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On February 28, the FTC announced it filed a complaint in the U.S. District Court for the District of Puerto Rico alleging a business owner and the companies he operates (defendants) violated the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by allegedly offering deceptive online “free-trial” offers that mislead consumers into enrolling into negative option plans. According to the complaint, the defendants sold skin care products online between February 2016 and August 2017 and marketed a free trial for the products for the cost of around $4.99 in shipping. The complaint alleges consumers who ordered the free trial (i) were charged more than $90 and then subsequently enrolled into a monthly auto-ship program; (ii) were charged for additional products without their consent; and (iii) had a difficult time canceling their enrollment in the auto-ship plan. Moreover, the FTC argues that the defendants avoided detection by using shell companies to obtain merchant processing accounts and fake and real websites in order to avoid detection by credit card companies and law enforcement. The FTC is seeking monetary and injunctive relief against the defendants.
On February 26, the FTC announced its first action against a company for using fake paid reviews on an independent retail website in violation of the FTC Act. According to the complaint, the company—which advertised and sold a pill on a retail website as an appetite suppressant, fat blocker, and weight loss supplement—paid a website to create and post reviews of its supplement on the retail website in order to keep the supplement’s rating high. The FTC argues that paying for the fake reviews constitutes a deceptive act or practice and the making of false advertisements in violation of the FTC Act because the company represented the reviews as truthful comments by actual product purchasers. Moreover, the FTC alleges that the company made deceptive or false claims about the effectiveness of its supplement on the retail website because the claims were unsubstantiated at the time the representations were made. The proposed order imposes injunctive relief prohibiting the company from making similar claims related to similar dietary supplements unless there is reliable evidence from human clinical testing to support the claims, and from misrepresenting that an endorsement is truthful or from an actual purchaser. As part of the settlement, the company has agreed to a 12.8 million suspended judgment after the payment of $50,000 based on the company’s financial condition. The proposed order has not yet been approved by the district court.
On January 25, New York City’s Department of Consumer Affairs (DCA) announced that the city’s largest used car dealership must pay more than $3 million in civil penalties after the city’s Office of Administrative Trials and Hearings concluded the dealership used deceptive and illegal practices to profit from low-income and minority consumers. According to the decision, DCA alleged that the dealership engaged in over 90,000 instances of deceptive trade practice in violation of various consumer protection laws, including, among other things, (i) falsifying consumers’ income and/or monthly rent obligations on credit applications; (ii) falsely advertising the financial terms of deals in print and online; (iii) failing to provide documents in Spanish to certain Spanish-speaking consumers; and (iv) misleading consumers about the history and condition of the used cars they purchased. The administrative law judge declined to revoke the dealership’s license, as originally sought by DCA.
This fine is in addition to the settlement agreement between DCA and the used car dealership that required the dealership to pay nearly $142,000 in restitution to 40 consumers and pay $68,000 to cover outstanding loans originated as a result of the allegedly deceptive actions.
On October 29, the New York Attorney General announced the filing of a complaint against a national jewelry store, headquartered in New York, for allegedly engaging in fraudulent and deceptive conduct, deceptive credit repair services, and illegal lending in the financing of jewelry sales to active duty servicemembers. Specifically, the complaint alleges the company targets active duty servicemembers through a purported charitable program in which military-themed teddy bears are sold with a promise of a charitable donation by the company. The company also sells patriotic and military-themed jewelry and offers financing through a program exclusively available to servicemembers. The financing program is marketed as a credit repair or credit-establishing opportunity through a different entity, but according to the complaint, the separate entity is merely an “alter-ego” of the jewelry company, a relationship which is not disclosed to servicemembers. The company markets the financing program to active duty servicemembers as a way to build credit scores to purchase other consumer goods, such as a motor vehicle; however, once a servicemember agrees to the program, the Attorney General alleges the company’s employees are instructed to “’sell’ enough product to maximize the amount of credit [the company] is willing to advance.” The amount of credit is allegedly based on the amount of time the servicemember has left in active service, not on traditional underwriting standards such as credit history. Additionally, the complaint alleges the company marks up poor-quality jewelry between 600 and 1,000 percent over the wholesale price and advertises a “per payday” price on the merchandise, which bears “little resemblance to the total amount paid by a consumer at the end of the financing contract.” Of special interest to all creditors doing business in New York, the complaint appears to include in its civil and criminal usury claims the concept that the effective interest rate was higher because the good being purchased had “inflated retail prices.” The complaint seeks civil money penalties, restitution, and injunctive relief.
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program