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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

  • California Attorney General warns small banks and credit unions on fees

    State Issues

    On February 22, California State Attorney General, Rob Bonta, issued a letter to small banks and credit unions cautioning that overdraft and returned deposited item fees may infringe upon California’s Unfair Competition Law (UCL) and the CFPA. The letter, directed at institutions in California with assets under $10 billion, highlighted concerns that such fees disproportionately burden low-income and minority consumers. Bonta emphasized that these fees often catch consumers off guard, leading to significant financial strain, and urged the financial institutions in California to comply with state and federal laws by eliminating such practices.

    The letter underscores how overdraft and returned deposited item fees can harm consumers, and potentially constitute unfair acts against them. Bonta also pointed out how overdraft fees cannot be reasonably anticipated due to the complexities of transaction processing, making it challenging for consumers to make informed financial decisions. Furthermore, the letter warned that imposition of returned deposited item fees, which are charges by financial institutions when a consumer deposits a check that bounces (due to an issue with the check originator such as insufficient funds or a stop payment order), is likely an unfair business practice in violation of the UCL and CFPA because consumers are usually unable to reasonably avoid the fee. 

    This action by the California Attorney General is notable for its focus on smaller financial institutions that were expressly excluded from the CFPB’s proposed rule last month on overdraft fees (previously covered by InfoBytes here); however, the action is broadly consistent with the CFPB’s guidance on returned deposited item fees (also covered by InfoBytes here).

    State Issues California State Attorney General Overdraft CFPA 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

  • Washington Appeals Court disagrees with appellant in a class action data breach; affirms lower court’s decision

    Courts

    On January 8, the Washington State Court of Appeals affirmed superior court rulings granting final approval to a class action settlement, denying a motion to consolidate six class action lawsuits, and approving a class notice plan. According to the opinion, in 2021, the U.S. Department of Health and Human Services notified the respondent company, a nonprofit organization serving low-income individuals, of a data breach that exposed the social security numbers of 163,499 individuals. In 2022, appellant filed a class action lawsuit against the respondent company, one of six such separate class action lawsuits. The appellant filed a motion to consolidate the six pending class action lawsuits, which was denied. Subsequently, plaintiffs in one of the class action lawsuits signed a settlement agreement and release that would release, discharge, and bar all claims asserted in the other class action lawsuits and provide compensation anywhere from $100 to $25,000 to impacted individuals. The appellant plaintiff then filed the instant appeal alleging that the lower court abused its discretion by denying her motion to consolidate the six actions, that the class action plan failed to provide reasonable notice, and that the settlement was not fair, reasonable, or adequate because “the settlement is the product of collusion between the settling parties.” The appellate court disagreed and ultimately upheld the lower court’s rulings. 

    Courts Washington Appellate Data Breach Unfair DHHS Class Action

  • New York Governor highlights NYDFS in 2024 State of the State proposal

    State Issues

    On January 2, New York Governor Kathy Hochul revealed a proposed plan focused on consumer protection and affordability as the initial part of the Governor’s 2024 State of the State address. The plan includes changes to New York’s consumer protection laws, regulations for buy now pay later products, increased paid medical and disability leave benefits, measures to eliminate co-pays for insulin in specific insurance plans, and legislation addressing medical debt.

    Changes to consumer protection laws would give the Attorney General more power to enforce the laws and help the state to address unfair and abusive business practices. Additionally, proposed legislation would require buy now pay later providers to obtain licenses and introduce regulations focusing on disclosure, dispute resolution, credit standards, fee limits, data privacy, and preventing excessive debt.

    NYDFS also detailed Governor Hochul’s plan to update and broaden New York’s hospital financial assistance law to provide increased protection against medical debt. The proposed legislation aims to limit hospitals’ ability to sue low-income patients (earning less than 400 percent of the Federal Poverty Level) for medical debt and expand financial assistance programs. It also seeks to cap monthly payments and interest rates on medical debt while enhancing access to financial aid. This consumer protection and affordability plan builds on Governor Hochul and her administration’s efforts to make New York more affordable and livable.

    State Issues NYDFS New York Consumer Protection Medical Debt Consumer Finance Buy Now Pay Later Unfair

  • FTC report details key takeaways from AI and creative fields panel discussion

    Federal Issues

    On December 18, the FTC released a report highlighting key takeaways from its October panel discussion on generative artificial intelligence (AI) and “creative industries.” As previously covered by InfoBytes, the FTC hosted a virtual roundtable to hear directly from creators on how generative AI is affecting their work and livelihood given the FTC’s interest in understanding how AI tools impact competition and business practices. The report presents a summary of insights gathered during the roundtable and explains the FTC’s particular jurisdictional interest in regulating AI. The report explains that the FTC has brought several recent enforcement actions relating to AI and how the use of AI can potentially violate Section 5 of the FTC Act, which “prohibits unfair or deceptive acts or practices and unfair methods of competition.” Additionally, the report mentioned how President Biden’s recent Executive Order on the Safe, Secure and Trustworthy Development and Use of AI (covered by InfoBytes here), encourages the FTC to leverage its existing faculties to protect consumers from harms caused by AI and to ensure competition in the marketplace.  The FTC’s report explains that it is appropriately taking such actions, both through enforcement actions and by gathering information. The Commission additionally stipulated that training generative AI on “protected expression” made by a creator without the creator’s consent or the sale of that generated output could constitute an unfair method of competition or an unfair or deceptive practice. The FTC added that this may be amplified by actions that involve deceiving consumers, improperly using a creator’s reputation, reducing the value of a creator’s work, exposing private information, or otherwise causing substantial injury to consumers. The Commission further warned that “conduct that may be consistent with other bodies of law nevertheless may violate Section 5.”

    Federal Issues FTC Artificial Intelligence Competition Consumer Protection FTC Act Unfair

  • 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

  • CFPB announces civil money penalty against nonbank, alleges EFTA and CFPA violations

    Federal Issues

    On October 17, the CFPB announced an enforcement action against a nonbank international money transfer provider for alleged deceptive practices and illegal consumer waivers. According to the consent order, the company facilitated remittance transfers through its app that required consumers to sign a “remittance services agreement,” which included a clause protecting the company from liability for negligence over $1,000. The Bureau alleged that such waiver violated the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E, including Subpart B, known as the Remittance Transfer Rule, by (i) requiring consumers sign an improper limited liability clause to waive their rights; (ii) failing to provide contact and cancellation information in disclosures, and other required terms; (iii) failing to provide a timely receipt when payment is made for a transfer; (iv) failing to develop and maintain required policies and procedures for error resolution; (v) failing to investigate and determine whether an error occurred, possibly preventing consumers from receiving refunds or other remedies they were entitled to; and (vi) failing to accurately disclose exchange rates and the date of fund availability. The CFPB further alleged that the company’s representations regarding the speed (“instantly” or “within seconds”) and cost (“with no fees”) of its remittance transfers to consumers were inaccurate and constituted violations of CFPA. The order requires the company to pay a $1.5 million civil money penalty and provide an additional $1.5 in consumer redress. The company must also take measures to ensure future compliance.

    Federal Issues Fintech CFPB CFPA EFTA Nonbank Unfair Enforcement Consumer Protection

  • California enacts amendments to the Consumers Legal Remedies Act: Advertisements

    State Issues

    On October 7, the California governor approved SB 478 (the “Act”), enacting amendments to the Consumers Legal Remedies Act designed to prohibit “drip pricing,” which involves advertising a price that is lower than the actual price a consumer will have to pay for a good or service. The Act, with specified exceptions, will make advertising the price of a good or service excluding additional fees or charges other than taxes, unlawful. The California Legislature declared that the Act is not intended to prohibit any particular method of determining prices for goods or services, including algorithmic or dynamic pricing. Instead, it is intended to regulate how prices are advertised, displayed, and/or offered.

    The Act is effective July 1, 2024.

    State Issues State Legislation Advertisement Unfair California Consumer Protection

  • 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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