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FTC proposes fines, bans based on alleged credit repair scheme
On August 5, the FTC announced proposed court orders that would require a defendant credit repair operation, its owners and associated companies (collectively, defendants) to pay more than $12 million to resolve allegations related to their credit repair products. As previously covered by InfoBytes, defendants allegedly targeted consumers with low credit scores, promising that the company’s products could remove all negative information from consumers’ credit reports and significantly increase their credit scores. Defendants also allegedly charged consumers upfront for the service. Additionally, the FTC claimed that the defendants sought to recruit consumers to participate in a “pyramid scheme” by representing that consumers could make tens of thousands of dollars recruiting others into the service. The operation allegedly violated the FTC Act, the Credit Repair Organizations Act, and the Telemarketing Sales Rule. The proposed settlements will result in over $12 million being turned over to the FTC for consumer refunds, and also impose conduct prohibitions on individual defendants, including industry bans.
FTC asks court to approve $43.5M settlement against for-profit school
On July 29, the FTC released its complaint and stipulated order against a for-profit educational institution located in Georgia for allegedly making false or unsubstantiated representations to convince consumers to enroll in its programs, in violation of Section 5(a) of the FTC Act, Section 521 of the GLBA, the Telemarketing Act, and the Telemarketing Sales Rule. The FTC sought relief, including a permanent injunction and monetary relief. According to the complaint, the educational institution allegedly “lured” consumers — specifically, servicemembers and their families — with false employment rates and deceptive job placement rates, misrepresented externships and the time-to-completion of its programs, and used deceptive incentivized reviews to promote its services. The FTC levied five counts against the defendant. Three counts were for violations of the FTC Act — one for misrepresenting its educational services, one for falsely claiming that its consumer reviews were conducted independently, and one for failing to disclose its material connections to consumers who submitted reviews and endorsed the educational institution. Another count alleged a violation of the GLBA for making false statements to obtain consumers’ customer information about a financial institution, and the final count alleged a violation of the Telemarking Sales Rule for making deceptive telemarketing calls. The FTC requested that the court enter a permanent injunction to prevent future violations of the law and award monetary relief, among other things. The FTC’s stipulated order asked the federal court to approve a settlement to pay $43.5 million, which included $15.7 million for consumer redress and a cancellation of $27.8 million for debts owed to the defendant by consumers and former students.
FTC reminds industries of its enforcement of the Franchisee Rule
On July 12, the FTC released a new policy statement, staff guidance, and an issue spotlight about allegedly unfair and deceptive practices by franchisors. The policy statement addressed the FTC’s concerns that franchisees have been reluctant or unwilling to voluntarily discuss or report to the FTC any concerns with the franchisors even where the franchisee believes a legal violation may have occurred. The FTC stated that contract provisions, including non-disparagement clauses, confidentiality or non-disclosure clauses, or goodwill clauses, may not restrict franchisees from speaking out about potential violations of the law.
The FTC also released a separate staff guidance on franchisors imposing undisclosed fees onto franchisees. The FTC reminded franchisors that the Franchise Rule required franchisors to disclose certain fees in the Franchise Disclosure Document. Failure to disclose those fees in the Franchise Disclosure Document would constitute a violation of the Franchise Rule and Section 5 of the FTC Act. The FTC urged franchisors to review their practices to ensure compliance with the law.
The FTC released an issue spotlight piece that highlighted the FTC’s Request for Information (RFI) which sought to spotlight six main issues, including with (1) franchise relationship, (2) provisions of the franchise agreement, (3) franchisor business practices, (4) payments to franchisors from third parties, (5) indirect effects on franchisee labor costs, and (6) language barriers. After receiving over 2,000 publicly posted comments during the closure of the first comment period, the FTC noted the top three franchisee concerns related to unilateral changes to franchise operating models, franchisor misrepresentation and deception, and fees and royalties. In the FTC’s press release, the FTC announced an extension of the public comment period on the RFI where stakeholders can submit comments until October 10.
FTC halts deceptive student loan debt relief operation and freezes assets
On June 28, the FTC announced an enforcement action against a student loan debt relief operation that allegedly took over $20.3 million from consumers by falsely claiming affiliation with the Department of Education and falsely promising loan forgiveness. The FTC claims the operation charged consumers illegal upfront fees for debt relief services that were never provided in many instances. The FTC also stated that the operation used telemarketers to make misrepresentations to borrowers and falsely told consumers that they would purchase the consumers’ loans from their federal servicer.
The FTC alleges the operation violated the Impersonation Rule, which became effective in April, which prohibits the impersonation of government agencies and businesses. The FTC alleges the operation also violated the FTC Act, the Telemarketing Sales Rule, and the Gramm-Leach-Bliley Act. The FTC's complaint resulted in a federal court permanently enjoining future violations, granting preliminary injunctive relief, freezing the operation’s assets, and awarding monetary and other relief for consumers. A temporary restraining order was also issued by the U.S. District Court for the Central District of California.
FTC alleges ROSCA, GLBA and FTC Act violations against bill payment platform
On April 25, the FTC announced an enforcement action against a third-party bill payment platform and two of its co-founders (defendants) for allegedly running misleading advertisements that intercepted consumers attempting to reach their billers, using “dark patterns” to manipulate the consumers into using the platform under the false belief that they have reached the biller’s official payment site, charging “junk fees” in connection with the processing of payments, and in some cases sending untimely payments to billers. According to the FTC’s complaint, the company allegedly violated the FTC Act by making false or misleading representations that it was an official payment channel for the consumers’ billers. The FTC also claimed defendants violated the Restore Online Shoppers’ Confidence Act by charging consumers for goods or services before clearly and conspicuously disclosing to consumers all material terms of the transaction and obtaining the consumers’ informed consent to be charged, and enrolling consumers into a paid subscription service by automatically ticking a box without warning when consumers clicked on a “User Terms of Service” hyperlink. Additionally, the FTC alleged that the company caused consumers to incur late fees and other inconveniences by failing to make timely payment to consumers’ billers, despite having received timely payment from the consumer. The FTC’s complaint also alleged that defendants used fraudulent statements or representations to obtain consumer information such as bank account numbers, routing numbers, credit card numbers, and debit card numbers in violation of the Gramm-Leach-Bliley Act.
The FTC claimed that defendants received tens of thousands of consumer complaints, inquiries from two state attorney’s general offices, and temporarily lost access to a credit card company’s network due to the complaints, among other warnings regarding its practices. The FTC will seek a permanent injunction, monetary relief, and other relief.
FTC bans all non-competes for workers and new non-competes for senior executives
On April 23, the FTC released a final rule titled the “Non-Compete Clause Rule,” in a 570-page release, to “categorically ban” non-compete clauses in employment contracts with all workers after the effective date of the rule pursuant to the FTC’s UDAP authority, by rendering such clauses an unfair method of competition pursuant to Section 5 of the FTC Act. The final rule also renders most existing noncompete clauses unenforceable after the effective date of the final rule, with an exception for existing noncompete clauses for senior executives, which remain enforceable. The FTC explained that it viewed noncomplete clauses as “restrictive and exclusionary” with negative impacts on earnings, innovation, and market competition. The final rule defines “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
While the FTC decided against adopting a rescission requirement for non-competes in the final rule, it adopts notice requirements for all workers who are not senior executives requiring “the person who entered into the non-compete” to provide “clear and conspicuous notice to the worker by the effective date that the worker’s non-compete clause is no longer in effect and will not be, and cannot legally be, enforced against the worker.” The Commission noted that employers concerned about protecting confidential business information, may avail themselves of the protections of trade secret law and further noted that there are several states that have already substantially banned non-competes, and that within these states employers have found alternative methods to protect their investments.
The FTC’s final rule will go into effect 120 days after publication of the final rule in the Federal Register.
FDIC’s Consumer Compliance report outlines most frequently cited violations and observations
On March 28, the FDIC released its March 2024 version of the Consumer Compliance Supervisory Highlights from the previous year, a report that enhanced transparency regarding the FDIC’s consumer compliance supervisory activities. The FDIC reported 16 formal enforcement actions and another 16 informal enforcement actions to address consumer compliance examination findings. The report highlighted how the FDIC conducted almost 900 consumer compliance examinations. The top five most frequently cited violations of moderate severity (levels two and three out of five of supervisory concern), which represented 74 percent of the total violations, included, in order from most frequently cited to least: TILA, and its implementing regulation, Regulation Z; the Flood Disaster Protection Act (FDPA) and its implementing regulation, Part 339; EFTA, and its implementing regulation, Regulation E; TISA, and its implementing regulation, Regulation DD; and Section 5 of the FTC Act. The report noted how Section 5 of the FTC Act dropped from the second most frequently cited to the fifth.
The FDIC’s report outlined the most significant consumer compliance examination observations including the misuse of the FDIC’s logo, advertising of credit builder products, electronic fund transfer (EFT) error resolutions by third parties, mortgage broker relationships, and fair lending compliance. On the misuse of the FDIC’s logo, the FDIC found “a number of third parties” misrepresented the FDIC’s deposit insurance in violation of Section 18(a)(4) of the FDI Act. On substantiating claims in the advertising of credit builder products, the FDIC found that institutions collaborated with fintech companies on credit builder products and falsely advertised “these products would improve” one’s credit score, in violation of Section 5 of the FTC Act. On EFTs handled by third parties, the FDIC identified an issue with a security program in validating customer transactions in violation of Regulation E of EFTA. On payments for mortgage brokerage services, the FDIC found RESPA Section 8 violations involving mortgage broker relationships. On oversight of third parties, the FDIC identified issues with an institution that partnered with third-party lenders to offer unsecured consumer loans, finding the institution violated Section 39 of the FDI Act. Last and on fair lending, the FDIC found that most of the DOJ’s referral matters pertinent to discrimination related to redlining, automobile financing, and credit underwriting.
FTC fines two fintech firms $59 million for PPP loan practices
On March 18, the FTC announced enforcement actions against two companies that allegedly made “false promises” to small businesses seeking Paycheck Protection Program (PPP) loans. Both companies have agreed to settle with the FTC to resolve alleged violations of the Covid-19 Consumer Protection Act and the FTC Act.
According to the FTC’s complaint on the first company—a company that offers online financing products to small businesses—and its subsidiary allegedly engaged in a pattern of deceptive and unfair conduct by quoting shorter processing times for consumers’ applications, despite being aware of the significant delays. The companies also allegedly ignored consumers’ requests to withdraw their pending applications frequently. The FTC further alleged that roughly 40 percent of the companies’ consumers had their applications canceled or rejected. The proposed stipulated order included a prohibition against misrepresentations, an injunction concerning the companies’ application practices (which had prohibited them from failing to allow consumers to promptly withdraw their applications), and a $33 million judgment for monetary relief. The companies must also comply with reporting requirements detailed in the settlement.
The FTC’s complaint against the second company—an online platform offering PPP financing services to small businesses—and its CEO, alleged that respondents made deceptive claims to consumers, many of whom were eligible but never received funding because the respondents failed to fix known technical issues with their system or provide consumers with assistance. According to the complaint, the company claimed that processing a loan would only take 24 hours through the “fast lane” service, but the company’s chat support was slow, as were its review and processing times. The FTC noted that the time-sensitive nature of PPP funding meant any delays had significant impacts on consumers. In addition to the $26 million monetary judgment, the settlement with the company and its CEO prohibited them from making any deceptive, false, or unsubstantiated claims about financial services or products.
FTC takes action against tax prep company for alleged unfair and deceptive practices
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).
FTC encourages potential defendants to sign tolling agreements to avoid "undue delay"
On February 20, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, said in an FTC blog post, that although the FTC welcomes open dialogue with parties in open investigations, the Commission is prepared to quickly pivot to litigation in cases should companies cause “undue delay” to redress for consumers. In light of a 2021 Supreme Court ruling in AMG Capital Management, LLC v. FTC, the FTC can no longer pursue monetary relief under Section 13(b) of the FTC Act, which lacks a statute of limitations. Instead, the FTC said, it frequently turns to Section 19, 15 U.S.C. § 57b, which allows courts to order defendants to provide redress only if violations occurred within three years of the Commission’s action. To facilitate timely productive discussions, the FTC Bureau of Consumer Protection often requests tolling agreements from potential defendants to provide time for information gathering and dialogue while preserving the possibility of a pre-litigation settlement or closing the investigation in appropriate cases. Parties are encouraged to sign these agreements, as refusal may impact extension requests and meeting opportunities. If necessary, the FTC will recommend litigation to protect consumer interests.