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On June 24, the FTC and the Small Business Administration (SBA) sent warning letters to six companies that they may be misleading small businesses seeking SBA loans due to the Covid-19 pandemic. The press release highlights specific claims from each company that the letters assert “could lead consumers to believe the companies are affiliated with the SBA,” or that consumers could use their websites to apply for loans from the Paycheck Protection Program (PPP) or other programs authorized by the CARES Act. These cited claims include, among others, (i) offering “'COVID-19 SBA Loan Programs”; (ii) offering “SBA Lending experts” and “SBA Loan Officers”; and (iii) stating “Get matched with a PPP lender now!” The letters warn the recipients to remove all deceptive claims and advertisements and remediate any harm to small business consumers that may have been caused. The letters further instruct the companies to notify the FTC within 48 hours of the actions they take in response. Copies of all six warning letters are available via links in the press release.
On May 20, the FTC announced that it and the Utah Division of Consumer Protection amended their complaint 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. The amended complaint adds additional defendants and new charges asserting the defendants violated the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, the U.S. District Court for the District of Utah issued a temporary restraining order against the defendants after the FTC and the Utah Division of Consumer Protection accused the defendants of violating the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law, by marketing real estate events with false claims and celebrity endorsements. Among other things, the defendants allegedly told consumers they would (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 amended complaint alleges that, in addition to the claims made at the real estate events, the defendants reiterated the false or misleading statements in the course of their telemarketing activities in violation of the TSR.
On May 19, the California attorney general, along with 33 other attorneys general, announced a multistate $550 million settlement with an auto sales financing company for allegedly placing subprime borrowers in auto loans that carried a high risk of default, in violation of state consumer protection laws. Specifically, California’s complaint alleges that the company violated the state’s Unfair Competition Law by, among other things, (i) extending auto loan credit to borrowers the company knew or should have known were likely to result in default and repossession; (ii) failing to disclose to borrowers the high risk of failure associated with the loans; (iii) requiring borrowers to make payments through methods that resulted in third-party fees; and (iv) misrepresenting borrowers’ ability to acquire repossessed vehicles already sent to auction. Additionally, the attorney general alleges that the company “turned a blind eye” to dealer abuse, resulting in higher origination prices for borrowers.
According to the press release, the company will pay approximately $433 million in forgiveness of loans still owned by the company across the U.S. and will waive deficiency balances for borrower loans that the company no longer owns. Notably, certain borrowers who had defaulted as of December 31, 2019 but were still in possession of their vehicle will be allowed to keep the vehicle and have the deficiency balance on the loan waived. California’s settlement also requires injunctive measures such as (i) requiring the company to consider the borrower’s ability to repay the loan; (ii) barring the company from purchasing loans where the borrower’s residual income is zero or negative; (iii) setting reasonable debt to income ratios; and (iv) no longer requiring dealers to sell ancillary products.
In addition to California, the multistate settlement includes: Illinois, Maryland, New Jersey, Oregon and Washington, who together with Attorney General Becerra comprise the executive committee; as well as the attorneys general of Arizona, Arkansas, Connecticut, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, West Virginia, Wyoming, and the District of Columbia.
On May 13, the FTC filed a complaint against a Pennsylvania-based telemarketing operation for allegedly misrepresenting “no obligation” trial offers to organizations and then enrolling recipients in subscriptions for several hundred dollars without their consent. The complaint also charged a New York-based debt collector with violating the FTC Act by illegally threatening the organizations if they did not pay for the unordered subscriptions. The FTC alleged that the telemarketing operation violated the FTC Act and the Unordered Merchandise Statute by calling organizations such as businesses, schools, fire and police departments, and non-profits to offer sample books or newsletters without disclosing that they were selling subscriptions and then sending publications without the recipients’ consent. The FTC alleged that, if the organizations agreed to accept what they believed to be free publications, the defendants enrolled the organizations in a negative option program without their consent, and automatically charged the organizations for annual subscriptions. The telemarketer worked with a debt collection firm that allegedly misrepresented that the debts were valid and used false threats to collect outstanding balances. According to the FTC, the debt collection firm handled collections nationwide despite not having a valid corporate registration in any state and only being licensed to collect debt in Washington State. The FTC seeks a permanent injunction against the defendants, along with monetary relief “including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
On May 14, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
If approved by the Court, the Bureau’s proposed settlement would (i) impose an $18 million redress judgment against the mortgage lender, of which all but $200,000 would be suspended due to the lender’s limited ability to pay; (ii) require one of the individuals and his company to disgorge $403,750 in profits to provide redress; (iii) impose a $406,150 judgement against a second individual and his company, which will be suspended due to the defendants’ inability to pay; (iv) impose a total $450,001 civil money penalty against the defendants; (v) permanently ban the defendants from the debt-relief industry and from using or obtaining prescreened consumer reports; and (vi) prohibit the defendants from on using or obtaining consumer reports for “any business purpose other than underwriting or otherwise evaluating mortgage loans.”
