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  • FTC updates the Telemarketing Sales Rule, proposes tech support rule

    Agency Rule-Making & Guidance

    On March 7, the FTC announced updates to the Telemarketing Sales Rule (TSR) to extend fraud protections to businesses and modernize recordkeeping requirements in response to technological advancements. These updates were part of an ongoing review of the TSR, which governs telemarketing practices and includes the Do Not Call Registry (DNC) and issued rules against telemarketing robocalls.

    The newly finalized rule broadened the scope of prohibited deceptive and abusive telemarketing practices to include business-to-business calls, which were previously exempt, except in specific cases. The rule also revised the TSR's recordkeeping requirements to reflect changes in technology and telemarketing methods, which included maintaining detailed call records and consent documentation, as well as compliance with the DNC Registry.

    In addition to these updates, the FTC proposed a rule that would enhance its ability to tackle tech support scams by extending the TSR's coverage to include inbound telemarketing calls for technical support services. This amendment addressed deceptive tech support schemes and would empower the FTC to seek stronger legal remedies such as civil penalties and consumer compensation. The Commission invited public feedback on a proposed definition of tech support scams.

    Agency Rule-Making & Guidance Federal Issues FTC TSR Artificial Intelligence

  • FTC sues for-profit university for deceptive and illegal practices

    Agency Rule-Making & Guidance

    On December 27, 2023, the FTC filed a suit in the U.S. District Court of Arizona against a for-profit university for allegedly deceiving students, misrepresenting the university as a nonprofit entity, and committing telemarking abuses. The FTC sued under the FTC Act and Telemarketing Sales Rule (TSR). The complaint alleges that the university in question is a for-profit institution operating as a publicly traded entity, but nonetheless marketed itself as a “nonprofit” university. The complaint further alleges that the university misled students about the cost of its “accelerated” doctoral programs and used abusive telemarketing calls to try to boost enrollment. According to the FTC, the university called those who requested not to be called by the university, as well as consumers on the National Do Not Call Registry. The FTC asserts five claims against the university. The first two counts allege violations of Section 5(a) of the FTC Act for deceptive representations about its non-profit status and for falsely advertising its doctoral programs. The last three counts allege violations of the TSR predicated on deceptive telemarketing acts or practices, contacting those who have requested to not be contacted, and calling people on the National Do Not Call Registry.

    Agency Rule-Making & Guidance FTC FTC Act For-Profit College TSR Telemarketing Telemarketing Sales Rule Do Not Call Registry Fraud

  • CFPB reaches $2.6 billion settlement with credit repair telemarketers

    Federal Issues

    On August 28, the CFPB announced a proposed settlement with Utah-based credit repair telemarketers and various affiliates (collectively, "defendants") for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by collecting illegal advance fees. As previously covered by InfoBytes, in its initial lawsuit the CFPB alleged the defendants requested and received payment of “prohibited” upfront fees for telemarketed credit repair services when they signed up. In June, a district court ruling put a hold on the Bureau’s initial attempt to impose the settlement because of “outstanding issues of fact” which precluded it from entering the agency’s requested relief at that time (covered by InfoBytes here). The Bureau and defendants have now agreed to a new settlement which will, among other things, (i) impose over $2.7 billion in redress (understanding that the principal corporate defendant is in Chapter 11 bankruptcy proceedings); (ii) impose over $64 million in civil money penalties; (iii) ban defendants from telemarketing and from doing business with certain marketing affiliates for ten years; and (iv) require defendants to send a notice of the settlement to “any remaining enrolled customers who were previously signed up through telemarketing.”

    The proposed settlement is subject to final approval by the court.

    Federal Issues CFPB Settlement CFPA Consumer Finance TSR Consumer Protection Credit Repair Enforcement

  • Payment processor fined $75k, partner owes $243M in CFPB suit

    Courts

    On July 31, the District Court for the Central District of California entered judgment in favor of the court-appointed receiver for defendants against the non-party provider of payment processing and escrow services to defendants and its managing member in the amount of $75,000, following a July 10 order requiring defendant to pay $243 million in redress and civil penalties. These judgments were entered in connection with the lawsuit filed by the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney, against a student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees (covered by InfoBytes here).

    The defendant companies and one of the controlling business partners settled in 2020, but the court ordered the remaining controlling business partner to pay $243 million in redress and civil penalties earlier in July based on his involvement in violating various laws through the operation, including the TSR and the CFPA. Of the $243 million, the CFPB is entitled to over $95 million as redress for unlawful fees paid by consumers affected by the student loan debt relief operation and nearly $148 million of civil money penalties, and Minnesota, North Carolina, and California are each entitled to $5,000 of civil money penalties. The recent judgment of $75,000 entered against the non-party payment processing service provider resulted from the settlement of a separate lawsuit alleging that the service provider facilitated the fraud perpetuated by the defendants in the student loan debt relief operation and later attempted to deceptively transfer consumer funds held by defendants to avoid their transfer to the receiver.

    Courts CFPB Student Lending Debt Relief Payment Processors California Minnesota North Carolina State Attorney General CFPA TSR

  • Feds, states launch “Operation Stop Scam Calls”

    Federal Issues

    On July 18, the FTC, along with over 100 federal and state law enforcement partners nationwide, including the DOJ, FCC, and attorneys general from all 50 states and the District of Columbia, announced a new initiative to combat illegal telemarketing calls, including robocalls. The joint initiative, “Operation Stop Scam Calls,” targets telemarketers and the companies that hire them, lead generators that provide consumers’ telephone numbers to robocallers and others who falsely represent that consumers consented to receive the calls. The initiative also targets Voice over Internet Protocol (VoIP) service providers that facilitate illegal robocalls, many of which originate overseas.

    In connection with Operation Stop Scam Calls, the FTC has initiated five new cases against companies and individuals allegedly responsible for distributing or assisting in the distribution of illegal telemarketing calls to consumers across the country. According to the announcement, the actions reiterate the FTC’s position “that third-party lead generation for robocalls is illegal under the Telemarketing Sales Rule (TSR) and that the FTC and its partners are committed to stopping illegal calls by targeting anyone in the telemarketing ecosystem that assists and facilitates these calls, including VoIP service providers.” The announcement also states that more than 180 enforcement actions and other initiatives have been taken by 48 federal and 54 state agencies as part of Operation Stop Scam Calls.

    Among the new actions announced a part of Operation Stop Scam Calls is a complaint filed against a “consent farm” lead generator, which allegedly uses “dark patterns” to collect consumers’ broad agreement to provide their personal information and receive robocalls and other marketing solicitations through a single click of a button or checkbox via its websites. Under the terms of the proposed order, the defendant would be required to pay a $2.5 million civil penalty and would be banned from engaging in, assisting, or facilitating robocalls. The defendant would also be required to implement measures to limit its lead generation practices, establish systems for monitoring its own advertising and that of its affiliates, comply with comprehensive disclosure requirements concerning the collection of consumers’ consent to the sale of their information, and delete all previously collected consumer information.

    Other actions were taken against a California-based telemarketing lead generator, a telemarketing company that provides soundboard calling services to clients who use robocalls to sell a range of products and services, a New Jersey-based telemarketing outfit that placed tens of millions of calls to consumers whose numbers are listed on the National Do Not Call Registry, and Florida-based defendants accused of assisting and facilitating the transmission of roughly 37.8 million illegal robocalls by providing VoIP services to over 11 foreign telemarketers.

    Federal Issues State Issues Courts FTC Enforcement Robocalls Consumer Protection State Attorney General TSR Telemarketing Lead Generation DOJ FCC

  • District Court orders individual to pay $148 million in student debt-relief scam

    Courts

    On July 7, the U.S. District Court for the Central District of California entered a final judgment and order against an individual defendant accused of operating and controlling a deceptive student loan debt relief operation. As previously covered by InfoBytes, in 2019, the CFPB, along with the Minnesota and North Carolina attorneys general and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation for allegedly deceiving thousands of student loan borrowers. The Bureau and the states alleged that since at least 2015, the debt relief operation violated the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), FDCPA, and various state laws by charging and collecting over $95 million in illegal advance fees from student loan borrowers. In addition, the Bureau and the states claimed that the debt relief operation engaged in deceptive practices by misrepresenting the purpose and application of the fees they charged and the nature and benefits of their services. Specifically, the debt relief operation allegedly failed to inform borrowers that, among other things, (i) they would request that the loans be placed in forbearance and interest would continue to accrue during the forbearance period, thereby increasing the borrowers’ overall loan balances; and (ii) it was their practice to submit false information about the borrowers to student loan servicers to try to qualify borrowers for lower monthly payments. The individual defendant was accused of owning, controlling, and managing the student loan debt relief operation, materially participating in the operation’s affairs, and providing substantial assistance or support while knowing or consciously avoiding knowledge that the operation was engaging in illegal conduct.

    The individual defendant was held liable, jointly and severally, in the amount of approximately $95,057,757, for the purpose of providing redress to affected borrowers. Because the individual defendant was found to have recklessly violated the TSR and the CFPA, the court also imposed second-tier civil monetary penalties of $147,985,000 to the Bureau, of which $5,000 will be paid to each state. The final judgment also imposes various forms of injunctive relief, including permanent bans on engaging in consumer financial products or services and violating the TSR, CFPA, and similar laws in Minnesota, North Carolina, and California. The individual defendant is also prohibited from disclosing, using, or benefiting from customer information obtained in connection with the offering or providing of the debt relief services, and may not “attempt to collect, sell, assign, or otherwise transfer any right to collect payment from any consumer who purchased or agreed to purchase” a debt relief service from any of the defendants.

