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FTC announces resolution of an action against the final defendant in a debt collection operation
On March 5, the FTC announced that the U.S. District Court for the Middle District of Florida entered a default judgment against the final defendant of a debt collection operation accused of violating the FTC Act and Fair Debt Collections Practices Act by allegedly posing as lawyers and threating individuals with lawsuits or prison time if they failed to pay debt they did not actually owe. (See InfoBytes coverage here on previously issued order against three other co-defendants.) Under the terms of the January 23 order, the defendant is prohibited from, among other things, (i) engaging in debt collection activities; (ii) buying or selling consumer or commercial debt; (iii) misrepresenting material facts regarding financial-related products or services; (iv) misrepresenting an affiliation with an attorney or law firm; (v) disclosing, using, or benefiting from consumers’ personal information; and (vi) improperly disposing of consumers’ information. In addition, the court assessed a $702,059 fine, jointly and severally with the co-defendants.
Online payments system company settles FTC privacy, security, and money transfer allegations
On February 23, the FTC announced a proposed settlement with a global online payments system company (company) to resolve a complaint filed in 2016 concerning allegations that its payment and social networking service (service) violated the FTC Act when it, among other things, failed to adequately disclose to consumers that transfers to external bank accounts were subject to review and that funds could be frozen or removed based on a review of the underlying transaction. According to FTC allegations, many consumers who relied on notifications from the service that funds were available for transfer found themselves unable to pay rent or other bills. In some instances, the service reversed transactions after initially notifying consumers the funds were available. Additionally, the service allegedly violated the Gramm-Leach-Bliley Act’s Privacy and Safeguard Rules (GLBA Rules) by misleading consumers about protections for their accounts when it claimed to use “bank-grade security systems” and failed to have a written security program or implement basic security safeguards. As a result, the FTC claims unauthorized users were able to, in certain cases, withdraw funds from consumer accounts or change passwords and/or associated email addresses without consumers being notified.
Under the proposed settlement, the company—which did not admit or deny liability and is not required to pay a fine—has agreed that it will not misrepresent any material restrictions on the use of its service, the extent of control provided by any privacy settings, and the extent to which it “implements or adheres to a particular level of security.” The company will also, among other things, make certain disclosures to consumers about its transaction and privacy practices, obtain biennial third-party assessments of its compliance with these rules for 10 years, and refrain from violating any provisions of the GLBA Rules.
FTC announces charges against mortgage loan modification operation
On January 19, the FTC issued a press release announcing charges against a mortgage loan modification operation for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule by making false promises to consumers for services designed to prevent foreclosures or reduce interest rates or monthly mortgage payments. According to the charges, the defendants contacted consumers using doctored government logos on correspondence, which misrepresented an affiliation with the government’s Making Home Affordable loan modification program. Additionally, the defendants allegedly made unlawful claims that they had “special relationships with particular lenders” and instructed consumers to stop paying their mortgages without actually obtaining the promised loan modifications. As alleged by the FTC, this resulted in many consumers paying substantial interest charges, incurring penalties for paying the defendants rather than making mortgage payments, and in some instances, losing their homes to foreclosure. On January 10, a federal judge in the U.S. District Court for the District of Nevada temporarily restrained and enjoined the defendants’ alleged illegal practices and froze their assets at the request of the FTC.
FTC Settles With Dallas Auto Dealer for Alleged Deceptive Advertisements
On December 1, the FTC announced a proposed order to settle with a Dallas, Texas auto dealership for alleged deceptive advertisements containing loan and lease terms in Spanish-language newspapers. According to the FTC, the dealership violated the FTC Act by prominently displaying advantageous loan and lease terms in Spanish and qualifying those terms in smaller-print English at the bottom of the page. The FTC alleges the dealership misrepresented (i) the total cost of purchasing or leasing; (ii) the underwriting restrictions for the advertised loan or lease; and (iii) the availability of the inventory advertised. Additionally, the FTC alleged that the dealership violated Truth in Lending Act and the Consumer Leasing Act by failing to “clearly and conspicuously” disclose credit and lease terms. The proposal requires the dealership to cease the allegedly deceptive conduct and comply with all applicable advertisement regulations in the future. The proposal is published in the Federal Register and is open for public comment until January 2, 2018.
Fed Fines Kansas State Bank for Alleged Deceptive Mortgage Acts
On November 28, the Federal Reserve Board (Fed) announced it had entered into a consent order with a Kansas state bank over allegations that the bank engaged in deceptive mortgage origination practices in violation of the FTC Act. Specifically, the order alleges that the bank told borrowers that they were paying for discount points that would lower their interest rate, but did not in fact provide those borrowers an interest rate reflective of the price paid for the discount points or, in some cases, a reduced rate at all. The Fed’s order requires the bank to pay restitution to the affected borrowers, but did not impose a further civil money penalty. The bank has decided to terminate all operations of its national mortgage business by year-end 2017.
FTC Files Complaint Against Debt Collection Business for Alleged Violations of FTC Act, FDCPA
On November 8, the FTC issued a press release announcing charges against a Georgia-based debt collection business for allegedly violating the FTC Act by making false, unsubstantiated, or misleading claims to trick consumers into paying debt they did not actually owe. In the complaint, the FTC alleged defendants threatened legal action, garnishment, and imprisonment if the purported debt was not paid, and in other instances, attempted to collect debts after consumers provided proof the debt was paid off. Additionally, the defendants allegedly violated the Fair Debt Collection Practice Act (FDCPA) by (i) making false, deceptive, or misleading representations, including withholding the true status of the debt, threatening legal action or imprisonment, and failing to disclose they were debt collectors; (ii) engaging in unlawful third-party communications without obtaining prior consumer consent; and (iii) failing to provide consumers written verification of their debt within the required time frame. According to the FTC, defendants have collected more than $3.4 million from consumers since January 2015. A federal judge in the U.S. District Court for the Northern District of Georgia has temporarily restrained and enjoined the defendants’ alleged illegal practices and frozen their assets.
FTC Fines California Auto Dealer for Violating Order About Disclosures
On November 6, the FTC announced a settlement of $1.4 million with a Southern California auto dealership for violating a 2014 administrative order (Order). The Order prohibited the dealership from misrepresenting the cost to finance or lease a vehicle. In issuing the Order, the FTC alleged that the dealership had violated the FTC Act by using advertisements that deceptively stated a $0 up-front lease option while excluding other fees and costs, and also that the dealership’s advertisements violated disclosure requirements of the Consumer Leasing Act (CLA) and TILA.
The new settlement resolves a complaint in which the FTC alleged the auto dealership “routinely violated” the Order requiring the dealership to, among other things, (i) accurately represent costs and terms of financing or leasing vehicles; (ii) conform its advertisements to the requirements of the CLA and TILA; and (iv) maintain necessary records and make those records available to the agency. In addition to the monetary penalty and the prohibition of similar practices, the settlement also subjects the dealership to strong compliance and reporting requirements.
Federal Reserve Board Issues Consent Order for the Alleged Deceptive Marketing of Balance Transfer Credit Cards
On October 26, the Federal Reserve Board (Fed) announced it had entered into a consent order with Mid America Bank & Trust Company (Mid America) over allegations that the bank engaged in deceptive practices in violation of the FTC Act involving balance transfer credit cards issued to consumers through third party independent service organizations. On the same day, the Fed announced its approval of an application by Reliable Community Bankshares, Inc. to acquire Mid America’s holding company, Mid America Banking Corporation. The allegations pertain to the adequacy of marketing materials, disclosures and other customer communications that described certain terms of the balance transfer cards such as credit reporting, available credit, and application of the statute of limitations to transferred balances. The Fed’s order requires the bank to refund certain fees, account balances and payments to its cardholders and other non-monetary actions, including compliance program enhancements. The order did not impose a civil money penalty.
FTC Obtains Default Judgment Against Operations That Allegedly Sold Counterfeit Payday Loan Debt Portfolios
On October 17, the FTC issued a press release announcing a default judgment in an action brought against two Kansas-based operations and their owner (defendants), who allegedly violated the Federal Trade Commission Act by selling lists of counterfeit payday loan debt portfolios to debt collectors. The allegations claimed that in numerous instances, the portfolios listed “loans that the identified lenders have not, in fact, made to the identified consumers,” and that the defendants “have not purchased, or otherwise obtained, any rights to collect loan debts originated by the lenders listed . . ., nor have they engaged in any transaction that authorizes them to collect, sell, distribute, or transfer any valid loans originated by those lenders.” As a result, numerous consumers were contacted by various debt collectors demanding repayment of the fake debts, and in some instances, consumers made payments to either stop the collection calls or because they feared becoming delinquent. Under the terms of the default judgment, the defendants (i) must pay more than $4.1 million as equitable monetary relief; (ii) are banned from handling sensitive financial information, such as “bank account numbers, credit or debit card numbers, or social security numbers”; and (iii) are prohibited from misrepresenting material facts.
FTC Announces Two Separate Settlements to Resolve Allegedly Deceptive Telemarketing Schemes
On September 1, the FTC issued a press release announcing a settlement with a Utah-based operation and its owner (Defendants) to resolve allegations that the company had created merchant accounts to help telemarketers process consumer credit card transactions in violation of the Federal Trade Commission Act (FTC Act) and the Telemarketing Sales Rule (TSR). According to the complaint, Defendants nominated individuals to serve as “principals” of straw companies, which then were used to open merchant accounts to assist telemarketers who did not meet the requirements or standards for opening the accounts on their own. The telemarketers, in turn, allegedly deceived consumers by making false promises regarding business opportunities that they claimed would generate substantial income, and processed credit card payments from consumers using the straw company merchant accounts for the allegedly “worthless opportunities.” Under the terms of the order, Defendants are permanently banned from the payment processing business, including acting as an independent sales organization or sales agent, and must pay a judgment of more than $3 million. The FTC suspended the judgment due to the Defendants’ inability to pay, but noted that it “will become due immediately if [Defendants] are found to have misrepresented their financial condition.”
Separately on August 31, the FTC announced that a default judgment had been issued in a pending action brought against the operators of a deceptive telemarketing scheme who allegedly targeted Spanish-speaking consumers by pretending to be affiliated with the Peruvian government and deceived consumers by giving the impression that the calls were from emergency responders or by people the consumers had provided as references. The allegations, which violated the FTC Act and the TSR, claimed that consumers were presented opportunities to participate in language courses at discounted prices and were misled about prizes they had won. When consumers declined to participate or cancelled delivery of the prizes, the telemarketers made “false and threatening” claims of “legal or financial consequences,” allegedly posing as lawyers or government officials. Under the terms of the default judgment, the telemarketers (i) are ordered to pay $6.3 million as equitable monetary relief; (ii) are banned from telemarketing activities; and (iii) prohibited from misrepresenting material facts.