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FTC settles with companies involved with alleged deceptive investment training company
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.
District Court approves order permanently banning defendants from making robocalls
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.
California enacts several consumer financial protection measures
Recently, the California governor enacted several state bills relating to consumer financial protection. On October 6, AB 790 was signed, which expands upon provisions of the Consumer Legal Remedies Act that relate to “home solicitations of a senior citizen where a loan encumbers the primary residence of the consumer for purposes of paying for home improvement.” Specifically, the bill extends the Act’s protections to cover loans for assessments under the Property Assessed Clean Energy (PACE) program, or certain provisions regulating PACE under the California Financing Law, such that violations would qualify as unfair methods of competition and unfair or deceptive acts or practices.
On October 6, AB 424 was signed, which enacts the Private Student Loan Collections Reform Act. The bill prohibits a private education lender or loan collector from making a written statement to a debtor attempting to collect a private education loan unless the private education lender or private education loan collector has certain related information to the debt and provides it to the debtor. In addition, among other things, the bill: (i) prohibits a private education lender or private education loan collector from bringing certain legal proceeding to collect a private education loan if the statute of limitations expired; (ii) creates a state-mandated local program by expanding the scope of the crime of perjury; and (iii) makes other provisions related to settlement agreements and payment notification requirements. The bill is effective July 1, 2022.
On October 4, AB 1221 was signed, which specifies that service contract requirements must include certain elements and cancellation policies. Among other things, the bill: (i) requires a service contract to include a clear description and identification of the covered product; (ii) makes a violation of certain provisions of the Electronic and Appliance Repair Dealer Registration Law a misdemeanor; and (iii) specifies “that a service contract may be offered on a month-to-month or other periodic basis and continue until canceled by the buyer or the service contractor and would require a service contract that continues until canceled by the buyer or service contractor to, among other things, disclose to the buyer in a clear and conspicuous manner that the service contract shall continue until canceled by the buyer or service contractor and provide a toll-free number, email address, postal address, and, if one exists, internet website the buyer can use to cancel the service contract.” In addition, by expanding the scope of the crime in violation of the Electronic and Appliance Repair Dealer Registration Law, the bill imposes a state-mandated local program. The law is effective January 1, 2022.
On October 4, AB 1405 was signed, which enacts the Fair Debt Settlement Practices Act. Among other things, the bill: (i) specifies that customers in a debt settlement plan have a window of three days to review disclosures prior to the contract taking effect; (ii) defines “debt settlement provider”; (iii) prohibits unfair, abusive, or deceptive acts or practices from a debt settlement provider and a payment processor when providing certain services; (iii) authorizes a consumer to terminate a contract for debt settlement services at any time without a fee or penalty of any sort by notifying the debt settlement provider; and (iv) authorizes a consumer to bring a civil action for violation.
FTC finalizes settlement with movie subscription service
On October 5, the FTC finalized a settlement with the operators of a movie subscription service, resolving allegations that the respondents violated the FTC Act by denying subscribers access to paid-for services and failed to secure subscribers’ personal information. As previously covered by InfoBytes, in June the FTC filed a complaint alleging the respondents, among other things, employed multiple tactics to prevent subscribers from using the advertised services, and failed to disclose all material terms before obtaining consumers’ billing information or obtain consumers’ express informed consent before charging them. The FTC further alleged that the respondents failed to take reasonable measures to protect subscribers’ personal information, including by storing personal data in unencrypted form and failing to restrict who could access the data, which led to a data breach in 2019. In a 4-1 vote, the FTC approved the settlement, which prohibits the respondents from misrepresenting their business and data security practices and requires the establishment of a comprehensive information security program. The respondents must also implement and annually test and monitor safeguards, take steps to address security risks, obtain biennial third-party information security assessments, notify the FTC of any future data breaches, and annually certify that they are complying with the order’s data security requirements. The FTC noted respondents may face monetary penalties of up to $43,792 per violation, per day, should they violate the terms of the order.
