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FTC seeks permanent injunction against student loan debt relief operation
On July 11, the FTC announced it was charging a student loan debt relief operation with violations of the FTC Act and the Telemarketing Sales Rule for allegedly engaging in deceptive practices when marketing and selling their debt relief services. The complaint alleges the operators of the scheme allegedly, among other things, (i) charged borrowers illegal advance fees; (ii) falsely claimed they would service and pay down their student loans; and (iii) obtained borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers. According to the FTC, the defendants allegedly collected more than $23 million from consumers, and when asked why their payments were not being applied to their loans, the defendants “informed consumers that their entire payments had been collected as ‘handling’ or ‘management’ fees.” On July 10, the U.S. District Court for the Central District of California issued a temporary restraining order and asset freeze at the FTC’s request. The FTC seeks a permanent injunction against the defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
NY AG settlement resolves deceptive practices action with ticket resale companies
On July 10, the New York attorney general announced a settlement with two ticket resale companies that allegedly deceived thousands of consumers by selling event tickets that the companies did not actually own. According to the announcement, the defendants’ practice of selling “speculative tickets” to consumers involved listing and selling tickets the companies did not possess and attempting to purchase such tickets only after a consumer had already placed an order. The attorney general claimed the defendants often charged premiums or inflated prices for tickets then “kept the difference between the price they actually paid and the price at which the speculative ticket was sold to a consumer.” Additionally, one of the defendants also allegedly misled consumers in instances when tickets could not be provided by blaming technical errors or vague supplier issues. While the defendants have not admitted any liability, under the terms of the settlement—subject to court approval—they have agreed to pay $1.55 million and adopt reforms designed to protect ticket purchasers in the future, including, where appropriate, providing clear and conspicuous disclosures stipulating that the ticket seller does not possess the listed tickets and is merely offering to obtain such tickets on a consumer’s behalf.
CFPB settles lawsuit against debt settlement provider
On July 9, the CFPB announced a $25 million settlement with the nation’s largest debt settlement provider to resolve allegations that the company engaged in deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act. As previously covered by InfoBytes, in 2017 the Bureau claimed, among other things, that the company (i) misled consumers about its ability to negotiate with creditors that the company knew maintained policies against working with settlement companies; (ii) charged advance fees without settling consumers’ debts; and (iii) failed to inform consumers about their rights to refunds from their deposit accounts if they left the settlement program. The proposed stipulated final judgment and proposed order requires the company to pay $20 million in restitution to affected consumers and a $5 million civil money penalty (CMP), in addition to providing certain upfront disclosures to consumers before enrollment. The settlement further enjoins the company from engaging in the alleged unlawful conduct in the future and stipulates that $493,500 of the CMP will be remitted in light of a penalty the company previously paid under a consent order issued by the FDIC in 2018.
FTC and NY AG settle with phantom debt operation
On July 1, the FTC announced, together with the New York attorney general, a settlement with two New York-based phantom debt operations and their principals (collectively, “defendants”) resolving allegations that the operations bought, placed for collection, sold lists of, and collected on fake debts that consumers did not owe. As previously covered by InfoBytes, the June 2018 complaint alleged that the defendants ran a deceptive and abusive debt collection scheme in violation of the FTC Act, the FDCPA, and New York state law. The settlement order against one company and its owners bans the defendants from debt collection activities, including buying, placing for collection, and selling debt. The order requires the defendants to pay a combined $676,575, suspending the total judgment of $6.75 million, due to inability to pay. The settlement order against the other company and its owner prohibits the defendants from engaging in unlawful collection practices and requires the payment of $118,000, suspending the total judgment of $4.94 million, due to inability to pay.
Federal and state enforcement agencies coordinate on robocall crackdown
On June 25, the FTC announced a major crackdown on illegal robocalls named “Operation Call it Quits,” which includes 94 enforcement actions from around the country brought by the FTC and 25 other federal, state, and local agencies. In addition to actions targeting the actors, the operation also includes a consumer education initiative and promotion of the development of technology-based solutions to block robocalls and fight caller ID spoofing. In addition to the 87 other enforcement actions brought under the initiatives, the FTC announced four new actions, some of which were filed by the DOJ on the FTC’s behalf, and three new settlements targeting robocallers for violations of the FTC Act and the Telemarketing Sales Rule (TSR), among other things. The FTC alleges many of the actors used illegal robocalls to contact financially distressed consumers regarding interest rate reductions, sell fraudulent money-making opportunities, pitch free medical alert systems, or develop leads for solar energy companies. The affected consumers in these actions were often listed on the Do Not Call Registry. The FTC provided a complete list of the 94 actions brought under Operation Call it Quits.
State Attorneys General participating in the initiative are: Alabama, Arizona, Colorado, Florida, Illinois, Indiana, Michigan, Missouri, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Texas, and Virginia. Additionally, local agencies include: the Consumer Protection Divisions of the District Attorneys for the Counties of Los Angeles, San Diego, Riverside, and Santa Clara, California; the Florida Department of Agriculture and Consumer Services; and the Los Angeles City Attorney.
Mortgage servicer agrees to pay $7.8 million in escrow interest in CDBO action
On June 18, the California Department of Business Oversight (CDBO) announced a $7.8 million settlement with a mortgage servicer to pay allegedly overdue escrow interest to more than 94,000 California homeowners. According to the stipulation reflecting the settlement, the allegations result from a 2017 CDBO mortgage servicing examination, which found that the servicer “had failed to pay [two percent] interest on escrow impounds in violation of” California Fin. Code § 50202(d) and California Civ. Code § 2954.8. The settlement requires the servicer to pay the two percent interest for the period of July 1, 2014, through December 31, 2018, to 94,483 borrowers with escrow impound accounts. The servicer also agreed to pay two percent interest on escrow impound accounts for California residential mortgages going forward, although it reserved the right to stop paying interest in certain circumstances, including a final civil order or decision from the California Supreme Court or U.S. Court of Appeals for the 9th Circuit finding that Financial Code Section 2954.8 is not applicable to national banks or their subsidiaries.
SEC separately settles ADR allegations against international bank subsidiary and securities company
On June 14, the SEC announced a $42 million settlement with a wholly-owned subsidiary of an international bank to resolve allegations that certain associated persons on its securities lending desk allegedly improperly pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent shares in foreign companies.” The SEC announcement explains that “[t]he practice of ‘pre-release’ allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving them have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADRs represent.” According to the SEC, the subsidiary “improperly obtained pre-released ADRs from depositary banks when [the subsidiary] should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.” The SEC asserts that this resulted in an inflated total number of foreign issuer’s tradeable securities and short selling and dividend arbitrage. The SEC alleged that these practices violated the Securities Act of 1933 and claimed that the subsidiary failed to reasonably supervise its securities personnel. The consent order requires the subsidiary to pay more than $24 million in disgorgement, roughly $4.4 in prejudgment interest, and a civil money penalty of approximately $14.3 million. The order acknowledges the subsidiary’s cooperation in the investigation.
On the same day, the SEC announced an $8.1 million consent order with a securities company to resolve allegations that the company allegedly improperly pre-released American Depositary Receipts (ADRs). According to the SEC, the company, in violation of the Securities Act of 1933, “improperly obtained pre-released ADRs from depositary banks when [the company] should have known that neither the firm nor its customers owned the foreign shares needed to support those ADRs.” The SEC announcement asserts that the lack of shares to support the ADRs resulted in an inflated total number of foreign issuer’s tradeable securities and short selling and dividend arbitrage. Additionally, the SEC alleges the company failed to establish and implement effective policies and procedures to address whether the company was in compliance with its obligations in connection with pre-release transactions. The consent order requires the company to pay more than $4.8 million in disgorgement, approximately $800,000 in prejudgment interest, and a civil money penalty of more than $2.4 million. The order acknowledges the company’s cooperation in the investigation.FTC settles with software provider over data security failures
On June 12, the FTC announced a settlement under which a software provider agreed to better protect the data it collects, resolving allegations that the company failed to implement reasonable data security measures and exposed personal consumer information obtained from its auto dealer clients in violation of the FTC Act and the Standards for Safeguarding Customer Information Rule, issued pursuant to the Gramm-Leach-Bliley Act.
In its complaint, the FTC alleged the company’s failure to, among other things, (i) implement an organization information security policy; (ii) implement reasonable guidance or training for employees; (iii) use readily available security measures to monitor systems; and (iv) impose reasonable data access controls, resulted in a hacker gaining unauthorized access to the company’s database containing the personal information of approximately 12.5 million consumers. The proposed consent order requires the company to, among other things, implement and maintain a comprehensive information security program designed to protect the personal information it collects, including implementing specific safeguards related to the FTC’s allegations. Additionally, the proposed consent order requires the company to obtain third-party assessments of its information security program every two years and have a senior manager certify compliance with the order every year.
FTC shares 2018 enforcement report with the CFPB
On June 6, the FTC announced that it submitted its 2018 Annual Financial Acts Enforcement Report to the CFPB. The report—which the Bureau requested for its use in preparing its 2018 Annual Report to Congress—covers the FTC’s enforcement activities regarding Regulation Z (the Truth in Lending Act or TILA), Regulation M (the Consumer Leasing Act or CLA), and Regulation E (the Electronic Fund Transfer Act or EFTA). Highlights of the enforcement matters covered in the report include:
- Auto Lending and Leasing. The report discusses two enforcement matters related to deceptive automobile dealer practices. The first, filed in August 2018, alleged that a group of four auto dealers, among other things, advertised misleading discounts and incentives in their vehicle advertisements, and falsely inflated consumers’ income and down payment information on financing applications. The charges brought against the defendants allege violations of the FTC Act, TILA, and the CLA. The FTC sought, among other remedies, a permanent injunction to prevent future violations, restitution, and disgorgement. (Detailed InfoBytes coverage of the filing is available here.) In the second, in December 2018, the FTC mailed over 43,000 checks, totaling over $3.5 million, to consumers allegedly harmed by nine dealerships and owners engaged in deceptive and unfair sales and financing practices, deceptive advertising, and deceptive online reviews. (Detailed InfoBytes coverage is available here.)
- Payday Lending. The report covers two enforcement matters, including the U.S. Court of Appeals for the 9th Circuit’s December 2018 decision upholding the $1.3 billion judgment against defendants responsible for operating an allegedly deceptive payday lending program. The decision is the result of a 2012 complaint in which the FTC alleged that the defendants engaged in deceptive acts or practices in violation of Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. (Detailed InfoBytes coverage is available here.) The report also indicates that, in February 2018, the FTC issued over 72,000 checks totaling more an $2.9 million to consumers stemming from a July 2015 settlement, that alleged that online payday operators used personal financial information purchased from third-party lead generators or data brokers to make unauthorized deposits into and withdrawals from consumers’ bank accounts, regardless of whether the consumer applied for a payday loan. (Detailed InfoBytes coverage is available here.)
- Negative Option. The report covers six enforcement matters related to alleged violations of the EFTA and Regulation E for “negative option” plans, including three new filings against online marketers for allegedly advertising “free trial” offers for products that enrolled consumers in expensive, ongoing plans without their knowledge or consent. The report notes that, in 2018, the FTC reached a settlement with one entity and obtained a court judgment against another, both resulting in injunctive relief and monetary settlements (which were suspended due to the defendants’ inability to pay). The report also notes that the FTC mailed 2,116 refund checks totaling more than $355,000 to people who bought an allegedly deceptive “memory improvement” supplement.
Additionally, the report addresses the FTC’s research and policy efforts related to truth in lending and leasing, and electronic fund transfer issues, including (i) a study of consumers’ experiences in buying and financing automobiles at dealerships; and (ii) the FTC’s Military Task Force’s work on military consumer protection issues. The report also outlines the FTC’s consumer and business education efforts, which include several blog posts warning of new scams and practices.
FDIC fines banks for flood insurance, BSA violations
On May 31, the FDIC announced its release of a list of administrative enforcement actions taken against banks and individuals in April. The list reflects that the FDIC issued 17 orders, which includes “two consent orders; three terminations of consent orders; five Section 19 orders; three removal and prohibition orders; and four orders to pay civil money penalty.” Among other actions, the FDIC assessed civil money penalties against three separate banks (see here, here, and here) for alleged violations of the Flood Disaster Protection Act, including failing to (i) obtain flood insurance coverage on loans at or before origination; (ii) maintain, increase, extend, renew, or provide written notification to borrowers concerning flood insurance coverage on loans secured by collateral located in special flood hazard areas; (iii) follow force-placement flood insurance procedures; or (iv) provide borrowers with notice of the availability of federal disaster relief assistance within a reasonable timeframe.
The FDIC also assessed a civil money penalty against a New York-based bank related to alleged violations of the Bank Secrecy Act.