Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On September 13, the U.S. District Court for the Northern District of Illinois reimposed a more than $5 million restitution award in an action dating back to 2018, this time under Section 19 of the FTC Act. The court originally granted the FTC’s motion for summary judgment against a credit monitoring service and its sole owner in an action filed under Section 13(b) of the FTC Act, after concluding that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge could occur without engaging in unfair or deceptive practices (covered by InfoBytes here). However, as previously covered by InfoBytes, in 2019, the U.S. Court of Appeals for the Seventh Circuit held that Section 13(b) does not grant the FTC authority to order restitution—a position that the U.S. Supreme Court ultimately agreed with when issuing its decision in AMG Capital Management, LLC v. FTC (which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement”—covered by InfoBytes here).
In its current ruling, the court agreed to reimpose the damages under the Restore Online Shopper Confidence Act (ROSCA) and Section 19. The court noted that because ROSCA incorporates all the enforcement tools of the FTC Act, the FTC could seek remedies using Section 19 of the FTC Act instead of relying on Section 18. Further, the court noted that the FTC indicated that the FTC may seek remedies under Section 19 when it brought the action under Section 5(a) of ROSCA, which the court ultimately agreed was correct. “The FTC has the better of this dispute,” the court wrote, adding, among other things, that “the court is unmoved by [the defendant’s] claims of unfair prejudice. Aside from the particular route to an award of restitution, nothing will materially change. The FTC seeks the same remedy, for the same reasons, and for the same victims under section 5(a) via section 19 as it did under section 13(b).”
On September 14, the FTC voted 3-2, at the recommendation of the Bureau of Consumer Protection and Bureau of Competition, to approve a series of resolutions intended to streamline consumer protection and competition investigations in core FTC-priority areas over the next decade. At the recommendation of the Bureaus, the FTC authorized eight new compulsory process resolutions, which authorize the use of civil investigative demands and subpoenas when investigating the following areas: (i) acts or practices affecting U.S. servicemember and veterans; (ii) acts or practices affecting children under 18; (iii) algorithmic and biometric bias; (iv) deceptive and manipulative online conduct, including matters related to tech support scams, payment processing, marketing of goods and services, and user interface manipulation; (v) repair restrictions; (vi) intellectual property abuse; (vii) common directors and officers and common ownership; and (viii) monopolization offenses. According to the FTC, adopting these resolutions will enhance and streamline the ability of FTC investigators and prosecutors to obtain evidence in critical investigations relating to potential violations of the FTC Act. FTC Commissioner Rohit Chopra issued a statement following the vote, commenting that the adoption “will improve the agency’s ability to order documents and data in investigations and fills a notable gap in the Commission’s long list of enforcement authorizations developed over many years.”
On September 1, the FTC announced that a data monitoring application and its CEO (collectively, “defendants”) will be permanently banned from the surveillance industry for failing to provide reasonable data security for consumers’ personal information by allegedly “secretly harvesting and sharing data on people’s live location, web use, and online activities through their product’s hidden device hack.” The defendants allegedly sold real-time access to their surveillance system, which allowed stalkers and domestic abusers to “stealthily track” unknowing victims.
According to the complaint, the defendants violated Section 5 of the FTC Act by committing unfair or deceptive business practices in using unauthorized personal information and failing to secure such data in which “victims continue to experience substantial harm, including injury in the form of depression, anxiety, and ongoing fear for one’s safety,” even after the stalking or domestic abuse ended. The complaint detailed the covert monitoring products and services offered by defendants once their application is installed, including capturing and logging: email, SMS messages, call history, GPS location and live location, web history, contacts, pictures, calendar, video chats, files downloaded on the device, notifications, among other functions depending on cost.
Under the terms of the proposed settlement, the defendants are: (i) banned from offering, promoting, selling, or advertising any surveillance app, service, or business; (ii) required to delete any information illegally collected from their apps; and (iii) required to notify owners of devices that their devices might have been monitored and the devices may not be secure. This is the agency’s second case “brought against stalkerware apps, and the first where the FTC is obtaining a ban.” According to a statement released by FTC Commissioner Rohit Chopra, the agency is also “seeking public comment on banning [the defendants] from licensing, marketing, or offering for sale surveillance products,” which is “a significant change from the agency’s past approach.”
On August 24, the U.S. District Court for the District of Maryland denied a request to set aside a more than $120.2 million judgment against several defaulted defendants involved in an international real estate investment development scheme. As previously covered by InfoBytes, the FTC initiated the action in 2018 against several individuals and corporate entities, along with a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. In 2019, a settlement was reached with the Belizean bank requiring payment of $23 million in equitable relief, and in 2020, the district court ordered the defaulted defendants to pay over $120.2 million in redress and granted the FTC’s request for permanent injunctions (covered by InfoBytes here and here).
In their motion, the defaulted defendants argued that the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC (which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement”—covered by InfoBytes here) nullified the judgment. The district court disagreed, stating that the AMG Capital decision does not render his judgments in the case void and that “[i]n its Opinion rendered before the Supreme Court reached its decision, the Court considered the effect that a decision in AMG Capital adverse to the FTC might have, reasoning that: ‘this Court’s findings of fact and determinations as to liability—including contempt of court and violations of the Telemarketing Services Rule —would not be affected by a decision in AMG.’” Moreover, the court pointed out that immediate denial of the motion is also warranted because the defaulted defendants failed to comply with a local rule requiring submission of a memorandum of law in support of their motion. The court asked, “In failing to do so, they have skirted among other fundamental questions: What authority do they, as defaulted defendants, involved as part of a common enterprise with virtually all other [d]efendants, have to upset a final and valid judgment against them after willfully defaulting?”
On August 11, the FTC filed an administrative complaint against a Georgia-based technology company and its CEO (collectively, “defendants”) for allegedly charging small business customers hundreds of millions of dollars in mystery fees associated with fuel cards. The FTC’s administrative complaint alleges that the defendants violated the FTC Act by falsely promising companies that they would save money, be protected from unauthorized charges, and have no set-up, transaction, or membership fees with the fuel cards. However, according to the defendant’s records, companies generally have not achieved the advertised fuel savings through utilization of the cards. In addition, the complaint alleges that the defendants, among other things: (i) falsely represented that the company’s fuel cards contained fraud controls to prevent unauthorized purchases; (ii) “billed consumers for fees, interest, and finance charges, and programs for which consumers have not provided express, informed consent”; and (iii) charged fees for set-up, transactions, or membership after claiming that they did not.
In December 2019, the FTC filed suit in federal court against the defendants, alleging that they charged hundreds of millions of dollars in hidden and undisclosed fees to customers after falsely claiming customers would save on fuel costs. However, in April, the Supreme Court ruled that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement” (covered by InfoBytes here). According to the FTC, “[i]n an effort to ensure that the agency’s case against the fuel card marketer is still able to recover money lost by consumers, the FTC has filed a new administrative complaint which alleges that [the defendants] violated section 5 of the FTC Act.”
On July 29, the FTC announced a proposed settlement with the owner and manager of a group of auto dealers with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the individual defendant advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes, in 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act (CLA) for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.” A settlement was reached with the auto dealer defendants last September (covered by InfoBytes here), which required, among other things, that the auto dealer defendants cease all business operations and pay a monetary judgment of over $7 million.
If approved by the court, the proposed order would result in a $450,000 payment to the FTC, and would prohibit the individual defendant, who neither admits nor denies the allegations, from (i) misrepresenting information in any documents associated with a consumer’s purchase, financing, or leasing of a motor vehicle; (ii) misrepresenting the costs or any other material facts related to vehicle financing; or (iii) falsifying loan information. The individual defendant would also be required to provide consumers a reasonable opportunity and sufficient time to review documents associated with the vehicle financing, and is prohibited from violating the TILA and CLA.
On July 16, the FTC announced a $1.6 million settlement with a New Jersey-based septic tank cleaning company, its officers, and an individual connected to the officers (collectively, “defendants”) for allegedly making illegal robocalls to consumers, including tens of millions of calls to numbers listed on the FTC’s Do Not Call Registry. The complaint, which was filed on behalf of the FTC by the DOJ in July, alleged that the defendants violated the FTC Act and the Telemarketing Sales Rule, among other things, by engaging in illegal telemarketing practices, including the use of prerecorded messages. The defendants allegedly falsely told consumers they were calling from an unnamed “environmental company” to provide consumers with “free info” regarding their septic tank cleaning products. In addition, the defendants allegedly sent letters to customers “threatening to direct their purportedly delinquent accounts to a collection agency or legal department even though [the company] never intended to send customer accounts to either a collections agency or legal department.” Under the terms of the stipulated final order, the defendants are, among other things: (i) permanently banned from engaging in telemarketing; (ii) prohibited from making misrepresentations to consumers regarding referrals to attorneys or collection agencies or material facts concerning goods or services; (iii) prohibited from billing or attempting to collect payments from any consumers connected to the sale of their septic tank cleaning products; and (vi) required to notify all customers with unpaid balances that their balances have been cancelled. A $10.2 million monetary judgment will be partially suspended after the officers pay approximately $1.6 million and the individual pays $15,000 to the U.S. Treasury.
