent "Putting Disclosures to the Test" workshop through reports on numerous studies related to consumer understanding of disclosures and the efficacy of different methods and timing of consumer disclosures.

Regulators are Paying Attention

The workshop highlighted how seriously the FTC regards the quality of disclosures to consumers, especially in newer forms of advertising and media, such as native advertising, mobile applications, and mobile games. In a recent settlement with Warner Brothers Home Entertainment, the FTC alleged that the company failed to disclose it was paying "influencers," i.e., individuals who have a significant number of social media followers, to post positive reviews of its video games on YouTube and other social media sites.

The FTC also recently settled its case against the mobile advertising company InMobi. The FTC alleged the company misrepresented that its advertising software would only track consumers’ location in accordance with the permissions obtained through the mobile application where, in fact, location was being tracked using other means and without permission.

The Consumer Financial Protection Bureau (CFPB), through its Decision Making and Behavioral Studies team, is also investing in research that explores the factors that influence the efficacy of disclosures in financial services, how to use different methodologies to study disclosure, and the market effects of disclosures. Heidi Johnson, a research analyst at the CFPB and panelist at the FTC's workshop, discussed some of the CFPB's research in this area.

Key Takeaways from the Studies Presented at the Workshop

  • Consumer engagement depends on the method and timing of disclosure. The mode, timing, placement, and content of the disclosures have varying effects on a consumer's engagement with a disclosure and the underlying content. In mobile apps, consumers were not able to recall the details of disclosures that were made in the app store as well as in application install permissions. In video games in which a player needed to engage with sound, voice disclosures regarding the use of information being collected were deemed less effective than textual disclosures.

  • Sometimes one disclosure method is not enough. In native advertising, consumers were more likely to recognize a social media post or other content to be advertising if, along with a disclosure such as "sponsored ad" or "sponsored link," it contained a professional photograph or featured a famous brand. On the other hand, when an advertisement did not contain a professional photograph or famous brand, consumers were less likely to recognize content as advertising, even if a disclosure was made.

  • Consumers do not want to see what they already know and spend the same amount of time reviewing a short disclosure as a long one. When asked, consumers preferred not to see disclosures regarding how a product or service would use information provided by consumers if consumers would normally expect their information to be used in that way. Given the short amount of time consumers spend reviewing disclosures, presenting disclosures of an unexpected use of consumer information or of risks created by use of the product or service earlier or in a more prominent manner is likely to make disclosures more effective.

  • A disclosure is still more effective than no disclosure at all; context affects comprehension. Consumers' comprehension was affected by whether or not they read the document on their own or were in a location where they could be interrupted by others nearby.

  • Vague language is less effective. Consumers perceive disclosures with one or more of the words "may," "can," "would," "might," "could," or "possibly" as vague and less effective. Using the word "likely" was deemed less vague. The more definite language that disclosures used, the more likely consumers were deemed to comprehend it.

  • Consumer feedback is not always accurate. Up to 80 percent of consumers that reported having read half or more of a disclosure actually engaged in limited to no reading of the disclosure.

Members of Ballard Spahr's Privacy and Data Security and Consumer Financial Services Groups regularly advise financial institutions on the ever-expanding intersection between consumer financial services laws and privacy and data security issues. We work with clients to evaluate, operationalize, and monitor new and existing products and services to ensure that financial institutions meet their privacy and data security obligations in a rapidly evolving regulatory landscape.


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