Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Mortgage broker allegedly violated federal laws by posting customers’ personal information on website
On January 7, the FTC announced a proposed settlement with a California mortgage broker and his company to resolve alleged violations of the FTC Act, FCRA, Regulation P, and the Safeguards Rule. According to a complaint filed by the DOJ on behalf of the FTC, the defendants published the personal information of customers who posted negative reviews on a public website, including customers’ “sources of income, debt-to-income ratios, credit history, taxes, family relationships, and health.” The alleged posts containing negative financial information violated the defendants’ responsibilities under Regulation P (Privacy of Consumer Financial Information) as the required privacy disclosure provided to the customers stated that the defendants would not share personal information with any third party. Regulation P also “prohibits financial institutions from disclosing to any nonaffiliated third party any nonpublic personal information about a customer unless it has provided the customer with an opt-out notice, . . . a reasonable opportunity to opt out of the disclosure, and the customer has not opted out.” In this instance, customers were not given the opportunity to opt out of disclosure of their personal financial information in response to online consumer reviews, the complaint asserts. In addition, the complaint alleges that the defendants also violated the FTC Act by causing unfair or deceptive acts or practices that “deprived consumers of the ability to control whether and to whom they disclosed sensitive information.” The defendants also allegedly violated the FCRA by using consumer reports for impermissible purposes, and the FTC’s Safeguards Rule by failing to implement or maintain an adequate information security program. Under the terms of the proposed settlement, the defendants will pay a $120,000 civil penalty and are prohibited from (i) misrepresenting their privacy and data security practices; (ii) using consumer reports for anything other than a permissible purpose; (iii) not providing required privacy notices; and (iv) improperly disclosing nonpublic personal information to third parties. Among other things, the company is also prohibited from transferring, selling, sharing, collecting, maintaining, or storing nonpublic personal information unless it implements a comprehensive information security program; and must obtain independent third-party assessments of its information security program every two years.
On December 20, the FTC announced it had filed suit for unfair and deceptive acts and practices in violation of the FTC Act against a fuel payment card services company (company) for its “problematic marketing and fee practices.” The FTC’s complaint, filed in U.S. District Court for the Northern District of Georgia, alleges that the company marketed the fuel payment cards to “companies that operate vehicle fleets” with false promises that the cards would provide (i) cost savings; (ii) protection from unauthorized card purchases; and (iii) “no set-up, transaction, or membership fees, including when used to purchase fuel at any of the thousands of locations nationwide that accept [the company’s] fuel cards.” In fact, according to the complaint, the company “has charged customers at least hundreds of millions of dollars in unexpected fees,” and “at least tens of millions of dollars in recurring fees for programs they have not ordered,” and, in spite of its marketing representing otherwise, the company has not provided advertised fuel savings, and has not provided fraud protection for unauthorized transactions. The complaint also claims that the company has not timely posted customer payments when received, leading to customers being levied additional fees for late charges and “related [i]nterest and [f]inance [c]harges even when the customers have paid their balance in full by the due date.” The FTC seeks permanent injunctive relief against the company to prevent future violations, as well as redress for those consumers injured by the FTC Act violations, “including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
On December 17, the Federal Reserve Board (Fed) released a new issue of the Consumer Compliance Supervision Bulletin focusing on supervisory insights into consumer compliance issues related to fintech to assist financial institutions with assessing and managing risk associated with technological innovation. Among the topics covered in the bulletin, are (i) managing risk with fintech collaborations—the Fed stresses the importance of creating strong policies and procedures, as well as board and senior management oversight, comprehensive and tailored training, and risk monitoring; (ii) managing UDAP risks with online and mobile banking platforms—the Fed recommends a focus on ensuring consistency and accuracy in disclosures on the platforms and the regular monitoring of complaints; and (iii) managing possible fair lending risks resulting from targeted online marketing—the Fed suggests careful monitoring over marketing activities and vendors, as well as close review of filters used with internet advertising to prevent excluding populations with legally protected characteristics. The bulletin will be featured on the agency’s new fintech page previously covered by InfoBytes here.
On December 10, the FTC announced a settlement with a for-profit school and its parent company to resolve allegations that they employed deceptive advertisements in violation of the FTC Act that gave the impression that the school had relationships and job opportunities with various technology companies and tailored curricula to those jobs. In the complaint, the FTC claims the defendants relied upon false and misleading advertisements to attract prospective students that gave the impression that the school’s relationship with certain companies would create employment opportunities. In addition, the FTC alleges that while the defendants claimed the companies also worked with the school to develop its courses, in reality the partnerships were primarily marketing relationships that did not create jobs or curricula for the school’s students. Moreover, the FTC claims that some of these advertisements specifically targeted current and former military members and Hispanic consumers. Under the terms of the settlement, the school is required to pay $50 million in consumer redress and cancel approximately $141 million in student loan debts owed to the school by former students who first enrolled during the covered period.
The FTC’s press release notes, however, that the “settlement will not affect student borrowers’ federal or private loan obligations,” and directs borrowers to the Department of Education’s income-driven repayment plans for guidance on lowering monthly payments. The FTC also states that borrowers who believe they may have been defrauded or deceived can apply for loan forgiveness through the Borrower Defense to Repayment procedures.
On December 6, the FTC issued an unanimous opinion against a British consulting and data analytics firm, finding that the firm violated the FTC Act by engaging in “deceptive practices to harvest personal information from tens of millions of [a social media company’s] users.” The information—which was allegedly collected through an application that told users it would not harvest identifiable information—was then used to target potential voters. The opinion also found that the firm engaged in deceptive practices relating to its participation in the EU-U.S. Privacy Shield framework. The opinion follows an administrative complaint issued against the firm in July (previously covered by InfoBytes here). Under the terms of the administrative final order, the firm is prohibited from misrepresenting “the extent to which it protects the privacy and confidentiality of personal information as well as its participation in the EU-U.S. Privacy Shield framework and other similar regulatory or standard-setting organizations,” and it must apply Privacy Shield protections to personal information collected during its participation in the program or return or delete the information. Among other things, the firm also must delete or destroy the personal information collected from consumers through the app, as well as any other information or work product that originated from the information.
On November 5, the FTC and the Utah Division of Consumer Protection filed a complaint in the U.S. District Court for the District of Utah against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to purchase real estate training packages costing thousands of dollars. According to the complaint, the defendants violated the FTC Act, the Telemarketing Sales Rule, and Utah state law by marketing real estate training packages with false claims through the use of celebrity endorsements. The defendants’ marketing materials allegedly told consumers, among other things, that they would (i) receive strategies for making profitable real estate deals during seminars included in the packages; and (ii) learn how to access wholesale or deeply discounted properties. The complaint argues, however, that the promises were false and misleading, as, among other things, the seminars promoted additional workshops costing more than $1,100 to attend where consumers largely received general information about real estate investing, along with promotions for “advanced training” costing tens of thousands of dollars. In addition, the discounted properties were typically sold or brokered to consumers by the defendants at inflated prices with concealed markups, the complaint alleges. Among other things, the FTC and Utah Division of Consumer Protection seek monetary and injunctive relief against the defendants.
On November 5, the FTC released advertising disclosure guidance for online influencers, titled “Disclosures 101 for Social Media Influencers,” which outlines the FTC’s rules for disclosure of sponsored endorsements and provides influencers with tips and guidance covering effective and ineffective disclosures. The guidance reminds influencers that (i) they should disclose any financial, employment, personnel, or family relationship with the brand; (ii) disclosures should be “hard to miss,” by being placed on pictures, stated in the videos, and repeated throughout livestreams; and (iii) language in disclosures should be simple and clear, and in the same language as the endorsement itself.
For more information on the FTC’s activity covering testimonials and social media influencers, review the recent Buckley Insight, which summarizes several FTC enforcement actions involving online reviews and social media and provides key takeaways for companies considering online advertising and social media campaigns.
The FTC has stepped up its advertising related enforcement activity in recent months, particularly focusing on companies that fail to clearly and conspicuously disclose underlying connections between testimonial providers and product sellers. Summarized below are several recent FTC enforcement actions involving online reviews and social media, as well as some key takeaways for companies considering online advertising and social media campaigns.
