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Court backs FTC’s $120 million settlement in Belizean real estate scheme
On August 28, the U.S. District Court for the District of Maryland granted the FTC’s request for four individuals and the remaining corporate defendants who have not yet settled (collectively, “defendants”) to pay over $120 million in redress to resolve allegations the defendants operated an international real estate investment development scheme. As previously covered by InfoBytes, in November 2018, the FTC initiated the action against the individuals, several corporate entities, and a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. The FTC contends that consumers who purchased lots in the development purchased the lots outright or made large down payments and sizeable monthly payments, and paid monthly homeowners association fees, and that defendants used the money received from these payments to fund their “high-end lifestyles,” rather than to invest in the development. In September 2019, the FTC settled with the Belizean bank, requiring the bank to pay $23 million in equitable relief, including consumer redress (covered by InfoBytes here).
Following a trial, the district court has now agreed with the FTC, concluding that the remaining defendants violated the FTC Act and the TSR. The court found the defendants jointly and severally liable for over $120 million in restitution and granted the FTC’s request for permanent injunctions—banning the defendants from any telemarketing activity and banning one defendant, described as “nothing less than the mastermind” of the operations, from “engaging in any kind of real estate activity” in the future.
FTC takes action against debt collection schemes
On August 19, the U.S. District Court for the District of South Carolina lifted the temporary seal of two FTC complaints (available here and here) filed against two groups of debt collection companies and their owners (collectively, “defendants”), alleging that the defendants’ debt collection practices violated the FTC Act and the FDCPA. According to both complaints, which were filed on July 13, the FTC alleges that the defendants engaged in a scheme to collect payments from consumers for debts that they did not actually owe or that the defendants had no authority to collect. Specifically, the defendants used a “two-step collection process,” in which they used robocalls with prerecorded messages to tell consumers they were subject to “an audit or other proceeding.” After the consumers contacted the defendants about the information in the robocalls, the defendants “falsely represent[ed] that they are representatives of a law firm or a mediation company” and falsely alleged that the consumers would be subject to legal action, including arrest, on a delinquent debt if it was not paid. The FTC asserts that the defendants collected over $17 million from the alleged scheme and is seeking, among other things, restitution, injunctions, and asset freezes.
FTC charges merchant cash advance provider with deceptive and unfair practices
On August 3, the FTC filed a complaint against two New York-based merchant cash advance providers and two company executives (collectively, “defendants”) for allegedly engaging in deceptive practices by misrepresenting the terms of their merchant cash advances (MCAs), using unfair collection practices, making unauthorized withdrawals from consumers’ accounts, and misrepresenting collateral and personal guarantee requirements. The FTC’s complaint alleges that when marketing and offering MCAs to small business customers, the defendants, among other things, (i) falsely advertised that MCAs do not require collateral or personal guarantees, but when consumers defaulted on their financing agreements, the defendants frequently filed lawsuits against them, including against individual business owners who provided personal guarantees, to collect the unpaid amount; (ii) misrepresented the amount of total financing in the contract that consumers would receive by withholding fees that are deducted from the promised funds; and (iii) made unfair, unauthorized withdrawals from customers’ bank accounts in excess of consumers’ authorization without express informed consent, and routinely continued to debit customers’ bank accounts after the MCAs were fully repaid. According to the FTC, the “unauthorized overpayments have been a typical occurrence for [the defendants’] customers, and have impacted at least thousands of them, in amounts ranging from hundreds to thousands of dollars.”
The FTC seeks a permanent injunction against the defendants, along with monetary relief including “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
District court enters $13.9 million judgment in FTC robocall action
On July 27, the U.S. District Court for the Middle District of Florida entered a nearly $13.9 million partially suspended judgment against six corporate and three individual defendants (collectively, “defendants”) allegedly operating an illegal robocall scheme offering consumers credit card interest rate reduction services in violation of the FTC Act and the Telemarketing Sales Rule. The action is part of a 2019 FTC crackdown on illegal robocalls named “Operation Call it Quits,” which included 94 enforcement actions from around the country brought by the FTC and 25 other federal, state, and local agencies (covered by InfoBytes here). According to the complaint, the defendants made deceptive guarantees to consumers that, for a fee, they could lower their credit card interest rates to zero percent permanently for the life of the credit card debt. However, the FTC alleged that not only do consumers not see a permanent reduction on their credit card interest rates, in some instances, the defendants obtained new credit cards with promotional “teaser” zero percent interest rates that only lasted a limited time, after which the interest rates increased significantly. Moreover, the defendants allegedly failed to tell consumers that they would have to pay additional bank or transaction fees. In addition, the complaint contended that the defendants also (i) initiated illegal telemarketing calls to consumers, including many whose phone numbers appear in the National Do Not Call Registry; (ii) tricked consumers into providing personal financial information, including social security numbers and credit card numbers; and (iii) in many instances, applied for credit cards on behalf of consumers who did not agree to use the service without their knowledge, authorization, or express informed consent.
The court’s order enters a nearly $13.9 million judgment, which will be partially suspended due to inability to pay. The defendants are also prohibited from collecting or assigning any right to collect payments from consumers who purchased the service, and are permanently banned from, among other things, engaging in the illegal behaviors involved in the action and from using the information obtained from consumers during the robocall operation.
District court shuts down operation claiming debt relief for students
On July 20, the FTC announced that the U.S. District Court for the Central District of California issued a final judgment permanently banning defendants in a student loan debt relief operation from telemarketing or providing debt relief services. As previously covered by InfoBytes, in 2019 the FTC charged the defendants with violations of the FTC Act and the Telemarketing Sales Rule (TSR) for allegedly, among other things, (i) charging borrowers illegal advance fees; (ii) falsely claiming they would service and pay down borrowers’ student loans; and (iii) obtaining borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers.
The court’s order granted the FTC’s motion for summary judgment, finding that the defendants received revenues of at least $31.1 million derived unlawfully from payments received from borrowers due to the defendants’ violations of the FTC Act and TSR. Of these revenues, only about $3.1 million had been paid by the defendants to borrowers’ federal student loan servicers, the order stated, although the court noted that the defendants allegedly refunded about $408,089 to consumers. The court imposed a roughly $27.6 million judgment against the defendants as equitable monetary relief, and permanently banned the defendants from offering similar services in the future, including misrepresenting, or assisting others in misrepresenting, any facts materials to a consumer’s decision to purchase financial products or services.
FTC, Florida issue TRO against rate-reduction operation
On July 16, the FTC and the Florida attorney general announced that the U.S. District Court for the Middle District of Florida granted a temporary restraining order against an allegedly fraudulent credit card interest rate reduction operation. According to the complaint, the operation violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices act by targeting “financially distressed consumers and older adults” through telemarketing phone calls promising to substantially reduce their credit card interest rates and charging consumers upfront fees, ranging from $995 to $3,995. The operation typically charged the fees “during, or immediately following, the telemarketing call, often by using remotely created payment orders” against the consumer’s checking account or credit card. The complaint asserts that consumers often did not receive permanently reduced credit card interest rates, nor did they save “thousands of dollars on their credit card debt,” as promised. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, restitution, and civil money penalties.
Supreme Court to review FHFA structure, FTC restitution, and TCPA autodialing
On July 9, the U.S. Supreme Court agreed to review the following cases:
- FHFA Constitutionality. The Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s en banc decision in Collins. v. Mnuchin (covered by InfoBytes here), which concluded that the FHFA’s structure—which provides the director with “for cause” removal protection—violates the Constitution’s separation of powers requirements. As previously covered by a Buckley Special Alert last month, the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. The Court further held that the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute.
- FTC Restitution Authority. The Court granted review in two cases: (i) the 9th Circuit’s decision in FTC V. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
- TCPA Autodialer Definition. The Court agreed to review the U.S. Court of Appeals for the Ninth Circuit’s decision in Duguid v. Facebook, Inc. (covered by InfoBytes here), which concluded the plaintiff plausibly alleged the social media company’s text message system fell within the definition of autodialer under the TCPA. The 9th Circuit applied the definition from their 2018 decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list. The 2nd Circuit has since agreed with the 9th Circuit’s holding in Marks. However, these two opinions conflict with holdings by the 3rd, 7th, and 11th Circuits, which have held that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of an autodialer in ACA International v. FCC (covered by a Buckley Special Alert).
OCC issues new UDAP/UDAAP Comptroller’s Handbook booklet
On June 29, the OCC issued a new Comptroller’s Handbook booklet, “Unfair or Deceptive Acts or Practices and Unfair, Deceptive, or Abusive Acts or Practices,” which covers details for examiners regarding UDAP violations under Section 5 of the FTC Act and UDAAP violations under sections 1031 and 1036 of the Dodd-Frank Act. The booklet includes, among other things, examination procedures for assessing the effectiveness of a bank’s compliance management systems in identifying and managing UDAP and UDAAP risks and red flags that examiners can use to identify acts or practices that may raise UDAP or UDAAP concerns. Specifically, Appendix A includes a detailed list of nine red flags that examiners can use to identify potential areas with higher risks, including items such as (i) customer complaints received by the OCC or the bank; (ii) whistleblower referrals; (iii) higher than average fee incomes; (iv) weak servicing and collection practices; and (v) inadequate oversight over incentive compensation programs. Additionally, Appendix B includes risk indicator charts for examiners to use when assessing the quantity and quality of a bank’s risk management for UDAP and UDAAP.
FTC and SBA warn companies about misleading SBA loan marketing
On June 24, the FTC and the Small Business Administration (SBA) sent warning letters to six companies that they may be misleading small businesses seeking SBA loans due to the Covid-19 pandemic. The press release highlights specific claims from each company that the letters assert “could lead consumers to believe the companies are affiliated with the SBA,” or that consumers could use their websites to apply for loans from the Paycheck Protection Program (PPP) or other programs authorized by the CARES Act. These cited claims include, among others, (i) offering “'COVID-19 SBA Loan Programs”; (ii) offering “SBA Lending experts” and “SBA Loan Officers”; and (iii) stating “Get matched with a PPP lender now!” The letters warn the recipients to remove all deceptive claims and advertisements and remediate any harm to small business consumers that may have been caused. The letters further instruct the companies to notify the FTC within 48 hours of the actions they take in response. Copies of all six warning letters are available via links in the press release.
FTC settlement requires retailer to provide transaction records to identity theft victims
On June 10, the FTC announced a settlement to resolve Fair Credit Reporting Act (FCRA) allegations against a Wisconsin-based retailer for failing to provide the proper transaction records to identify theft victims. According to the FTC, this is the first time the Commission has used its authority under Section 609(e) of the FCRA, which requires companies to provide identity theft victims with “‘application and business transaction records’ evidencing any transactions that the victim alleges to be the ‘result of identity theft’” within 30 days of being requested. The FTC’s complaint alleged that from February 2017 through March 2019, the retailer implemented several changes to its policy, which limited the information that identity theft victims could obtain. The retailer also allegedly refused to directly provide victims with detailed order information, stating it would only share information if the request came directly from law enforcement. Moreover, the FTC claimed that the retailer did not provide the information it was supplying within the 30-day window required by the FCRA, and on several occasions, failed to issue a denial of a victim’s request within 30 days. These unlawful actions, the FTC alleged, violated the FTC Act and the FCRA, and only ended six months after the retailer received a civil investigative demand from the FTC. Under the terms of the settlement, the retailer has agreed to pay a $220,000 civil penalty to settle the claims and must provide identify theft victims, within 30 days, valid verification of their identity and the identity theft, including business transaction records related to the theft. The retailer must also provide a notice on its website to provide identity theft victims information on how to obtain application and business records, and certify that it has provided all such records to victims who were previously denied access.