On May 13, the FTC announced a $1.2 million settlement with a group of telemarketing companies and their owners (collectively, “defendants”) for an allegedly deceptive e-commerce scheme in violation of the FTC Act, the Telemarketing Sales Rule (TSR), and the Consumer Review Fairness Act (CRFA). According to the complaint filed in the U.S. District Court for the Western District of Washington, the defendants sold products and services to consumers trying to start at-home internet-based businesses, which the defendants claimed would “substantially increase the visibility of and drive customer traffic to consumers’ ecommerce websites on the Internet.” The defendants would allegedly obtain leads by using a service that produces leads of consumers who have recently registered websites. The defendants would contact the consumers by telephone to sell services and would typically continue to call consumers to “upsell” additional products. The FTC argues that “[c]ontrary to [d]efendants’ representations, many consumers who purchase [d]efendants’ products and services do not end up with a functional website, earn little or no money, and end up heavily in debt.” The complaint alleges that the defendants violated the FTC Act, the TSR, and the CRFA by, among other things, (i) making unsubstantiated and false earnings and product claims; (ii) making false claims about business affiliations; and (iii) using contract provisions that restrict consumers’ ability to review or complain about purchased products or services.
The settlement with two of the entities and one owner includes a monetary judgment of over $16 million, which is partially suspended due to an inability to pay, and requires the defendants to surrender over $900,000. In separate settlements with the other two owners, large monetary judgments are also partially suspended due to an inability to pay, with one required to surrender over $100,000, and the other required to surrender over $200,000.
On May 14, the FTC and SBA sent letters to two companies for allegedly misleading small businesses seeking Paycheck Protection Program (PPP) loans. The first letter was sent to a California-based media company, which owns the web address “sba.com.” The letter claims the website suggests an “an affiliation or relationship with the SBA and approved PPP lenders” and encourages customers to apply for PPP loans through the site. The second letter, sent to a Utah-based company, asserts the company and its affiliate lead generators may be violating Section 5 of the FTC Act. Among other things, the FTC notes that one of the company’s affiliate lead generators advertises itself as an SBA loan packager for a $495 fee, even though the SBA prohibits lead generators from charging fees to PPP loan applicants. Both letters instruct the recipients to remove all deceptive claims and advertisements and remediate any harm that may have been caused. The letters require the companies to notify the FTC within 48 hours of the actions taken in response.
On April 22, the FTC filed a complaint against a Canadian company and its CEO (defendants) for allegedly participating in deceptive and unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, laundering credit card payments for two tech support scams that were sued by the FTC in 2014. The FTC alleges in its complaint that the defendants entered into contracts with payment processors to obtain merchant accounts to process credit card charges. While these contracts prohibited the defendants from submitting third-party sales through its merchant accounts, the FTC claims that the defendants used the accounts to process millions of dollars of consumer credit card charges on behalf of the two tech support operators and also processed charges for lead generators that directed consumers to the tech support scam. The FTC alleges that the defendants were aware of the unlawful conduct of at least one of the two operators and attempted to hide these charges from the payment processors.
Under the proposed settlement, the defendants neither admitted nor denied the allegations, except as specifically stated within the settlement, and (i) will pay $6.75 million in equitable monetary relief; (ii) are permanently enjoined from engaging in any further payment laundering or violations of the TSR; and (iii) will screen and monitor prospective high risk clients.
On April 20, the FTC filed a complaint against a rent-to-own payment plan company for allegedly making false, misleading, and deceptive representations in violation of the FTC Act to consumers regarding the marketing, sale, and terms of their payment plans. In its complaint, the FTC alleged that while the company offered “same as cash” and “no interest” payment plans to consumers seeking to purchase items at retailers nationwide, it actually charged consumers substantially more than the item’s retail price. Accessing the actual terms of the payment plans was confusing for consumers, the FTC contended, and allegedly led to consumers frequently paying roughly twice the item’s sticker price if they made the initial and all scheduled recurring payments. According to the FTC, the company (i) received tens of thousands of consumer complaints; (ii) was aware consumers were confused by the terms of their payment plans; and (iii) had been presented with concerns from retailers regarding the company’s training materials, which, among other things, instructed sales associates to say “‘there actually isn’t an interest rate, because it’s not a loan.” Under the terms of the proposed settlement, the company is, among other things, (i) prohibited from misrepresenting the costs, nature, terms, and any other material facts related to its payment plans; (ii) required to clearly and conspicuously disclose the total cost to own a product when marketing its plans; (iii) ordered to monitor third parties, including retailers that offer the company’s payment plans to ensure compliance with the terms of the settlement; and (iv) required to receive express, informed consent from consumers prior to billing them for a plan. The company is also required to pay $175 million in equitable monetary relief.
On April 17, the FTC filed a complaint against a Rhode Island-based company and its owner (defendants) for allegedly violating the FTC Act by claiming to be an approved lender for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) even though the defendants are neither affiliated with the SBA nor are they an SBA-authorized lender. The FTC alleges in its complaint that the defendants made deceptive statements on their websites, such as “WE ARE A DIRECT LENDER FOR THE PPP PROGRAM,” and directly contacted small businesses claiming to be representing the SBA in order to solicit loan applications on behalf of the businesses’ banks. The FTC states that the defendants have received hundreds, if not thousands, of loan applications from businesses and continue to claim they can make PPP loans despite receiving a cease-and-desist letter earlier this month from the SBA. The FTC seeks injunctive relief to prevent the defendants from continuing to engage in the unlawful acts and practices, as well as “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief” that the court deems necessary to redress any consumer harm, and an award of the costs for bringing the action.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference