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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.
District Court rules FTC cannot seek monetary relief in false advertising action under Section 19 of the FTC Act
On June 29, the U.S. District Court for the Central District of California granted in part and denied in part parties’ motions for summary judgment with respect to remedies, and in doing so, considered whether the FTC may seek monetary relief under Section 19 of the FTC Act. In 2018, the FTC alleged that the defendants violated the FTC Act, Restore Online Shoppers’ Confidence Act (ROSCA), EFTA, and the Telemarketing Sales Rule by engaging in false advertising and participating in an unauthorized billing scheme. In 2020, the court granted summary judgment in favor of the FTC on all counts, but reserved ruling on the appropriate remedies until after the Supreme Court issued decisions in the consolidated appeals in AMG Capital Management v. FTC. On April 22, the Supreme Court unanimously held that while 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,” nothing in its opinion prohibits the FTC “from using its § 5 or § 19 authority to obtain restitution on behalf of consumers.” (Covered by InfoBytes here.) Following the AMG decision, the FTC stated it was no longer seeking monetary relief under Section 13(b) but argued that it may still seek monetary relief under Section 19 for the defendants’ violations of ROSCA. The defendants countered that remedies for the ROSCA violations were unavailable because the FTC failed to specifically invoke Section 19 remedies in its complaint or timely disclose damage calculations or new witnesses under procedural rules, among other things.
The court observed that Section 19 authorizes the FTC to “seek equitable monetary relief to redress consumer injury resulting from ROSCA violations.” However, the court concluded in this case that the “FTC may proceed to trial on damages for ROSCA violations based only on evidence and witnesses that have been properly disclosed. Because none of the FTC's prior disclosures described its computation of damages for ROSCA violations, however, it appears that the FTC has no evidence to present at trial to support its nascent theory of damages. In the absence of any other theory of monetary relief after AMG, the Court concludes that the FTC cannot recover damages for consumers in this action.” While the court granted the defendants’ motion for summary judgment to the extent that the FTC cannot obtain monetary relief, it stated that “because the FTC has authority to pursue a permanent injunction and has shown the likelihood of recurrence of violations of the FTC Act,” it was granting in part the FTC’s motion for summary judgment “to the extent it seeks a permanent injunction against future enumerated unfair and deceptive acts or practices by the [defendants].”
On June 25, the FDIC released a list of administrative enforcement actions taken against banks and individuals in May. During the month, the FDIC issued 10 orders and one notice consisting of “two Orders to Pay Civil Money Penalties, four Section 19 Applications, three Orders Terminating Consent Orders, one Order of Prohibition from Further Participation, and Notice of Intention to Prohibit from Further Participation, one Notice of Assessment of Civil Money Penalties, Findings of Fact, Conclusions of Law, Order to Pay, and Notice of Hearing.” Among the orders is a civil money penalty imposed against an Oregon-based bank concerning allegations of unfair and deceptive practices related to a wholly-owned subsidiary’s debt collection practices for commercial equipment financing. As previously covered by InfoBytes, the bank’s subsidiary allegedly violated Section 5 of the FTC Act by, among other things, unfairly and deceptively charging various undisclosed collection fees—such as collection call and letter fees and third-party collection fees—to borrowers with past due accounts. The bank, which did not admit or deny the violations, agreed to voluntarily pay an approximately $1.8 million civil money penalty.
The FDIC also imposed a civil money penalty against an Iowa-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank (i) “[m]ade, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “[f]ailed to timely notify the borrower that the borrower should obtain flood insurance, at the borrower’s expense, upon determining that the collateral was not covered by flood insurance at some time during the term of the loan”; and (iii) “[f]ailed to timely purchase flood insurance on the borrower’s behalf when the borrower failed to do so within 45 days of being advised to obtain adequate flood insurance.” The order requires the payment of a $8,000 civil money penalty.
On June 22, the FTC issued a decision and order against a company operating a fertility-tracking mobile app. The order resolved claims that the company shared user’s sensitive health data with various marketing and analytics service providers to the company. The FTC filed a complaint in January claiming, among other things, that the company repeatedly promised to protect users’ personal health data but instead disclosed the data to third parties for years and did not contractually limit how those third parties could use the data. These actions, the FTC claimed, violated the FTC Act as well as frameworks under the EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield, which the company represented to users that it participated in, and require companies to provide notice, choice, and accountability for the transfer of personal data to third parties. Under the terms of the decision and order, the company is required to provide notice to users about the disclosure of their health data, obtain users’ affirmative express consent to share the information, and instruct any third party that received users’ health information to destroy the data. Additionally, the company is prohibited from misrepresenting: (i) the purposes for which it (or any entity to whom it discloses personal data) collects, maintains, uses, or discloses the data; (ii) the extent to which consumers can control the use of the data; (iii) its adherence to any privacy, security, or compliance program; and (iv) the extent to which it “collects, maintains, uses, discloses, deletes, or permits or denies access to any” users’ personal information. The FTC further noted in its announcement that it is “currently undertaking a review of the Health Breach Notification Rule and is actively considering public comments regarding the application of the Rule to mobile applications and other direct-to-consumer technologies that handle consumers’ sensitive health information.”
On June 16, the FTC and the Arkansas attorney general filed a complaint against the operators of a “blessing loom” investment program (defendants), alleging that they acted as an illegal pyramid scheme that bilked millions of dollars from thousands of consumers. The joint complaint alleges that the defendants violated the FTC Act, Consumer Review Fairness Act, and the Arkansas Deceptive Trade Practices Act by: (i) participating in a pyramid scheme, which constitutes a deceptive act; (ii) prohibiting the ability of an individual to engage in a covered communication; and (iii) falsely representing goods and services. The complaint alleges that the defendants lured people into enrolling in their program by falsely guaranteeing investment returns as high as 800 percent, with some members allegedly paying as much as $62,700 to participate in the program. In addition, the defendants allegedly, among other things, (i) targeted Black communities and stated in the “[program’s] Bible,” which contains program membership bylaws, that all program members must, with no exceptions, be of African-American descent; (ii) targeted financially distressed consumers; (iii) falsely claimed the program provided “a means to achieve financial freedom and generational wealth”; (vi) attempted to hide their illegal activity from law enforcement and payment processors by forbidding certain payment applications to be used by members; and (v) prohibited members from publishing material related to the program online, such as comments and reviews. The complaint seeks to permanently enjoin the defendants’ illegal operation and requests that the court award redress for injured consumers. The complaint also seeks to impose civil penalties on the defendants under Arkansas state law.
On June 14, the FTC announced additional charges against two New York-based small-business financing companies and a related entity and individuals (collectively, “defendants”). Last June, the FTC filed a complaint against the defendants for allegedly violating the FTC Act and engaging in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, and making unauthorized withdrawals from consumers’ accounts (covered by InfoBytes here). The amended complaint alleges that the defendants also violated the Gramm-Leach-Bliley Act’s prohibition on using false statements to obtain consumers’ financial information, including bank account numbers, log-in credentials, and the identity of authorized signers, in order “to withdraw more than the specified amount from consumers’ bank accounts.” Additionally, the FTC’s press release states that the defendants “engaged in wanton and egregious behavior, including laughing at consumer requests for refunds from [the defendants’] unauthorized withdrawals from customer bank accounts; abusing the legal system to seize the business and personal assets of their customers; and threatening to break their customers’ jaws or falsely accusing them of child molestation during collection calls.” The amended complaint seeks a permanent injunction against the defendants, along with civil money penalties and monetary relief including “rescission or reformation of contracts, the refund of monies paid, and other equitable relief.”
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Daniel R. Alonso to discuss “Primer on cross-border prosecutions in Argentina, Brazil, Colombia, and Mexico for U.S. criminal lawyers” at a New York City Bar Association webinar
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- 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
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute