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  • FTC permanently bans merchant cash advance providers

    Federal Issues

    On January 5, the FTC announced that two defendants who allegedly participated in small business financing scheme are permanently banned from participating in the merchant cash advance and debt collection industries. As previously covered by InfoBytes, the FTC filed a complaint against two New York-based small-business financing companies and a related entity and individuals (including the settling defendants), claiming the defendants engaged 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. The defendants also allegedly 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 defendants allegedly “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.” Under the terms of the stipulated order, the settling defendants are required to pay a $675,000 monetary judgment, and must vacate any judgments against their former customers and release any liens against their customers’ property.

    Federal Issues FTC Enforcement Merchant Cash Advance Small Business Lending Gramm-Leach-Bliley FTC Act UDAP Deceptive Unfair

  • FTC finalizes decision banning respondents from surveillance business

    Federal Issues

    On December 21, the FTC announced a decision banning a data monitoring application and its CEO (collectively, “respondents”) from the surveillance industry. As previously covered by InfoBytes, the respondents allegedly violated Section 5 of the FTC Act by failing to provide reasonable data security for consumers’ personal information. According to the FTC, the respondents allegedly “secretly harvest[ed] and shar[ed] data on people’s live location, web use, and online activities through their product’s hidden device hack,” and sold real-time access to their surveillance system, which allowed stalkers and domestic abusers to “stealthily track” unknowing victims. Under the terms of the final decision, the respondents are: (i) ordered to “immediately disable all access to any information collected by or through a monitored Mobile Device” and immediately stop collecting any data through any app installed before the date of entry of the order; (ii) required to delete any information illegally collected from their apps; (iii) required to notify owners who installed respondents’ apps on their devices that their devices might have been monitored and may not be secure; and (iv) banned from offering, promoting, selling, or advertising any surveillance app, service, or business. The respondents are also required to implement a comprehensive information security program and obtain initial and biennial third-party security assessments.

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

  • FTC settles with advertising platform for COPPA violations

    Federal Issues

    On December 15, the FTC announced a settlement with a California-based online advertising platform for allegedly engaging in deceptive acts of practices and violating the Children’s Online Privacy Protection Act Rule (COPPA). (See also DOJ press release here.) According to the FTC, the defendant operates a programmatic advertising exchange that monetizes websites and mobile apps through the sale of ad space. The defendant also contracts with advertising technology companies that aggregate and sell advertising inventory for publishers and then send the defendant ad requests. The DOJ, on behalf of the FTC, filed a complaint claiming the defendant, among other things, violated COPPA by collecting personal information about children under the age of 13 without notifying their parents and obtaining their consent. Additionally, the FTC claimed that while the defendant’s privacy policy provided users the option to opt-out of the collection of their location data, the defendant still allegedly collected geolocation information from users who specifically asked not to be tracked. The FTC stated that the defendant reviewed hundreds of apps that were directed to children under 13, but did not flag the apps or their data as “child-directed” and permitted the apps to participate in the ad exchange. In addition, the FTC claimed that the defendant allegedly disclosed this personal data to third parties for ads targeted at users of these child-directed apps.

    Under the stipulated final order, the defendant must, among other terms, (i) implement a comprehensive privacy program to ensure compliance with COPPA and stop collecting and retaining personal information from children under 13 without verifiable parental consent; (ii) stop misrepresenting a user’s ability to opt-out of the collection of personal information and location information (collectively, “covered information”) and confirm that a user has provided affirmative consent for the collection of location information; (iii) implement safeguards to protect covered information and conduct annual reviews to assess for internal and external risks to the privacy of covered information that could lead to unauthorized access; (iv) engage a third party to conduct biennial privacy assessments; (v) delete all ad request data collected to serve targeted ads prior to the issuance of the order; and (vi) periodically re-review apps to identify those that are directed towards children and ban these apps from its ad exchange. The order also provides for a $7.5 million penalty that will be suspended upon payment of $2 million due to the defendant’s inability to pay the full amount.

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

  • FTC publishes 2022 regulatory priorities

    Privacy, Cyber Risk & Data Security

    On December 10, the FTC published a statement disclosing its regulatory priorities for 2022. Among other things, the statement highlights; (i) newly initiated and upcoming periodic reviews of rules and guides; (ii) ongoing periodic reviews of rules and guides; (iii) proposed rules; and (iv) final actions. According to the Plan, the FTC “will consider developing both unfair methods-of-competition rulemakings as well as rulemakings to define with specificity unfair or deceptive acts or practices.” The FTC noted that there are many pressing issues consumers face in the modern economy, such as the “abuses stemming from surveillance-based business models,” which also threaten competition. “The Commission is considering whether rulemaking in this area would be effective in curbing lax security practices, limiting intrusive surveillance, and ensuring that algorithmic decision-making does not result in unlawful discrimination.” The Plan further explains that the FTC will “explore whether rules defining certain ‘unfair methods of competition’ prohibited by section 5 of the FTC Act would promote competition and provide greater clarity to the market.” According to the Dissenting Statement by FTC Commissioner Christine S. Wilson, though, the plan takes “a big step into uncharted waters” with this latter statement, given the breadth of potential rulemakings and lack of clarity on which areas the FTC would pursue. Wilson’s view is that many existing rules “should be abolished,” rather than issuing new rules.

    Privacy/Cyber Risk & Data Security FTC Act UDAP Agency Rule-Making & Guidance

  • FTC settles with debt collectors

    Federal Issues

    On December 13, the FTC announced a settlement with several South Carolina-based debt collection companies and an individual (collectively, "defendants") for allegedly engaging in fraudulent debt collection practices. The FTC filed a complaint against the defendants alleging that they violated the FTC Act and the FDCPA by, among other things: (i) using robocalls to leave deceptive messages; (ii) falsely representing that an individual is an attorney or is in communication with an attorney; (iii) “falsely claiming or implying that nonpayment of a debt will result in the arrest or imprisonment of a person”; (iv) threatening to take unlawful legal action; and (v) making false representations or using deceptive means to collect or attempt to collect a debt. The action was taken as part of the FTC’s “Operation Corrupt Collector”—a nationwide enforcement and outreach effort established by the FTC, CFPB, and more than 50 federal and state law enforcement partners to target illegal debt collection practices (covered by InfoBytes here). The effort previously resulted in settlements with two other debt collectors, which included permanent bars from the industry.

    Under the terms of the settlement, in addition to being permanently banned from participating in debt collection and debt brokering activities, the defendants will also be prohibited from making misrepresentations to consumers, including (i) whether consumers are legally obligated to pay defendants; (ii) whether defendants are attorneys or affiliated with a law firm; (iii) the terms of any refund policy; and (iv) any material facts concerning products or services. The order also requires the defendants to surrender the contents of numerous bank and investment accounts, including property and the value of certain assets. An approximately $12 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.

    Federal Issues FTC Debt Collection Enforcement FTC Act UDAP FDCPA Courts Consumer Finance

  • FTC releases draft strategic plan for FY 2022 - 2026

    Federal Issues

    On November 12, the FTC released a preliminary draft of the Strategic Plan for Fiscal Years 2022 to 2026 for public review and comment. Recognizing that protecting the public from unfair or deceptive acts or practices in the marketplace is a key FTC strategic goal, the draft Strategic Plan outlines several objectives guiding the Commission’s work in this area including (i) identifying, investigating, and taking enforcement action to deter these types of harm; (ii) providing consumers and businesses with guidance and tools to prevent harm; (iii) engaging in domestic and international collaboration efforts to enhance consumer protections, including those related to telemarketing, internet fraud, and privacy violations; and (iv) advancing measures to support underserved and marginalized communities. Recognizing that consumers cannot always identify whether unfair or deceptive practices have occurred, the FTC reports it will continue to identify consumer protection violations and collaborate with law enforcement partners to identify trends and targets and enforce consumer protection laws. These efforts will include safeguarding consumer privacy and litigating cases involving privacy risks.

    Additional goals outlined within the draft Strategic Plan focus on marketplace competition, anticompetitive mergers, antitrust issues, resource management and workforce protections, and climate readiness. The draft Strategic Plan notes the importance of “cross-training staff on both consumer protection and competition issues” and of “grasping market realities” as “the economy becomes increasingly digitized.” According to the FTC, the “agency plans to be especially attentive to next-generation technologies, innovations, and nascent industries across sector.” Comments on the draft plan may be submitted through November 30.

    Federal Issues FTC Privacy/Cyber Risk & Data Security Consumer Protection Fintech UDAP

  • 11th Circuit lifts a receivership and asset freeze of $85 million

    Courts

    On November 4, the U.S. Court of Appeals for the Eleventh Circuit affirmed in part and vacated in part a district court’s order, finding that portions of the district court’s decision could not stand under the U.S. Supreme Court’s April ruling in AMG Capital Management v. FTC. The Court held in that case that 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.” (Covered by InfoBytes here). According to the 11th Circuit’s opinion, in 2019, the FTC alleged that individuals associated with multiple limited liability companies engaged in unfair or deceptive business practices in violation of 15 U.S.C. § 45(a). The FTC also filed a motion for a temporary restraining order the same day against the corporate defendants, seeking to freeze their assets, place the entities into a receivership, and enjoin all the parties from materially misrepresenting their services or from releasing consumer information obtained through the limited liability company. The district court granted the motion for a temporary restraining order in full in December 2019, and in January 2020, the district court granted a preliminary injunction against the limited liability company, extending the asset freeze, receivership, and injunction for the duration of the lawsuit.

    On appeal, the 11th Circuit affirmed those parts of the preliminary injunction enjoining the appellants from misrepresenting their services and releasing consumer information. The panel upheld the portion of the order that enjoined one of the investor entities and its principal, who was the former chairman of the corporate defendant’s board, from misrepresenting services on allegedly deceptive websites or releasing any customer information allegedly gathered through the websites. While the appeal was pending, however, the Court held in AMG Capital Management that 15 U.S.C. § 53(b) does not allow an award of “equitable monetary relief such as restitution or disgorgement,” leading the 11th Circuit to reverse the asset freeze and receivership aspects of the preliminary injunction. Additionally, the 11th Circuit noted that the principal from one of the entities “was individually responsible for the actions of [the corporate defendants],” and “likely knew that [the corporate defendants] made over eighty million dollars in two years selling 'guides' on government services, and it almost beggars belief that he would be completely unaware of how [the corporate defendants’] websites were raising that quantity of money.”

    Courts Eleventh Circuit FTC U.S. Supreme Court Enforcement Appellate UDAP

  • FTC issues warning regarding false money-making claims

    Federal Issues

    On October 26, the FTC announced that it is putting businesses on notice that pitch money-making ventures that deceive or mislead consumers regarding potential earnings. According to the announcement, the FTC utilized its Penalty Offense Authority to remind businesses of the law and deter them from breaking it by sending a Notice of Penalty Offenses to over 1,100 companies. The notice puts these businesses on notice that they may incur significant civil penalties if they or their representatives make claims regarding money-making opportunities that run counter to FTC administrative cases. The Notice of Penalty Offenses permits the FTC to seek civil penalties against a company that engages in conduct it knows is unlawful and has been determined to be unlawful in an FTC administrative order, other than a consent order. The FTC added that the Notice highlighted a number of practices that the FTC determined to be unfair or deceptive in prior administrative actions. In general, the cases determined that it was unlawful to make false, misleading, or deceptive representations regarding the profits or earnings that may be anticipated by a participant in a money-making opportunity, including representations that participants will make a profit. The Notice also outlined other practices that the FTC has decided to be unfair or deceptive, such as falsely telling consumers they do not need experience to earn income or that they must act immediately to participate. Companies receiving the Notice also received a copy of the recently issued Notice of Penalty Offenses concerning endorsements and testimonials, as companies frequently use testimonials to advertise money-making opportunities. The FTC also pointed out that “[a] recipient’s presence on this list does not in any way suggest that it has engaged in deceptive or unfair conduct.”

    Federal Issues FTC Consumer Finance Enforcement UDAP

  • FTC settles with companies involved with alleged deceptive investment training company

    Federal Issues

    On October 21, the FTC announced a proposed settlement with the funder and servicer (collectively, “defendants”) of payment plans utilized by consumers to pay for investment “trainings” from a professional trader education company (company). Under the proposed settlement, the funder is required to offer debt forgiveness to company consumers who have debt held by the funder. According to the complaint, the defendants allegedly violated the FTC Act by, among other things, facilitating the company’s deceptive scheme by underwriting, funding, and servicing its retail installment contracts. According to the announcement, in September 2020, the FTC settled with the company and, as part of that settlement, the company was required to offer debt forgiveness to consumers who owed it money. The settlement, however, did not cover consumers whose debt was held by the funder. The funder is also required to give these consumers notice of the offer of debt forgiveness and allow 45 days to request forgiveness from the funder. Additionally, the proposed settlement requires the defendants to utilize adequate due diligence when screening prospective covered clients, monitor covered clients, and investigate consumer complaints.

    Federal Issues FTC UDAP FTC Act Deceptive Enforcement

  • District Court approves order permanently banning defendants from making robocalls

    Federal Issues

    On October 21, the U.S. District Court for the Middle District of Florida issued an order approving a permanent injunction and $6.4 million civil money penalty against the remaining participants in a cruise line telemarketing operation allegedly aimed at marketing free cruise packages to consumers. In January, the FTC filed a complaint against the defendants (two individuals and five companies they controlled, including the cruise line) for their alleged involvement in the telemarketing operation. As previously covered by InfoBytes, the complaint asserted violations of the FTC Act and the Telemarketing Sales Rule. The same day the complaint was filed, the FTC announced that it had entered into two settlement agreements—one with a call center and two individuals, and one with an additional individual—for their roles in the telemarketing operation. The court’s October order follows a recent FTC announcement (covered by InfoBytes here), indicating it had reached an agreement with the defendants who neither admitted nor denied the allegations. The court’s order requires the individual defendants to cooperate with any future FTC investigations and to disclose “the contents of their auto-dialed, telemarketing, or pre-recorded telephone communications and records or other information pertaining to [the] autodialed, telemarketing, or pre-recorded telephone communications.” The order also suspends the $6.4 million civil money penalty after the two individual defendants each pay $50,000 to the Treasury Department.

    Federal Issues FTC Enforcement Robocalls FTC Act Telemarketing Sales Rule UDAP

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