    Courts Federal Issues State Issues CFPB Consumer Finance Enforcement Student Lending Debt Relief State Attorney General CFPA TSR FDCPA Debt Collection Settlement

  • District Court puts hold on CFPB’s $2.7 billion request in telemarketer case

    Courts

    On June 7, the U.S District Court for the District of Utah denied the CFPB’s motion for an award of monetary and injunctive relief, assessment of civil money penalties, and final judgment in an action taken against a group of Utah-based credit repair telemarketers and their affiliates (collectively, “defendants”). As previously covered by InfoBytes, the CFPB sued the defendants in 2019 for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by charging consumers a fee for credit repair services when they signed up for the services through telemarketing, and then monthly thereafter. Certain defendants also allegedly made false and misleading claims guaranteeing, or ensuring the high-likelihood, that loans or rent-to-own housing offers would be available through affiliates after signing up for credit repair services when the products were not available. In March, the court granted the Bureau’s motion for partial summary judgment, ruling in favor of the agency on claims that the defendants violated the TSR’s prohibitions against charging upfront fees for credit repair services.

    According to the June 7 order, the Bureau asked the court to award more than $2.7 billion in monetary relief, justifying the amount as “either a ‘refund of moneys’ or, alternatively, as legal (as opposed to equitable) ‘restitution.’” The Bureau also requested civil money penalties of $35.2 million and $17.6 million against different defendants, as well as extensive injunctive relief. Defendants argued that the maximum civil money penalty should fall within the range of $1 and $17.6 million as their alleged conduct “did not merit the maximum Tier 1 penalty,” and that, in any event, “the Tier 1 daily limit in the statute should apply to the aggregate penalty amount imposed on all [d]efendants collectively.” Defendants also asked the court to deny the requested injunction or clarify its requirements.

    In denying the Bureau’s motion, the court wrote that “outstanding issues of fact” preclude it from entering the agency’s requested relief at this time. “Given the existence of these factual disputes, the court finds it will be most efficient to consolidate further discussions of relief with final pretrial proceedings,” the court said, denying the agency’s request without prejudice.

    Courts CFPB Consumer Finance Credit Repair TSR CFPA

  • 9th Circuit affirms decision in FCRA, CFPA, and TSR suit

    Courts

    In December, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling holding an individual liable for violations of the FCRA, the TSR, and the CFPA after the defendant, who allegedly “played a central role” in the scheme — and other defendants — were sued by the CFPB for allegedly obtaining individuals’ credit reports illegally and charging advance fees for debt relief services. As previously covered by InfoBytes, the CFPB filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes herehere, and here). In August 2021, the U.S. District Court for the Central District of California granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. (Covered by InfoBytes here.)

    In September 2021, the district court entered judgment in favor of the Bureau against the individual defendant. While the individual defendant objected to the judgment, the district court ultimately determined that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here). 

    On the appeal, the 9th Circuit cited “undisputed” evidence demonstrating how the individual defendant “violated” the FCRA, TSR, and CFPA. According to the appellate court, the defendant “is individually liable for corporate violations of the CFPA.” The appellate court further noted that the individual defendant “‘participated directly’ in these deceptive practices and ‘had the authority to control them,’” had a “central role” in these practices,” was “‘recklessly indifferent to the truth or falsity of the misrepresentations,’ and did not attempt to verify the truthfulness of statements” regarding the companies he controlled.

    Courts Appellate Ninth Circuit CFPB Consumer Finance CFPA TSR FCRA Enforcement

  • CFPB to issue $95 million in redress to victims of student loan debt relief operation

    Federal Issues

    On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by a student loan debt relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.

    Federal Issues State Issues State Attorney General CFPB Consumer Redress Consumer Finance Enforcement Student Lending CFPA TSR Minnesota North Carolina

  • FTC takes action against debt relief operation

    Federal Issues

    On November 30, the FTC announced an action against three individuals and their affiliated companies (collectively, “defendants”) for allegedly participating together in a credit card debt relief scheme since 2019. The FTC alleged in its complaint that the company violated the FTC Act and the Telemarketing Sales Rule (TSR) by using telemarketers to call consumers and pitch their deceptive scheme, falsely claiming to be affiliated with a particular credit card association, bank, or credit reporting agency and promising they could improve consumers’ credit scores after 12 to 18 months. The defendants also allegedly misrepresented that the upfront fee, which in some cases was as high as $18,000, was charged to consumers’ credit cards as part of the overall debt that would be eliminated, and therefore consumers would not actually have to pay this fee. The District Court for the Middle District of Tennessee granted the Commission’s request to temporarily shut down the scheme operated by the defendants and froze their assets. The complaint requests, among other things, a permanent injunction to prevent future violations of the FTC Act and the TSR by the defendants.

    Federal Issues Courts FTC Act Debt Collection Enforcement TSR Consumer Protection Credit Scores FTC Consumer Finance

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