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Financial Services Law Insights and Observations


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  • FTC imposes “record-setting” fine on auto dealer alleging discriminatory junk fees

    Federal Issues

    On April 1, the FTC and the Illinois Attorney General announced a proposed settlement with an Illinois-based multistate auto dealer group for allegedly adding junk fees for unwanted “add-on” products to consumers’ bills and discriminating against Black consumers. Under the terms of the proposed settlement, the defendants are ordered to pay a $10 million penalty, of which $9.95 million will be used to provide monetary relief to consumers. According to the FTC, this is the highest penalty ever obtained against an auto dealer. The remaining balance of the penalty will be paid to the Illinois Attorney General Court Ordered and Voluntary Compliance Payment Projects Fund.

    According to the complaint, which brings claims under the FTC Act, TILA, ECOA, and comparable Illinois laws, eight of the defendant’s dealerships, along with the general manager of two of the Illinois dealerships, allegedly tacked on junk fees for unwanted “add-on” products such as service contracts, GAP insurance, and paint protection to consumers’ purchase contracts at the end of the negotiation process, often without consumers’ consent. In other instances, consumers were told that the add-ons were free or were required to purchase or finance their vehicle. The complaint further alleges that defendants discriminated against Black consumers by charging them higher interest rates or more for add-on products than similarly situated non-Latino white consumers. As result, Black consumers allegedly paid, on average, $190 more in interest and $99 more for add-on products.

    FTC Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter issued a joint statement noting that they “would have also supported a count alleging a violation of the FTC Act’s prohibition on unfair acts or practices.” Khan and Slaughter elaborated on reasons why the FTC “should evaluate under its unfairness authority any discrimination that is found to be based on disparate treatment or have a disparate impact,” pointing out that (i) discrimination based on protected status can cause substantial injury to consumers; (ii) “injuries stemming from disparate treatment or impact are unavoidable because affected consumers cannot change their status or otherwise influence the unfair practices”; and (iii) “injuries stemming from disparate treatment or impact are not outweighed by countervailing benefits to consumers or competition.”

    Federal Issues FTC Enforcement Fees State Issues Illinois State Attorney General Discrimination Auto Finance Fair Lending ECOA FTC Act TILA Disparate Impact

  • District Court denies majority of MSJ requests in FTC action against online discount club


    On March 28, the U.S. District Court for the Northern District of Georgia denied the majority of motions for summary judgment filed by the FTC and defendants in a 2017 action that charged the operators of a group of marketing entities and payment processors (collectively, “defendants”) with numerous violations of law for allegedly debiting more than $40 million from consumers’ bank accounts for membership in online discount clubs without their authorization. As previously covered by InfoBytes, the FTC’s 2017 complaint alleged that the online discount clubs claimed to offer services to consumers in need of payday, cash advance, or installment loans, but instead enrolled consumers in a coupon service that charged an initial application fee as well as automatically recurring monthly fees.

    In reviewing the parties’ respective motions for summary judgment, the court first reviewed the FTC’s claims against the defendants allegedly responsible for launching the discount program (lead generator defendants) “as a way to salvage leads on loan-seeking consumers that the [lead generator defendants] were not able to sell to lenders or others.” The lead generator defendants allegedly used loan-seeking consumers’ banking information to enroll them in discount club memberships with automatically recurring monthly charges debited from the consumers’ bank accounts. While the lead generator defendants contended that the enrollments were authorized by the consumers themselves, the FTC claimed, among other things, that “loan-seeking consumers were redirected to the discount club webpage during the loan application process.” The court determined that because there exists a genuine issue of material fact as to whether the lead generator defendants’ loan application process, discount club webpages, and telemarketing practices were deceptive or if their practices violated the Restore Online Shoppers’ Confidence Act and the Telemarketing and Consumer Fraud and Abuse Prevention Act, the FTC is not entitled to judgment as a matter of law on its claim for injunctive relief or equitable monetary relief.

    The court also concluded that the FTC failed to present evidence showing that another defendant—a now-defunct entity whose assets and business operations were sold to some of the defendants—is violating or is about to violate the law because the FTC’s action was filed more than three years after the defunct entity ceased all operations. As such, the court found that the statute of limitations applies and the defunct entity is entitled to judgment as a matter of law on the FTC’s claims. However, the court determined that there is evidence suggesting the possibility that two individual defendants involved in monitoring and advising the defendants in the alleged discount club scheme, may continue the scrutinized conduct.

    With respect to the FTC’s claims against certain other individual defendants allegedly responsible for owning and managing some of the corporate defendants and their wholly-owned subsidiaries, the court considered defendants’ arguments “that they had a general lack of knowledge of (or authority to control) the alleged violative conduct” and “that the FTC does not have the right to seek equitable monetary relief” as a result. In denying the FTC’s motions for summary judgment against these individual defendants, the court found “that there are disputed issues of material fact as to these matters which should be decided by the trier of fact,” and that the FTC’s claim for equitable monetary relief required further analysis following the U.S. Supreme Court’s ruling in AMG Capital Management, LLC v. FTC, which held that the FTC does not have statutory authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. (Covered by InfoBytes here.)

    Finally, the court concluded that sufficient evidence showed that another individual (who served as an officer of a defendant identified as being responsible for processing the remotely created checks used to debit consumers’ accounts during the discount club scheme) “knowingly and actively participated in acts that were crucial to the success of the . . . alleged discount scheme.” However, because there exists a genuine issue of material fact as to whether the lead generator and named defendants’ loan application process, discount club webpages, and telemarketing practices were deceptive, the court ruled that the FTC is not entitled to judgment as a matter of law as to its claims against the individual’s estate. The court also found that the individual’s estate is not entitled to summary judgment on either of its arguments related to the FTC’s request for monetary relief.

    Courts FTC Enforcement FTC Act ROSCA Telemarketing and Consumer Fraud and Abuse Prevention Act UDAP Consumer Finance

  • FTC issues final order in FTC Act violations matter

    Federal Issues

    On March 21, the FTC announced a final order resolving allegations that an online fashion retailer (defendant) allegedly violated the FTC Act by engaging in deceptive practices. As previously covered by InfoBytes, according to the complaint, the defendant allegedly violated the FTC Act by, among other things, misrepresenting that the product reviews on its website reflected the views of all purchasers who submitted reviews, when it actually suppressed certain negative reviews. The complaint further noted that the defendant utilized a third-party review management software to automatically post higher-rating reviews to its website, while withholding other lower-rating reviews for the defendant’s approval prior to posting—which never took place. According to the final order, the defendant is: (i) required to pay $4.2 million as monetary relief to the FTC; (ii) prohibited from misrepresenting information about product reviews; and (iii) required to publicly display all product reviews on its website.

    Federal Issues FTC Enforcement FTC Act Deceptive UDAP

  • FTC sues sales organization in business opportunity scam

    Federal Issues

    On March 15, the FTC filed an administrative complaint against an independent sales organization and its owners (collectively, “respondents”) for allegedly opening merchant accounts for fictitious companies on behalf of a business opportunity scam previously sued by the FTC in 2013. According to the complaint, the scammers promoted business opportunities to consumers that falsely promised they would earn thousands of dollars. From its previous 2013 lawsuit, the FTC obtained judgments and settlements of over $7.3 million (covered by InfoBytes here). The complaint alleged that respondents violated the FTC Act and the Telemarketing Sales Rule by helping the scammers launder millions of dollars of consumers’ credit card payments from 2012 to 2013 and ignoring warning signs that the merchants were fake. The FTC claimed that the respondents, among other things, (i) opened merchant accounts based on “vague” business descriptions; (ii) ignored the fact that for most of the merchants, the principals or business owners had poor credit ratings, which should have raised questions about the financial health of the merchants; (iii) neglected to obtain merchants’ marketing materials or follow up on signs that the merchants were engaged in telemarketing; and (iv) ignored inconsistencies related to the bank accounts listed on several of the merchants’ applications. The FTC further claimed that the respondents created 43 different merchant accounts for fictitious companies on behalf of the scam and even provided advice to the organizers of the scam on how to spread out the transactions among different accounts to evade detection.

    Under the terms of the proposed consent order (which is subject to public comment and final FTC approval), the respondents would be prohibited from engaging in credit card laundering, as well as any other tactics to evade fraud and risk monitoring programs. The respondents would also be banned from providing payment processing services to any merchant that is, or is likely to be, engaged in deceptive or unfair conduct, and to any merchant that is flagged as high-risk by credit-card industry monitoring programs. Furthermore, the respondents would be required to screen potential merchants and monitor the sales activity and marketing practices of current merchants engaged in certain activities that could harm consumers. The FTC noted that it is unable to obtain a monetary judgment due to the U.S. Supreme Court’s decision in AMG Capital Management v. FTC, which held that the FTC does not have statutory authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. (Covered by InfoBytes here.)

    Federal Issues FTC Enforcement Payments Credit Cards Fraud FTC Act Telemarketing Sales Rule UDAP

  • FTC settles action against e-commerce platform for data breach cover up

    Federal Issues

    On March 15, the FTC announced a proposed settlement with two limited liability companies, the former and current owners, of an online customized merchandise platform (collectively, “respondents”) for allegedly failing to secure consumers’ sensitive personal data and covering up a major breach. According to the complaint, the respondents allegedly violated the FTC Act by, among other things, misrepresenting that they implemented reasonable measures to protect the personal information (PI) of customers against unauthorized access and for misrepresenting that appropriate steps to secure consumer account information following security breaches were taken. The complaint further alleged that respondents failed to apply readily available protections against well-known threats and adequately respond to security incidents, which resulted in the respondents' network being breached multiple times. Notably, one of the breaches involved a hacker gaining access to “millions of email addresses and passwords with weak encryption; millions of unencrypted names, physical addresses, and security questions and answers; more than 180,000 unencrypted Social Security numbers; and tens of thousands of partial payment card numbers and expiration dates.” The complaint goes on to allege that the online customized merchandise platform failed to properly investigate the breach for several months despite additional warnings, including failing to promptly notify its customers of the breach. Under the terms of the proposed settlement, the respondents are: (i) ordered to pay $500,000 in redress to victims of the data breaches: (ii) prohibited from making misrepresentations about their privacy and security measures, among other things, and (iii) required to have a third party assess their information security programs and provide the Commission with a redacted copy of that assessment suitable for public disclosure.

    Federal Issues FTC Enforcement Privacy/Cyber Risk & Data Security Deceptive Unfair UDAP FTC Act Data Breach

  • 11th Circuit affirms $23 million judgment against founder of debt relief operation


    On March 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of the FTC and the Florida attorney general after finding that an individual defendant could be held liable for the actions of the entities he controlled. As previously covered by InfoBytes, the FTC and the Florida AG filed a complaint in 2016 against several interrelated companies and the individual defendant who founded the companies, alleging violations of the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The complaint alleged that the defendants engaged in a scheme that targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. Among other things, the defendants also claimed to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates and charged up-front payments for debt relief and rate-reduction services. In 2018, the court granted the FTC and the Florida AG’s motion for summary judgment, finding there was no genuine dispute that the individual defendant controlled the defendant entities, that he knew his employees were making false representations, and that he failed to stop them. The court entered a permanent injunction, which ordered the individual defendant to pay over $23 million in equitable monetary relief and permanently restrained and enjoined the individual defendant from participating—whether directly or indirectly—in telemarketing; advertising, marketing, selling, or promoting any debt relief products or services; or misrepresenting material facts.

    The individual defendant appealed, arguing that there were genuine disputes over whether: (i) he controlled the entities; (ii) he had knowledge that employees were making misrepresentations and failed to prevent them; (iii) employee affidavits “attesting that they had saved customers money created an issue of fact about whether his programs did what he said they would do”; and (iv) he had knowledge of “rogue employees” violating the “do not call” registry to solicit customers.

    On appeal, the 11th Circuit determined that the facts presented by the individual defendant did not create a genuine dispute about whether he controlled the entities, and further stated that the individual defendant is liable for the employees’ misrepresentations because of his control of the entities and his knowledge of those misrepresentations. The appellate court explained that while the individual defendant argued that he could not be liable because he did not participate in those representations, he failed to present any evidence in support of that argument and, even if he had, “it wouldn’t matter, because [the individual defendant’s] liability stems from his control of [the companies], not from his individual conduct.” Additionally, the appellate court held that whether the services were helpful to customers was immaterial and did not absolve him of liability, because liability for deceptive sales practices does not require worthlessness. As to the “do not call” registry violations, the appellate court disagreed with the individual defendant’s claim that an “outside dialer or lead generator”—not the company—placed the outbound calls, holding that this excuse also does not absolve him of liability.

    Courts Appellate Eleventh Circuit Telemarketing Enforcement Debt Relief State Issues State Attorney General Florida FTC Act TSR

  • FTC fines payment processor $2.3 million for helping online discount clubs bilk consumers

    Federal Issues

    On March 10, the FTC reached a settlement with a payment processing company and two senior officers (collectively, “defendants”) whereby the company would pay $2.3 million in restitution as part of their role in allegedly helping the operators of a group of marketing entities enroll consumers into online discount clubs and debit more than $40 million from consumers’ bank accounts for membership without their authorization. As previously covered by InfoBytes, the FTC’s 2017 complaint claimed that the online discount clubs claimed to offer services to consumers in need of payday, cash advance, or installment loans, but instead enrolled consumers in a coupon service that charged initial fees ranging from $49.89 to $99.49, as well as monthly recurring fees of up to $19.95. However, the FTC’s complaint stated that “99.5 percent of the consumers being illegally charged for the ‘discount clubs’ never accessed any coupons, and that tens of thousands called the defendants to try and cancel the charges, while thousands more disputed the charges directly with their banks.” The FTC accused the defendants of providing “substantial assistance or support” in the way of payment processing services while “knowing or consciously avoiding knowing” that the actions being supported were in violation of the Telemarketing Sales Rule (TSR). The FTC further detailed how defendants ignored several indications of fraudulent activity, including the consistently high return rates generated by the discount club transactions and that a primary client of their services had already been the subject of previous FTC enforcement actions for engaging in similar conduct.

    Under the terms of the settlement, which is pending court approval, the defendants are banned from, among other things, (i) processing remotely created payment orders; (ii) processing payments on behalf of clients whose business involves outbound telemarketing, discount clubs, or offers to help consumers with payday loans; (iii) processing payments on behalf of any client that the defendants know or should know is engaging in deceptive or unfair acts or practices or violating the TSR; and (iv) processing payments for any existing or prospective clients without first conducting a reasonable screening to ensure clients are not violating federal law.

    Federal Issues FTC Enforcement Payment Processors TSR FTC Act Consumer Finance Settlement

  • FTC settles with online stock trading site

    Federal Issues

    On March 8, the FTC announced a proposed settlement with an online stock trading site and its operators (collectively, “defendants”) for allegedly using earnings claims to mislead consumers into signing up for services, which led them into long-term subscription plans. 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 laws, by falsely marketing investment-related services by claiming that “consumers who purchase [the defendants'] services will earn or are likely to earn substantial income.” Additionally, according to the press release, the defendants featured testimonials from purported customers claiming they made “[$]6500.00 in 20 minutes” and “$500 in 15 min[utes],” and allegedly attempted to profit off the Covid-19 pandemic, with a “guru” claiming that he could “rack up nearly $500K in profits by trading stocks related to the COVID-19 pandemic.” Under the terms of the stipulated final order, the defendants, among other requirements: (i) must pay a fine of over $2.4 million to the FTC: (ii) are prohibited from making claims regarding potential earnings without having written evidence that those claims are typical for consumers; and (iii) are prohibited from making claims misrepresenting that purchasers can be successful in trading regardless of their experience, the amount of capital they have to invest, or the amount of time they spend trading.

    Federal Issues FTC Enforcement Consumer Finance FTC Act Covid-19

  • FTC, DOJ reach $1.5 million settlement with weight-loss companies

    Federal Issues

    On March 4, the FTC and DOJ announced a $1.5 million settlement with an international weight loss service organization and its subsidiary (collectively, “defendants”) accused of allegedly using unfair and deceptive practices to obtain personal information of underage users without parental consent. As previously covered by InfoBytes, the agencies claimed that the defendants violated the Children’s Online Privacy Protection Act (COPPA) and Section 5 of the FTC Act by collecting and keeping personal information from children under 13 without providing notice to or obtaining consent from their parents. The agencies’ settlement announcement stated that the defendants’ signup process originally “encouraged younger users to falsely claim they were over the age of 13, despite text indicating that children under 13 must sign up through a parent,” and that even after the signup process was revised, the defendants allegedly “failed to provide a mechanism to ensure that those who choose the parent signup option were indeed parents and not a child trying to bypass the age restriction.” Additionally, the defendants allegedly violated COPPA’s data retention provisions “by retaining children’s personal information indefinitely and only deleting it when requested by a parent.”

    Under the terms of the settlement, unless verified parent consent has been subsequently obtained, the defendants are required to refrain from disclosing, using, or benefiting from previously collected personal information that did not comply with COPPA’s parental notice and consent requirements, and must destroy all previously collected personal information, as well as any affected work product that used illegally collected data. The settlement also orders the defendants to pay a $1.5 million civil penalty.

    Federal Issues FTC Enforcement DOJ Privacy/Cyber Risk & Data Security COPPA FTC Act

  • Agencies crack down on deceptive Covid-19 treatment claims

    Federal Issues

    On March 3, the FTC, along with the DOJ and FDA, filed a lawsuit against a New York-based marketer of herbal tea for allegedly claiming its tea was clinically proven to treat, cure, and prevent Covid-19. The announcement reiterated the agencies’ commitment to cracking down on companies that unlawfully market unproven Covid-19 treatments. According to the joint agency complaint, the defendants’ deceptive marketing claims that their herbal tea product is capable of preventing or treating Covid-19 (and is more effective than Covid-19 vaccines) are not supported by competent or reliable scientific evidence and pose “a significant risk to public health and safety.” Moreover, the defendants have allegedly repeatedly ignored FTC and FDA warnings that their deceptive advertising and misrepresentations violate the FTC Act, the Covid-19 Consumer Protection Act, and the Federal Food, Drug, and Cosmetic Act. The complaint seeks permanent injunctive relief, civil penalties, and other remedies to prevent the harms caused by the defendants’ deceptive misrepresentations.

    Federal Issues FTC DOJ FDA Enforcement Covid-19 FTC Act UDAP Consumer Protection Act