Massachusetts highlights UDAP risks of representment fees
On September 23, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks, issued a supervisory alert reminding financial institutions to clearly disclose representment non-sufficient funds (NSF) fees connected to deposit accounts to avoid consumer confusion as well as potential legal and regulatory risks. The alert explains that a representment NSF fee may occur when a financial institution presents the same transaction again, in an attempt to obtain declined funds. According to the alert, a “repeated merchant payment transaction can trigger the assessment of multiple NSF fees by a depository institution if the transaction is presented more than once,” causing some financial institutions to charge the consumer an NSF fee for both the original presentment as well as for each subsequent representment. The alert discusses consumer protection risks associated with the representment of NSF fees, including recent class action lawsuits for breach of contract, some of which have resulted in customer reimbursements and legal fees. Additionally, the alert highlights issues with standard industry deposit account agreements and fee schedules supplied by payment processing software vendors to financial institutions, which may not adequately explain an institution’s actual NSF fee practices as disclosed to customers. While certain disclosures and account agreements may indicate that one NSF fee will be charged “per item” or “per transaction,” these forms may not sufficiently explain that the same processed transaction may trigger multiple NSF fees. The alert reminds financial institutions charging representment fees that they risk violating state and federal UDAP law if their relevant account disclosures and agreements are not in compliance, and urges financial institutions to review deposit disclosures and contract language to ensure NSF fees are clearly and consistently communicated to consumers.
FTC reaches $6.4 million settlement with remaining defendants in robocalling suit
On September 20, the FTC announced a proposed settlement order resolving charges against the remaining participants in a cruise line telemarketing operation allegedly aimed at marketing free cruise packages to consumers. The FTC alleged the defendants participated in unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, placing illegal telemarketing robocalls, calling phone numbers on the FTC’s Do No Call Registry, calling consumers who asked not to be called, and transmitting false caller ID information. Under the proposed order, the defendants are permanently banned from engaging in or making telemarketing robocalls, and are also banned from engaging in abusive telemarketing, calling numbers on the Do Not Call Registry (unless express consent is given or other conditions are met), blocking or misrepresenting caller ID information, and violating the TSR. The order also imposes a $6.4 million civil money penalty against the defendants, which will be partially waived once the two individual defendants who controlled four of the corporations involved in the operation each pay a $50,000 civil money penalty. Two other settlement agreements were reached in 2020 with the other defendants (covered by InfoBytes here).
FTC to use CIDs and subpoenas to streamline investigations
On September 14, the FTC voted 3-2, at the recommendation of the Bureau of Consumer Protection and Bureau of Competition, to approve a series of resolutions intended to streamline consumer protection and competition investigations in core FTC-priority areas over the next decade. At the recommendation of the Bureaus, the FTC authorized eight new compulsory process resolutions, which authorize the use of civil investigative demands and subpoenas when investigating the following areas: (i) acts or practices affecting U.S. servicemember and veterans; (ii) acts or practices affecting children under 18; (iii) algorithmic and biometric bias; (iv) deceptive and manipulative online conduct, including matters related to tech support scams, payment processing, marketing of goods and services, and user interface manipulation; (v) repair restrictions; (vi) intellectual property abuse; (vii) common directors and officers and common ownership; and (viii) monopolization offenses. According to the FTC, adopting these resolutions will enhance and streamline the ability of FTC investigators and prosecutors to obtain evidence in critical investigations relating to potential violations of the FTC Act. FTC Commissioner Rohit Chopra issued a statement following the vote, commenting that the adoption “will improve the agency’s ability to order documents and data in investigations and fills a notable gap in the Commission’s long list of enforcement authorizations developed over many years.”
FTC bans respondents from surveillance business
On September 1, the FTC announced that a data monitoring application and its CEO (collectively, “respondents”) will be permanently banned from the surveillance industry for failing to provide reasonable data security for consumers’ personal information by allegedly “secretly harvesting and sharing data on people’s live location, web use, and online activities through their product’s hidden device hack.” The respondents allegedly sold real-time access to their surveillance system, which allowed stalkers and domestic abusers to “stealthily track” unknowing victims.
According to the complaint, the respondents violated Section 5 of the FTC Act by committing unfair or deceptive business practices in using unauthorized personal information and failing to secure such data in which “victims continue to experience substantial harm, including injury in the form of depression, anxiety, and ongoing fear for one’s safety,” even after the stalking or domestic abuse ended. The complaint detailed the covert monitoring products and services offered by respondents once their application is installed, including capturing and logging: email, SMS messages, call history, GPS location and live location, web history, contacts, pictures, calendar, video chats, files downloaded on the device, notifications, among other functions depending on cost.
Under the terms of the proposed settlement, the respondents are: (i) banned from offering, promoting, selling, or advertising any surveillance app, service, or business; (ii) required to delete any information illegally collected from their apps; and (iii) required to notify owners of devices that their devices might have been monitored and the devices may not be secure. This is the agency’s second case “brought against stalkerware apps, and the first where the FTC is obtaining a ban.” According to a statement released by FTC Commissioner Rohit Chopra, the agency is also “seeking public comment on banning [the defendants] from licensing, marketing, or offering for sale surveillance products,” which is “a significant change from the agency’s past approach.”
District Court denies request to set aside $120.2 million judgment in Belizean real estate scheme
On August 24, the U.S. District Court for the District of Maryland denied a request to set aside a more than $120.2 million judgment against several defaulted defendants involved in an international real estate investment development scheme. As previously covered by InfoBytes, the FTC initiated the action in 2018 against several individuals and corporate entities, along with a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. In 2019, a settlement was reached with the Belizean bank requiring payment of $23 million in equitable relief, and in 2020, the district court ordered the defaulted defendants to pay over $120.2 million in redress and granted the FTC’s request for permanent injunctions (covered by InfoBytes here and here).
In their motion, the defaulted defendants argued that the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC (which unanimously held 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) nullified the judgment. The district court disagreed, stating that the AMG Capital decision does not render his judgments in the case void and that “[i]n its Opinion rendered before the Supreme Court reached its decision, the Court considered the effect that a decision in AMG Capital adverse to the FTC might have, reasoning that: ‘this Court’s findings of fact and determinations as to liability—including contempt of court and violations of the Telemarketing Services Rule []—would not be affected by a decision in AMG.’” Moreover, the court pointed out that immediate denial of the motion is also warranted because the defaulted defendants failed to comply with a local rule requiring submission of a memorandum of law in support of their motion. The court asked, “In failing to do so, they have skirted among other fundamental questions: What authority do they, as defaulted defendants, involved as part of a common enterprise with virtually all other [d]efendants, have to upset a final and valid judgment against them after willfully defaulting?”
FTC settles with financial services company
On July 14, the FTC announced an $18 million settlement with a financial services company (defendant) over allegations that it deceived consumers. The FTC originally filed a complaint in 2018 claiming, among other things, that the defendant violated the FTC Act, the Privacy of Consumer Financial Information Rule, and the Gramm-Leach-Bliley Act, by falsely advertising loans with “no hidden fees” and misleading consumers with respect to whether their loan applications had been approved. The complaint also alleged that the defendant withdrew double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or paid off their loan, leading to overdraft fees and preventing borrowers from making other payments. Under the terms of the stipulated final order, the defendant is permanently barred from (i) misrepresenting fee amounts, the status of an application, and other material facts concerning any extension of credit; and (ii) making any representation about a specific loan amount prior to accepting a loan application, without clear and conspicuous disclosure of the dollar amount of any prepaid, up-front, or origination fee or the total amount of funds that would be disbursed to the consumer.