On July 14, the FTC announced an $18 million settlement with a financial services company (defendant) over allegations that it deceived consumers. The FTC originally filed a complaint in 2018 claiming, among other things, that the defendant violated the FTC Act, the Privacy of Consumer Financial Information Rule, and the Gramm-Leach-Bliley Act, by falsely advertising loans with “no hidden fees” and misleading consumers with respect to whether their loan applications had been approved. The complaint also alleged that the defendant withdrew double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or paid off their loan, leading to overdraft fees and preventing borrowers from making other payments. Under the terms of the stipulated final order, the defendant is permanently barred from (i) misrepresenting fee amounts, the status of an application, and other material facts concerning any extension of credit; and (ii) making any representation about a specific loan amount prior to accepting a loan application, without clear and conspicuous disclosure of the dollar amount of any prepaid, up-front, or origination fee or the total amount of funds that would be disbursed to the consumer.
On July 12, the FTC announced a settlement with two Florida-based payment processing companies and their CEO (collectively, “defendants”) accused of participating in a student loan debt relief scam. As previously covered by InfoBytes, in 2018, the FTC alleged the student loan debt relief operation violated the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, falsely claiming borrowers had pre-qualified for federal loan assistance programs that would reduce their monthly debt payments or result in total loan forgiveness and accepting monthly payments that were not applied towards student loans. A settlement was reached last December (covered by InfoBytes here). According to the FTC’s most recent complaint, the defendants allegedly “applied for and obtained merchant accounts for the [scam] by knowingly and repeatedly providing false information to payment processors about the [operation’s] three companies.” The defendants’ payment processing applications, the FTC contended, concealed the fraudulent activity, denied that the operation was offering consumers prohibited debt relief services, and repeatedly ignored warnings and direct evidence that the operation was defrauding consumers.
Under the terms of the settlement order, the defendants are permanently banned from payment processing or acting as an independent sales organization or sales agency. The defendants are also prohibited from assisting and facilitating any unfair and deceptive trade practice, including to obtain payment processing services. In addition, the order imposes a $28.6 million judgment against the defendants, which is partially suspended following the payment of $20,493, due to the defendants’ inability to pay the full amount.
On July 2, the FTC announced a settlement with operators of a Florida-based recruitment program (defendants) for allegedly promising that participants could receive large amounts of money from selling memberships to other participants. The FTC filed a complaint in 2020 as part of an initiative called “Operation Income Illusion,” which encompasses more than 50 enforcement actions against alleged scams targeting consumers with false promises of income and financial independence (covered by InfoBytes here). According to the complaint, the defendants allegedly violated the FTC Act, among other things, by selling expensive memberships to programs by promoting earnings between $500 and $12,500 per sale. Under the terms of the stipulated final order, the defendants are prohibited from: (i) “creating, advertising, marketing, promoting, offering for sale, or selling” any business or investment opportunity or misrepresenting the amount of money someone can earn from any type of business; (ii) assisting others in such activity; and (iii) owning any financial interest in a business entity that engages in such activity. A $3.6 million monetary judgment is ordered against the company and its owners, in addition to a $217,426 monetary judgment against the company’s promoter. Due to the defendants’ inability to pay the full amount, the judgments will be partially suspended once all four defendants’ turn over various assets. A default judgment was entered in March against two additional defendants who promoted the scheme that included similar requirements, in addition to a $600,000 and $171,500 monetary judgment.
- Jonice Gray Tucker to discuss “Updates on Artificial Intelligence Regulations - the U.S. and EU” at the American Bar Association Busines Law Section Meeting
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- APPROVED Webcast: California debt collection license requirement: Overview and analysis
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- Jeffrey P. Naimon to discuss “Regulators are gearing up: Are you ready?” at HousingWire Annual
- Amanda R. Lawrence and Elizabeth E. McGinn discuss “U.S. state privacy legislation – Are you compliant?” at the Privacy+Security Forum
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker and Kari K. Hall to discuss “Consumer Protection Priorities in the Biden Administration and Beyond" at the SWABC and TBA 2021 Legal Conference
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek