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FTC sues fuel card marketer for deceptive advertising and hidden fees
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.”
New York extends consumer protections for vehicle leases
On December 23, the New York governor signed S 3631, which amends the state’s insurance law to increase protections for New York consumers from unplanned charges at the end of a motor vehicle lease. The definition of “service contracts” is broadened to cover more comprehensive service contracts on motor vehicles leased for personal use. Service contracts covered by the law will now include agreements that apply to accidental damage and excess use and wear and tear, including missing parts of the vehicle, and items not covered by a warranty or other service agreement, as long as such services do not exceed the purchase price of the automobile. The law became effective when signed.
Internet provider and states agree to nearly $12.5 million for false advertising, hidden fees
On December 19, the Colorado attorney general announced that an internet service provider (ISP) agreed to pay nearly $8.5 million in order to resolve allegations that it “unfairly and deceptively charg[ed] hidden fees, falsely advertis[ed] guaranteed locked prices, and fail[ed] to provide discounts and refunds it promised” to Colorado consumers in violation of the Colorado Consumer Protection Act. According to the announcement, in 2017 the AG’s office investigated the ISP and compiled information that the ISP had “systematically and deceptively overcharged consumers for services” since 2014 (see the complaint filed by the AG here). In the settlement, the ISP agreed to an order that requires it, among other things, to (i) refrain from making false and misleading statements to consumers in the marketing, advertising and sale of its products and services; (ii) accurately communicate monthly base charges as well as one-time fees, taxes, and other fees and surcharges to consumers; (iii) disclose any “internet cost recovery fee” or “broadband recovery fee” to consumers being charged the fees and allow the affected consumers to switch to different services if they wish to avoid the fees; (iv) refrain from charging an “internet or broadband cost recovery fee” on new orders; and (v) provide refunds to customers who were overcharged for services and to those customers who did not previously receive discounts that the ISP promised.
In a separate action, on December 31, the Oregon attorney general’s office announced that it entered into a $4 million Assurance of Voluntary Compliance with the same ISP to resolve similar claims of deceptive acts and practices in the advertising, sale, and billing of the ISP’s internet, telephone and cable services in violation of the Oregon Unlawful Trade Practices Act. According to the announcement, the Oregon DOJ started an investigation of the ISP in 2014 for allegedly “misrepresenting the price of services, failing to inform consumers of terms and conditions that could affect the price, and billing consumers for services they never received.” The ISP agreed to requirements that are very similar to those in the Colorado settlement. The announcement notes that the “Oregon DOJ will continue to lead a separate securities class action lawsuit arising from the same conduct.”
Hospitality company's bid to dismiss data breach suit rejected
On December 13, the U.S. District Court for the District of Maryland denied an international hospitality company’s motion to dismiss a data breach suit brought by the City of Chicago. According to the city’s complaint, the company violated the Illinois Consumer Fraud and Deceptive Business Practices Act by, among other things, allegedly failing to (i) “protect Chicago residents’ personal information”; (ii) implement and maintain reasonable security measures; (iii) disclose that it did not maintain reasonable security measures; and (iv) provide “prompt notice” of the breach to Chicago residents. According to the opinion, the city had established standing to sue the company because it adequately alleged injury to its municipal interests. Additionally, the court rejected the company’s assertion that the suit is unconstitutional under the Illinois Constitution, stating that the consumer protection ordinance the company was alleged to have violated “addresses a local problem, making it a legitimate exercise of the City’s home rule authority” under the state’s constitution. The company had released a statement in November 2018, which is at the center of the city’s action, stating that the breach was discovered in September 2018, had exposed personal information from 500 million guests, and been ongoing since 2014.
Washington AG settles deceptive practices allegations with office supply company
On November 13, the Washington attorney general announced an office supply company has agreed to pay $900,000 to resolve an investigation into deceptive computer repair services. According to the AG’s office, the company allegedly used a software program, called “PC Health Check” or similar names, to facilitate the sale of diagnostic and repair services to retail customers that cost up to $200, regardless of whether their computer was actually infected with viruses or malware. The company claimed that the program, which allegedly detected malware symptoms on consumers’ computers, actually based the results on answers to four questions consumers were asked by a company employee at the beginning of the service, including whether the computer had slowed down, had issues with frequent pop-up ads, received virus warnings, or crashed often. After the questions were asked, the responses were entered into the program and a simple scan of the computer was run. The AG’s office claims that the scan had no connection to the malware symptoms results because an affirmative answer by the consumer to any of the four questions always led to the report of actual or potential malware symptoms. The release also states that in 2012, a company employee informed management that “the software reported malware symptoms on a computer that ‘didn’t have anything wrong with it,’” but that the company continued to sell the repair services until 2016 to an estimated 14,000 Washington consumers. According to the AG’s release, Washington is the only state to reach an agreement with the company over the alleged practices in addition to the $35 million national settlement the company and its software vendor reached with the FTC in March for similar conduct. (Previous InfoBytes coverage here.)
FTC, Utah file action against real estate seminar company
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.
NYDFS to investigate deed fraud and deception targeting homeowners
On October 22, the New York governor directed NYDFS to investigate instances of alleged mortgage deed fraud and deceptive practices targeting homeowners in Brooklyn. In addition to the investigation, the governor also directed NYDFS to “dispatch the Department's Foreclosure Relief Unit to provide assistance to homeowners who believe they may have been a victim of deed fraud or unfair, deceptive, or abusive practices in regard to the sale or attempted purchase of their home.”
As previously covered by InfoBytes, the governor recently signed a package of bills intended to increase consumer homeowner protections. Specifically, A 5615 amended state law related to distressed home loans to extend consumer protections for homes in default and foreclosure by, among other things, (i) providing homeowners additional time to cancel a covered contract with a purchaser; (ii) preventing distressed property consultants from inducing the consumer to transfer the deed to the consultant or anyone else; and (iii) allowing consumers to void contracts, deeds, or other agreements material to the consumer’s property where an individual was convicted of or pled guilty to making false statements in connection with that agreement.
District Court allows claims to proceed against car dealership
On October 17, the U.S. District Court for the District of New Jersey issued an opinion allowing consumer protection claims to proceed against a car dealership related to fees added to vehicle purchase prices, while granting two other related entities’ motions to dismiss. The plaintiff’s complaint against the dealership and related entities alleged that the dealership charged her additional mandatory fees when purchasing the vehicle, required her to spend $3,500 on a service contract in order to obtain financing, and charged interest on the contract even though, the plaintiff alleged, the contract constituted a fee related to the extension of credit and therefore was not subject to interest. These actions, the plaintiff alleged, violated TILA, the Consumer Fraud Act (CFA), the Truth-in-Consumer Contract, Warranty and Notice Act, and the Consumer Service Contract Act (CSCA). According to the plaintiff, the contracts contained cancellation provisions that guaranteed a full refund if a request was submitted within a specified period with a guaranteed 10 percent penalty for each 30-day period for which the refund was unpaid. The plaintiff executed timely refund requests but claimed that the entities failed to refund the fees within the allotted contractual period. In separate motions to dismiss, the entities argued that, while the allegations could be considered contractual breaches, they were not sufficient to constitute violations under the alleged consumer protection statutes. The court agreed and granted the entities’ motions, ruling that their contract language complied with the CSCA and that, although the entities allegedly failed to perform under their contracts, they would only have violated the CFA if they knew at the time the contract was formed that they did not intend to fulfill their contractual duties. Moreover, the court referred to a New Jersey Supreme Court holding, which said that a breach of warranty or contract, “‘is not per se unfair or unconscionable. . .and. . .alone does not violate a consumer protection statute” unless there are “substantial aggravating circumstances.” As such, the court determined, the entities’ alleged breaches of the cancellation provisions were not “‘unconscionable commercial practices’” as required under the CFA. However, the plaintiff can amend her claims.
Moreover, the court ruled that the allegations against the dealership can proceed, and denied the dealership’s bid to send the case to arbitration. According to the court, the dealership’s argument that it never received notices that the plaintiff had initiated arbitration proceedings because of a “clerical error” or a wrong mailing address were unpersuasive, and referred to the American Arbitration Association’s decision to decline “to administer the case due to the failure of [the dealership] to pay the required arbitration fees.”
CFPB releases semi-annual report to Congress
On October 8, the CFPB issued its Dodd-Frank mandated semi-annual report to Congress covering the Bureau’s work from October 1, 2018 to March 31, 2019. In presenting the report, Director Kathy Kraninger stressed that the Bureau will continue to use the tools provided by Congress to protect consumers, including “vigorous and even-handed enforcement” with a focus on prevention of harm. Kraninger also reiterated her commitment “to strengthening the consumer financial marketplace by providing financial institutions clear ‘rules of the road’ that allow them to offer consumers a range of high-quality, innovative financial services and products.” Among other things, the report analyzed significant problems consumers face when obtaining consumer financial products and services, assessed actions taken by state attorneys general or state regulators relating to federal consumer financial law, and provided a recap of supervisory and enforcement activities.
While the Bureau did not adopt any significant final rules or orders during the preceding year, it did issue two significant notices of proposed rulemaking relating to certain payday lending requirements under the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” (See previous InfoBytes coverage here.) The Bureau also adopted several “less significant rules,” and engaged in significant initiatives concerning, among other things, (i) the disclosure of loan-level HMDA data; (ii) Residential Property Assessed Clean Energy proposed rulemaking; (iii) an assessment of significant rules, including the Remittance Rule, the Ability to Repay/Qualified Mortgage Rule, and the RESPA Mortgage Servicing Rule; (iv) trial disclosure programs; (v) innovation policies related to no-action letters and product sandbox and trial disclosure programs; and (vi) suspicious activity reports on elder financial exploitation.
Florida AG settles UDAP action with auto dealership
On August 5, the Florida attorney general announced a $1.2 million settlement with a Florida auto dealership and its owner (defendants) for allegedly violating the state’s Unfair and Deceptive Trade Practices Act by failing to pay off outstanding liens on vehicle trade-ins. According to a complaint filed in the Circuit Court of the 4th Judicial Circuit, the AG initiated an investigation alleging that the defendants, among other things, accumulated unpaid obligations of more than $1.2 million to lienholders on traded-in vehicles. As a result, consumers were held accountable for the debt and received invoices from the lienholders. For consumers who did not make payments on their trade-ins, the lienholders often reported the defaults to credit bureaus, with, in some instances, the adverse credit reporting affected service members’ security clearances. The AG also noted that in certain circumstances, the lienholder attempted to repossess vehicles that were no longer owned by the consumers. Additionally, the defendants also failed to process title transfers within the statutorily required time frame, which resulted in some consumers experiencing difficulty when trying to obtain financing and insurance on their other vehicles, and others being sold traded-in vehicles without having clear title. In 2018, the dealership was purchased and the outstanding liens paid by the acquiring company. Under the terms of the settlement, the defendants have agreed to pay approximately $1.2 million in equitable consumer restitution, $235,000 in civil penalties, and $15,000 for attorney’s fees and costs. The defendants are also permanently enjoined from owning, operating, or managing an auto or truck dealership in the state at any time in the future.