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Financial Services Law Insights and Observations

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  • CFPB warns lead generators, digital comparison-shopping tool operators of potential CFPA violations

    Federal Issues

    On February 29, the CFPB issued a circular to law enforcement agencies and regulators explaining how operators of digital comparison-shopping tools or lead generators can potentially violate the CFPA’s prohibition on abusive acts or practices by steering consumers towards options that best serve the operator or the lead generator. The circular further discussed “how law enforcement agencies and regulators can evaluate operators of comparison-shopping tools… to manipulate results” to appease consumer preferences.

    The Bureau explained that while consumers often use these tools to research, compare, and select financial products, some intermediaries also functioned as lead generators that sold consumer information to lenders. These intermediaries may have received compensation, the CFPB said, often termed as “bounties,” from financial providers for preferential treatment or lead generation. The circular recognized that operators of these tools may have engaged in commercial arrangements with financial providers and may have received compensation based on user actions or bids.

    The CFPB stated that both digital comparison-shopping tool operators and lead generators can qualify as “covered persons” under CFPA section 1031(d)(2)(C) which prohibits them from engaging in unfair, deceptive, or abusive acts or practices, particularly those that “take unreasonable advantage” of consumers so they may act in the “covered person’s” best interests. The circular outlined elements of CFPA Section 1031(d)(2)(C) and applied the elements including reasonable reliance by consumers on covered entities to act in their interests, to an evaluation of the operator or lead generator activities. Notably, the circular warned that reasonable consumer reliance could be created based on the representations of the tool operator or lead generator, as well as implicit or explicit communications. Further, the Bureau added that steering consumers towards certain products or providers for the financial benefit of the operator or lead generator, rather than consumer interest, constituted unreasonable advantage-taking.

    Finally, the circular included a non-exhaustive list of examples of preferencing or steering arrangements and advised law enforcement agencies and regulators to scrutinize bounty or bidding schemes and decision-making processes to identify abusive conduct.

     

    Federal Issues CFPB Lead Generation CFPA Enforcement Consumer Protection Abusive Deceptive Unfair

  • FTC takes action against tax prep company for alleged unfair and deceptive practices

    Federal Issues

    On February 23, the FTC announced an action against a tax preparation company for alleged unfair and deceptive acts and practices related to the sale of tax preparation products and services. The FTC alleged in its redacted administrative complaint that the defendant unfairly pushed consumers into paying for more expensive tax preparation products. The FTC further alleged the company made it unnecessarily difficult to downgrade the consumer’s tax preparation plan, both by requiring the consumer to first speak with a representative and by requiring the consumer to re-input the data if the consumer chooses to downgrade to the lower-priced product. The FTC also stated that the company’s upgrade policy, in contrast, is notably simple compared to its downgrade policy, and consumers’ “data seamlessly moves to the more expensive product instantly.” The FTC also claimed that the company’s “file for free” advertisements are deceptive because not all consumers’ tax situations are eligible for the free service.

    This action follows the FTC’s action against another tax preparation software provider last month (covered by InfoBytes here).

    Federal Issues FTC Enforcement Unfair Deceptive FTC Act Consumer Protection

  • FTC, Connecticut file complaint against auto dealer for deceptive and unfair practices

    Federal Issues

    On January 4, the FTC and the State of Connecticut issued a joint complaint against an auto dealer and its owner for alleged violations of the FTC Act and the Connecticut Unfair Trade Practices Act. According to the complaint, the dealership allegedly imposed additional fees, including certification fees, add-on charges, and government charges, without consumers’ explicit consent. The FTC alleged that the dealership made misrepresentations regarding advertised prices, charging consumers additional fees when they would attempt to purchase vehicle, and charged customers for certification fees for vehicles that had been advertised as “certified.” The complaint also alleged that the dealership would charge consumers for add-ons, such as GAP insurance, service contracts, maintenance contracts, and total loss protection with or without express consent, and at times after the consumer specifically declined the add-on. The complaint further alleged that the dealership often stated in advertisements that a vehicle was certified but did not report the sale of that vehicle or pay the certification fee to the manufacturer, so consumers did not receive the actual benefits. The complaint seeks consumer redress, disgorgement of ill-gotten money, civil penalties, and a permanent injunction.

    Federal Issues State Issues FTC Connecticut Deceptive Enforcement FTC Act

  • FTC temporarily halts business opportunity scheme

    Federal Issues

    On December 19, the FTC announced that the U.S. District Court for the Eastern District of Pennsylvania granted a temporary restraining order against a business opportunity scheme for allegedly engaging in deceptive acts. The court’s order barred the defendants from making misrepresentations about any business or money-making opportunity and froze the defendant’s assets. According to the FTC’s complaint, the business opportunity scheme violated the FTC Act’s prohibition of “unfair or deceptive acts or practices in or affecting commerce” and the Telemarketing Sales Rule by, among other things, (i) making misrepresentations regarding earnings from their products and services; (ii) furnishing “success coaches” with marketing materials to be used for new member recruitment, thus providing the means for the commission of deceptive acts or practices; (iii) making misrepresentations regarding profitability to persuade consumers to pay for membership, digital products, and marketing packages; (iv) making misrepresentations regarding material aspects of an investment opportunity; and (v) facilitating outbound calls that deliver prerecorded messages to encourage consumers to purchase its products, also known as robocalls. Beyond the temporary restraining order and asset freeze, the FTC is seeking a permanent injunction and other equitable relief.

    Federal Issues FTC Enforcement FTC Act Deceptive Pennsylvania Robocalls

  • Mass AG proposes legislation to combat “junk fees”

    State Issues

    On November 30, the Massachusetts Attorney General’s office proposed regulations to combat so-called “junk fee” practices and make business payment methods more transparent, according to this press release

    The purpose of the new rules is to help define unfair and deceptive practices for imposing fees as well as establishing standards for automatic renewal or continuous service contracts. Under the proposed regulations, the following acts performed by a business would be considered an “unfair and deceptive practice”: failing to disclose the total price of a product; failing to disclose any fees, interest, charges, or other expenses related to a product; and failing to disclose the total price before requiring a consumer to provide any personal information. The proposed regulations also state that, for recurring fees and trial offers, companies must provide a means of contact so that a consumer may cancel and must offer a way for a consumer to terminate a trial period in the same way it was entered.

    The AG’s office will be holding a public hearing on the proposal on December 20 and is accepting public comments until then. If enacted, Massachusetts would be only the second state (following California) to issue a rule specifically targeting “junk fees.”

    State Issues State Attorney General Junk Fees Deceptive

  • FTC, Florida AG settle with “chargeback mitigation” company

    Federal Issues

    On November 7, the FTC and the State of Florida settled with a chargeback company to prevent it from deceiving any consumers who seek to dispute credit card charges. Back in April 2023, the FTC and the State of Florida sued the chargeback company under Section 5 of the FTC Act, 15 U.S.C. § 45, and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Chapter 501, Part II, as previously covered by InfoBytes here. A chargeback is a system for consumers to get their money returned when they have a problem with a purchase. The proposed court order was agreed to by the defendants but, before it can go into effect, the order first must be approved by a federal judge.  The final judgment totals $150,000 and prevents the defendants from working with several high-risk clients.

    Federal Issues FTC State Attorney General Florida FTC Act Unfair Deceptive Credit Cards Chargeback

  • DFPI orders deceptive debt collectors to desist and refrain, pay penalties

    State Issues

    On October 23, DFPI announced enforcement actions against four debt collectors for engaging in unlicensed debt collection activity, in violation of Debt Collection Licensing Act and unfair, deceptive, or abusive acts or practices, in violation of the California Consumer Financial Protection Law. In its order against two entities, the department alleged that the entities contacted at least one California consumer and made deceptive statements in an attempt to collect a payday loan-related debt, among other things. In its third order against another two entities, DFPI alleged that a consumer was not provided the proper disclosures in a proposed settlement agreement to pay off their debts in a one-time payments. Additionally, DFPI alleged that the entity representatives made a false representation by communicating empty threats of an impending lawsuit.

    Under their orders (see here, here, and here), the entities must desist and refrain from engaging in illegal and deceptive practices, including (i) failing to identify as debt collectors; (ii) making false and misleading statements about payment requirements; (iii) threatening unlawful action, such as a lawsuit, because of nonpayment of a debt; (iv) contacting the consumer at a forbidden time of day; (iv) making false claims of pending lawsuits or legal process and the character, amount, or legal status of the debt; (v) failing to provide a “validation notice” ; and (vi) threatening to sue on time-barred debt.

    The entities are ordered to pay a combined $87,500 in penalties for each of the illegal and deceptive practices.

    State Issues DFPI Enforcement Debt Collection Deceptive UDAAP California CCFPL Consumer Finance Consumer Protection

  • FTC settles with bankrupt crypto company and bans asset management

    Federal Issues

    On October 12, the FTC announced it has reached a settlement with a bankrupt crypto company, which will permanently ban the company from managing consumer assets. According to the federal court complaint, the FTC alleged that from at least 2018, respondent attracted customers by promising their deposits would be secure, but when the company failed, consumers lost access to significant assets, resulting in over $1 billion in cryptocurrency asset losses.  The FTC alleges violations of the FTC Act and the Gramm-Leach-Bliley Act's prohibition on obtaining financial information through false statements.  Respondent allegedly misled consumers by claiming their assets were safe on the platform, stating that "YOUR USD IS FDIC INSURED." However, respondent is not a bank and the deposits were not eligible for FDIC insurance. The FTC complaint also alleged that the FDIC does not insure cryptocurrency assets, and consumers' cash deposits were placed in an account held by respondent at a traditional bank. Consumers' funds were protected only if that bank failed, but their cryptocurrency was not protected at all.

    The proposed settlement with respondent and its affiliates permanently bans them from offering, marketing, or promoting any product or service related to depositing, exchanging, investing, or withdrawing assets. Respondent and its affiliates have agreed to a judgment of $1.65 billion, which will be suspended to allow the bankrupt company to return its remaining assets to consumers through bankruptcy proceedings. The proposed settlement also prohibits respondent and its affiliates from managing consumer assets, misrepresenting product benefits, making false representations to obtain financial information, and disclosing nonpublic personal information without consent.

    The FTC also announced that it is filing a lawsuit against the respondent’s CEO for making false claims that consumer accounts were FDIC-insured. Respondent’s CEO has not agreed to a settlement, and the FTC's case against him will proceed in federal court. “In a parallel action, on October 12, the Commodity Futures Trading Commission separately charged [respondent’s CEO] with fraud and registration failures,” the FTC added.

     

    Federal Issues Settlement FTC Cryptocurrency Bankruptcy FTC Act Deceptive Enforcement FDIC

  • FTC fines two companies $6M for inaccurate background reports

    Federal Issues

    The FTC fined two companies that sell consumer background reports through subscriptions for violations of the FTC Act and Fair Credit Reporting Act (“FCRA”). In addition to allegedly claiming, without substantiation, to have the most accurate reports available to the public, the complaint says two companies deceptively claimed individuals had criminal or arrest records when the individual did not; deceptively claimed consumers can remove information or flag it as inaccurate, and deceptively failed to disclose that third-party reviews were incentivized and biased.

    The companies also furnished consumer reports to subscribers “without reason to believe those subscribers have permissible purposes to obtain such reports.”

    The stipulated order requires the companies to pay a civil penalty of $5.8 million, prohibits them from advertising, marketing, promoting, or offering for sale certain reports including arrest records, bankruptcy records, and eviction records until the establish and implement a comprehensive monitoring program, and prohibits them from continuing any of the deceptive practices set forth in the complaint.

    Federal Issues FTC Enforcement FTC Act FCRA Consumer Reporting Deceptive Third-Party

  • California appeals court reverses dismissal of Rosenthal Act class action

    Courts

    On August 30, a California Appeals Court (Appeals Court) reversed a lower court’s ruling that a mere alleged debt, whether or not actually due or owing – as opposed to a debt that is, in fact, actually due or owing – is insufficient to state a claim under the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act). Enacted in 1977, the Rosenthal Act aims “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts.” Plaintiff purchased a home with a previously-installed solar energy system. The previous homeowner and plaintiff reached an agreement whereby the prior homeowner would purchase the energy produced through the system through monthly payments. However, the defendant, the provider of the solar energy system, sent late payment notices to plaintiff demanding that he make monthly payments. Although plaintiff did not engage in a “consumer credit transaction” with the defendant, the Appeals Court found that the plaintiff’s receipt of statements and notices from the defendant constituted money “alleged to be due or owing,” as required to state a claim under the Rosenthal Act. In holding that the plaintiff’s claim “has merit,” the Appeals Court emphasized that the Rosenthal Act was specifically designed to “eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid,” and “[i]t is difficult to conceive of a more unfair debt collection practice than dunning the wrong person”.

    Courts Appellate Rosenthal Fair Debt Collection Practices Act Class Action Debt Collection Unfair Deceptive Consumer Finance

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