Recent FTC Enforcement Actions
First, in its complaint against a skincare company, the FTC alleged that the company misled consumers by posting reviews written by company employees. Specifically, the FTC’s allegations included assertions that (i) product reviews posted on a retailer’s website were not “independent experiences or opinions of impartial ordinary users of the products” and therefore, were false or misleading under Section 5 of the FTC Act; and (ii) the failure to disclose the reviews were written by the owner or employees constitutes a deceptive act or practice under Section 5 of the FTC Act, because the information would “be material to consumers in evaluating the reviews of [the company] brand products in connection with a purchase or use decision.”
In a 3-2 vote the Commission approved an administrative consent order, which notably does not include any monetary relief for consumers. The order prohibits the company from misrepresenting the status of an endorser, which includes misrepresentations that the endorser or reviewer is an “independent or ordinary user of the product.” requires the company and owner to “clearly and conspicuously, and in close proximity to that representation, any unexpected material connection between such endorser and (1) any Respondent; or (2) any other individual or entity affiliated with the product.”
In dissent, two Commissioners objected to the lack of monetary relief, stating, “[t]hat monetary relief can be difficult to calculate should not deter the FTC from seeking it. When the agency’s estimates are uncertain, the Commission sometimes demands no monetary relief whatsoever, which leads to under-deterrence of blatant fraud and dishonesty. This needs to change.”
Second, the FTC also charged a now-defunct company and its owner with selling social media followers and subscribers to motivational speakers, law firm partners, investment professionals, and others who wanted to boost their credibility to potential clients, as well as to actors, athletes, and others who wanted to increase their social media appeal. According to the FTC, the company “provided such users of social media platforms with the means and instrumentalities for the commission of deceptive acts or practices,” in violation of Section 5(a) of the FTC Act.
The Commission unanimously voted to file the proposed court order, which bans the company from selling or assisting others in selling “social media influence.” The order, which was later approved by a federal district court, imposes a $2.5 million monetary judgment against the company owner, but suspends the majority upon the payment of $250,000.
In a business-focused blog post released in conjunction with the enforcement actions noted above, the FTC:
- Reminds marketers that when “people at the helm” are “calling the illegal shots,” the FTC will name them in their individual capacities in actions;
- Emphasizes that companies must instruct their employees and agents to clearly disclose in reviews any material connection to the product; and
- States that the truth-in-advertising provisions of the FTC Act apply to companies that claim to be “strictly B2B,” if they are providing others with the means and instrumentalities for deception.
Relatedly, in February 2019, the FTC approved final consent orders with two marketing companies for, among other things, misrepresenting paid endorsements as independent consumer opinions. The companies allegedly hired Olympic athletes to endorse a mosquito repellent on social media and formatted advertisements to appear as independent statements of impartial publications. The FTC argued that the company failed to disclose, or disclose adequately, that (i) the Olympians were paid to endorse the mosquito repellent; and (ii) the online consumer reviews were by individuals who were reimbursed for buying the product and included statements by the owner and employees of the public relations firm hired to promote the product.
The final consent orders (here and here) require that each company to cease the misrepresentations and notify future endorsers of their responsibility “to disclose clearly and conspicuously, and in close proximity to the endorsement, in any print, radio, television, online, or digital advertisement or communication, the endorser’s unexpected material connection to any Respondent or any other individual or entity affiliated with the product or service.”
Key Takeaways for Online Advertising and Social Media Campaigns:
- These complaints and consent orders incorporate the basic concepts of the FTC’s Endorsement Guides, which address how the prohibition against deceptive practices in section 5 of the FTC Act applies to endorsements and testimonials in advertising. As an FTC blog post puts it:
Suppose you meet someone who tells you about a great new product. She tells you it performs wonderfully and offers fantastic new features that nobody else has. Would that recommendation factor into your decision to buy the product? Probably.
Now suppose the person works for the company that sells the product – or has been paid by the company to tout the product. Would you want to know that when you’re evaluating the endorser’s glowing recommendation? You bet. That common-sense premise is at the heart of the Federal Trade Commission’s (FTC) Endorsement Guides.
- The dissenting commissioners in the skincare product case suggested that the FTC should have obtained “monetary relief” for consumers rather than simply order the company to comply with the law in the future, implying that the company should have been required to make refunds to consumers. The FTC doesn’t have the power to obtain civil penalties for deceptive practices unless the practice violates a specific regulation or order, but many states do have that power.
- The FTC Endorsement Guides don’t have the force of law of a formal regulation but they influence enforcement decision of not only the FTC, but also other federal and state and local agencies. Some of the principles in the Guides have very wide application. For example:
- An endorsement “relating the experience” of one or more people is considered to be a representation that their experience is typical of what most people can achieve with a product or service.
- For example, an ad in which a consumer says “I saved $100 a month on my mortgage by going through XYZ Mortgage” is deemed to be a claim that most consumers will experience the same result.
- A statement that “results not typical,” or even “based on the experiences of a few people—you probably won’t have similar results” usually won’t cure the deceptive impact of a claim by an endorser that he or she achieved certain results, unless the advertiser can provide empirical testing “demonstrating that the net impression of its advertisement with such a disclaimer is non-deceptive.”
- As with any advertising claim, the implied claim of typicality in an endorsement must be substantiated, i.e., the advertiser must have data showing that the results actually are typical.
If you have any questions about the enforcement actions noted above or marketing and advertising related issues, please contact a Buckley attorney with whom you have worked in the past.
On October 21, the FTC announced two separate actions involving social media and online reviews. In its complaint against a skincare company, the FTC alleged that the company misled consumers by posting fake reviews on a retailer’s website and failed to disclose company employees wrote the reviews. The FTC asserted that the retailer’s customer review section is “a forum for sharing authentic feedback about products,” and the company and owner “represented, directly or indirectly, expressly or by implication, that certain reviews of [the company] brand products on the [retailer’s] website reflected the experiences or opinions of users of the products.” The FTC argued that the failure to disclose that the owner or employees wrote the reviews constitutes a deceptive act or practice under Section 5 of the FTC Act because the information would “be material to consumers in evaluating the reviews of [the company] brand products in connection with a purchase or use decision.” In a 3-2 vote, the Commission approved the administrative consent order, which notably does not include any monetary penalties. The order prohibits the company from misrepresenting the status of an endorser and requires the company and owner to disclose the material connection between the reviewer and the product in the future.
The FTC also entered into a proposed settlement with a now-defunct company and its owner for allegedly selling fake social media followers and subscribers to motivational speakers, law firm partners, investment professionals, and others who wanted to boost their credibility to potential clients; as well as to actors, athletes, and others who wanted to increase their social media appeal. According to the FTC, the company “provided such users of social media platforms with the means and instrumentalities for the commission of deceptive acts or practices,” in violation of Section 5(a) of the FTC Act. The Commission unanimously voted to approve the proposed court order, which bans the company from selling or assisting others in selling “social media influence.” The proposed order imposes a $2.5 million monetary judgment against the company owner, but suspends the majority upon the payment of $250,000.
On October 4, the FTC announced that the U.S. District Court for the District of Utah granted a temporary restraining order against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. According to the complaint, filed by the FTC and the Utah Division of Consumer Protection, the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law, by marketing real estate events with false claims, using celebrity endorsements. The defendants allegedly told consumers they will (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “‘a minimum of three times’” the price of the workshop within six months. The complaint argues that these statements are false or unsubstantiated, and that consumers seeking refunds from the defendants often only received a partial refund on the condition they would not speak to the FTC or other state regulators about the defendants’ products. Among other things, the temporary court order prohibits the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.
- Andrew W. Schilling to moderate "Expectations of in-house counsel from their law firm partners" at the ACI's 7th Annual Advanced Forum on False Claims and Qui Tam
- Sasha Leonhardt to discuss "Cybersecurity basics for compliance staff" at a NAFCU webinar
- Buckley Webcast: Tips for navigating changes to the FHA recertification process
- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference
- Kari K. Hall and Michelle L. Rogers to discuss "Overdrafts and regulatory trends" at the CLE Alabama Banking Law Update
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the 17th Puerto Rican Symposium of Anti Money Laundering 2020 conference
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the MBA's Servicing Solutions Conference & Expo 2020
- APPROVED Checkpoint Webcast: CFL overview
- Sasha Leonhardt to discuss "MLA & SCRA" on a NAFCU webinar
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference