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Financial Services Law Insights and Observations


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  • District Court won’t stay CFPB litigation with credit reporter


    On April 13, the U.S. District Court for the Northern District of Illinois denied a credit reporting agency’s (CRA) bid to stay litigation filed by the CFPB alleging deceptive practices related to the marketing and sale of credit scores, credit reports, and credit-monitoring products to consumers. The Bureau sued the CRA and one of its former senior executives last April (covered by InfoBytes here), claiming the defendants allegedly violated a 2017 consent order by continuing to engage in “digital dark patterns” that caused consumers seeking free credit scores to unknowingly sign up for a credit monitoring service with recurring monthly charges.

    The CRA requested a stay while the U.S. Supreme Court considers whether the Bureau’s funding mechanism is unconstitutional. Earlier this year, the Court agreed to review next term the 5th Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, where it found that the CFPB’s “perpetual self-directed, double-insulated funding structure” violated the Constitution’s Appropriations Clause. (Covered by InfoBytes here and a firm article here.) While acknowledging that a ruling against the Bureau may result in the dismissal of the action against the CRA, the court concurred with the Bureau that consumers may be exposed to harm during a stay. “Were I to grant the requested stay, it could last more than one year, depending on when the Supreme Court issues its opinion,” the court wrote. “In that time, if the Bureau’s allegations bear out, consumers will continue to suffer harm because of defendants’ unlawful conduct. That potential cost is too great to outweigh the resource preserving benefits a stay would confer.”

    Courts CFPB Consumer Finance Credit Reporting Agency Enforcement Deceptive UDAAP CFPA U.S. Supreme Court Funding Structure Constitution Dark Patterns

  • FTC proposes changes to Negative Option Rule

    Agency Rule-Making & Guidance

    On March 23, the FTC announced a notice of proposed rulemaking (NPRM) seeking feedback on proposed amendments to the agency’s Negative Option Rule, which is used to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs. (See also FTC fact sheet here.) Claiming that current laws and regulations do not clearly provide a consistent legal framework for these types of programs, the NPRM, which applies to all subscription features in all media, proposes to add a new “click to cancel” provision that would make it as easy for consumers to cancel their enrollment as it was to sign up. The NPRM would also require sellers to first ask consumers whether they want to hear about new offers or modifications before making a pitch when consumers are trying to cancel their enrollment. If a consumer says “no” a seller must immediately implement the cancellation process. Sellers would also be required to provide consumers who are enrolled in negative option programs with an annual reminder involving anything other than physical goods before they are automatically renewed.

    Commissioner Christine Wilson issued a dissenting statement, in which she argued that while the NPRM “may achieve the goal of synthesizing the various requirements in one rule,” it “is not confined to negative option marketing [as it] also covers any misrepresentation made about the underlying good or service sold with a negative option feature.” Wilson commented, “as drafted, the Rule would allow the Commission to obtain civil penalties, or consumer redress under Section 19 of the FTC Act, if a marketer using a negative option feature made misrepresentations regarding product efficacy or any other material fact.”

    Agency Rule-Making & Guidance Federal Issues FTC Negative Option FTC Act Consumer Finance Subscriptions UDAP Unfair Deceptive

  • FTC orders refunds over compromised health data

    Federal Issues

    On March 2, the FTC filed a complaint against an online counseling service alleging the respondent violated the FTC Act by monetizing consumers’ sensitive health data for targeted advertising purposes. As part of the process to sign up for the respondent’s counseling services, consumers are required to provide sensitive mental health information, as well as other personal information. Consumers are promised that their personal health data will not be used or disclosed except for limited purposes, such as for counseling services. However, the FTC claimed the respondent used and revealed consumers’ sensitive health data to third parties for advertising purposes. According to the FTC, the respondent failed to maintain sufficient policies or procedures to protect the sensitive information and did not obtain consumers’ affirmative express consent before disclosing the health data. The respondent also allegedly failed to limit how third parties could use the health data and denied reports that it revealed consumers’ sensitive information.

    Under the terms of the proposed consent order, the respondent will be required to pay $7.8 million in partial refunds to affected users and will be banned from disclosing health information to certain third parties for re-targeting advertising purposes. This will be the first FTC action returning funds to consumers whose health data was compromised. The respondent will also be prohibited from misrepresenting its sharing practices and must also (i) obtain users’ affirmative express consent before disclosing personal information to certain third parties for any purpose; (ii) implement a comprehensive privacy program with strong safeguards to protect users’ data; (iii) instruct third parties to delete shared personal data; and (iv) implement a data retention schedule imposing limits on how long personal data can be retained.

    Federal Issues FTC Enforcement Advertisement Privacy, Cyber Risk & Data Security Consumer Protection UDAP FTC Act Unfair Deceptive

  • District Court allows FTC suit against owners of credit repair operation to proceed

    Federal Issues

    On February 13, the U.S. District Court for the Eastern District of Michigan denied a motion to dismiss filed by certain defendants in a credit repair scheme. As previously covered by InfoBytes, last May the FTC sued a credit repair operation that allegedly targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. At the time, the court granted a temporary restraining order against the operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. The temporary restraining order was eventually vacated, and the defendants at issue (two individuals and two companies that allegedly marketed credit repair services to consumers, charged consumers prohibited advance fees in order to use their services without providing required disclosures, and promoted an illegal pyramid scheme) moved to dismiss themselves from the case and to preclude the FTC from obtaining permanent injunctive and monetary relief.

    In denying the defendants’ motion to dismiss, the court held, among other things, that “controlling shareholders of closely-held corporations are presumed to have the authority to control corporate acts.” The court pointed to the FTC’s allegations that the individual defendants at issue were owners, officers, directors, or managers, were authorized signatories on bank accounts, and had “formulated, directed, controlled, had the authority to control, or participated in the acts and practices set forth in the complaint.” The court further held that the FTC’s allegations raised a plausible inference that the individual defendants have the authority to control the businesses and demonstrated that they possessed, “at the most basic level, ‘an awareness of a high probability of deceptiveness and intentionally avoided learning of the truth.’”

    The court also disagreed with the defendants’ argument that the permanent injunction is not applicable to them because they have since resigned their controlling positions of the related businesses, finding that “[t]his development, if true, does not insulate them from a permanent injunction.” The court found that “the complaint contains plausible allegations of present and ongoing deceptive practices that would authorize the [c]ourt to award a permanent injunction ‘after proper proof.’” In addition, the court said it may award monetary relief because the FTC brought claims under both sections 13(b) and 19 of the FTC Act and “section 19(b) contemplates the ‘refund of money,’ the ‘return of property,’ or the ‘payment of damages’ to remedy consumer injuries[.]” 

    Federal Issues Courts FTC Enforcement Credit Repair Consumer Finance FTC Act Credit Repair Organizations Act UDAP Deceptive Telemarketing Sales Rule

  • 9th Circuit orders district court to reassess $7.9 million civil penalty against payments company


    On January 27, the U.S. Court of Appeals for the Ninth Circuit ordered a district court to reassess its decision “under the changed legal landscape since its initial order and opinion” in an action concerning alleged misrepresentations made by a bi-weekly payments company. The Bureau filed a lawsuit against the company in 2015, alleging, among other things, that the company made misrepresentations to consumers about its bi-weekly payment program when it overstated the savings provided by the program and created the impression the company was affiliated with the consumers’ lender. In 2017, the district court granted a $7.9 million civil penalty proposed by the Bureau, as well as permanent injunctive relief, but denied restitution of almost $74 million sought by the agency. (Covered by InfoBytes here.) The company appealed the district court’s conclusion that it had engaged in deceptive practices in violation of the Consumer Financial Protection Act, while the Bureau cross-appealed the district court’s decision to deny restitution. The 9th Circuit consolidated the appeals for consideration.

    During the pendency of the cross-appeals, the U.S. Supreme Court issued a decision in 2020 in Seila Law LLC v. CFPB, in which it determined that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert). Following Seila, former Director Kathy Kraninger ratified several prior regulatory actions (covered by InfoBytes here), including the enforcement action brought against the company. At issue in the company’s appeal is whether the Bureau has authority to pursue its claims, including whether the agency’s funding mechanism is unconstitutional and whether its case is distinguishable from other actions and is entitled to dismissal for the Bureau director’s unconstitutional for-cause removal provision.

    The appellate court declined to offer a position on these issues, and instead left them for the district court to consider. The 9th Circuit noted that since the district court’s 2017 order, “sister circuit courts have split” on the funding issue. “We vacate the district court’s order and remand, allowing it to reassess the case under the changed legal landscape since its initial order and opinion,” the appellate court wrote, directing the district court to “provide further consideration to [the company’s] argument on the constitutionality of the Bureau’s funding mechanism.” With respect to the Bureau’s appeal of the restitution denial, the 9th Circuit remanded the case to allow the district court to consider the effect CFPB v. CashCall and Liu v. SEC may have on the action (covered by InfoBytes here and here), as well as whether the agency “waived its claim to legal restitution by characterizing it only as a form of equitable relief before the district court.”

    Courts Appellate Ninth Circuit CFPB Payments Constitution Enforcement CFPA UDAAP Deceptive U.S. Supreme Court Consumer Finance

  • FTC takes action against eye surgery provider

    Federal Issues

    On January 19, the FTC announced an action against an Ohio-based eye surgery provider (respondent) concerning allegations that it engaged in “bait-and-switch” advertising. According to the FTC’s complaint, the respondent engaged in deceptive business practices by marketing eye surgery for $250, yet only 6.5 percent of patients who received consultations qualified for that price. According to the FTC, despite the advertising claims, for consumers with less than near-normal vision the company typically quoted a price between $1,800 and $2,295 per eye. The FTC also alleged that respondent neglected to tell consumers up-front that the promotional price was per-eye.

    Under the terms of the decision and order (which was granted final approval on March 15) the respondent must, among other things, pay $1.25 million in redress to harmed customers. Additionally, the respondent is banned from using deceptive business practices and is required to make certain clear and conspicuous disclosures when advertising the surgery at a price or discount for which most consumers would not qualify. Specifically, such disclosures must include whether the price is per eye, the price most consumers pay per eye, and any requirements or qualifications needed to get the offered price or discount.

    The Commission voted to issue the administrative complaint and accepted the consent agreement 3-1. Commissioner Christine S. Wilson issued a dissenting statement, arguing that there are “no clear rules” regarding the qualifications of eye surgery referenced in the complaint. She stated that she is “concerned that requiring the inclusion of specific medical parameters in advertisements, when those parameters could be either over- or under-inclusive depending upon the results of the consultation, could be more confusing than helpful.”

    Federal Issues FTC Enforcement Advertisement UDAP Deceptive

  • FTC takes action against investment advisor, cites violations of Notice of Penalty Offenses

    Federal Issues

    On January 13, the FTC announced an action against an investment advisor and its owners concerning allegations that the defendants made deceptive claims when selling their services to consumers. While the FTC has brought “several cases” concerning false money-making claims, the action marks the first time the FTC is collecting civil money penalties from cases relating to Notice of Penalty Offenses. As previously covered by InfoBytes, the FTC sent the notice to more than 1,100 companies (including the defendants) warning 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. Under the Notice of Penalty Offenses, the FTC is permitted 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. This action is also the first time the FTC has imposed civil penalties for violations of the Restore Online Shoppers’ Confidence Act (ROSCA).

    According to the complaint, the defendants made numerous misleading claims when selling their investment advising services, including that (i) recommendations about the services were based on a specific “system” or “strategy” created by so-called experts who claim to have made numerous successful trades; and (ii) consumers would make substantial profits if they followed the recommended trades (consumers actually lost large amounts of money, the FTC alleged). Moreover, the FTC claimed that company disclaimers “directly contradict the message conveyed by their marketing,” including that featured testimonials and example trade profits “represent extraordinary, not typical results,” “that ‘[n]o representation is being made that any account will or is likely to achieve profits or losses similar to those discussed,’ and that ‘[n]o representation or implication is being made that using the methodology or system will generate profits or ensure freedom from losses.’” By making these, as well as other, deceptive claims, the defendants were found to be in violation of the Notice of Penalty Offenses, ROSCA, and the FTC Act, the Commission said.

    Under the terms of the proposed order, the defendants would be required to surrender more than $1.2 million as monetary relief and must pay a $500,000 civil money penalty. The defendants would also have to back up any earnings claims, provide notice to consumers about the litigation and the court order, and inform consumers about what they need to know before purchasing an investment-related service.

    Federal Issues Enforcement FTC FTC Act ROSCA UDAP Deceptive

  • CFPB and New York say auto lender misled consumers

    Federal Issues

    On January 4, the CFPB and New York attorney general filed a complaint against a Michigan-based auto finance company accused of allegedly misrepresenting the cost of credit and deceiving low-income consumers into taking out high-interest loans on used vehicles. (See also AG’s press release here.) The joint complaint alleges, among other things, that the defendant based the price of a loan (and then artificially inflated the principal amount) and the payment to the dealer on the projected amount that may be collected from the consumer during the life of the loan (without factoring in whether consumers could actually afford the loan).

    The Bureau and AG further argued that the true cost of credit is hidden in inflated principal balances in order to evade state interest rate caps. An investigation conducted by the AG found that while the defendant’s loan agreements in New York claimed an APR of 22.99 percent or 23.99 percent (just below the 25 percent usury cap), the defendant actually charged on average more than 38 percent (and on many occasions charged an APR in excess of 100 percent). These high-interest loans, the AG claimed, often caused consumers to accrue additional fees and become delinquent on their loans.

    The complaint also alleged the defendant failed to consider consumers’ ability to repay their loans in full, engaged in aggressive debt collection tactics, and created financial incentives for dealers to add on extra products, such as vehicle service contracts. Add-on products generated roughly $250 million in revenue for the defendant in 2020, the complaint said, adding that these alleged deceptive lending practices lowered consumers’ credit scores and cost borrowers millions of dollars. The complaint further maintained that the defendant packaged the consumer loans into securities that were sold to investors on the premise that the underlying loans complied with applicable law. These alleged false representations, the complaint said, constituted securities fraud under New York’s Martin Act.

    The complaint — which also alleges violations of the Consumer Financial Protection Act’s prohibition against deceptive and abusive acts or practices, New York usury limits, and other state consumer and investor protection laws — seeks, among other things, injunctive relief, monetary relief, disgorgement, and civil money penalties of $1,000,000 for each day of violations.

    The defendant was previously targeted for violating consumer protection laws in 2021 by the Massachusetts attorney general, who announced a $27.2 million settlement to resolve allegations of predatory lending and deceptive debt collection practices. (Covered by InfoBytes here.)

    Federal Issues State Issues CFPB New York State Attorney General Enforcement Auto Finance Consumer Finance Deceptive Abusive CFPA UDAAP

  • FTC proposes to permanently ban credit repair operation

    Federal Issues

    On December 15, the FTC announced proposed court orders to permanently ban a group of companies and their owners (collectively, “defendants”) from offering or providing credit repair services. In May the FTC filed a complaint against the defendants for allegedly violating the FTC Act, the Credit Repair Organizations Act, and the TSR, among other statutes, by making deceptive misrepresentations about their credit repair services and charging illegal advance fees (covered by InfoBytes here). At the time, the U.S. District Court for the Middle District of Florida granted a temporary restraining order against the defendants. The proposed court orders (see here and here) were agreed to by the defendants, and contain several requirements: (i) a permanent ban against the defendants from operating or assisting any credit repair service of any kind; (ii) a prohibition against making unsubstantiated claims “about the benefits, performance, or efficacy of any good or service without sufficient supporting evidence”; and (iii) the release of numerous possessions that will be liquidated by a court-appointed receiver and used by the FTC to provide refunds to impacted consumers. The proposed court orders also include a total monetary judgment of more than $18.8 million, which is partially suspended due to the defendants’ inability to pay.

    Federal Issues Courts FTC Enforcement Credit Repair FTC Act Telemarketing Sales Rule Credit Repair Organizations Act UDAP Deceptive Consumer Finance

  • New Jersey settles with car dealerships over consumer protection violations

    State Issues

    On December 15, the New Jersey attorney general announced that the Division of Consumer Affairs has now reached settlements with six car dealerships totaling over $260,000 to resolve alleged consumer protection violations. Among other things, the dealerships allegedly failed to honor the advertised price of used vehicles, charged excessive vehicle preparation fees that were not properly itemized or disclosed, failed to disclose the vehicle’s full sale price, and engaged in deceptive advertising. Under the terms of the most recent settlement (joining five other settlements announced earlier in the year), the dealership is required to pay $180,000, and must stop engaging in any unfair or deceptive acts practices. The dealership must also (i) comply with all applicable state and federal laws, including the Consumer Fraud Act, the Motor Vehicle Advertising Regulations, and the Automotive Sales Practices Regulations; (ii) honor all advertised sale or lease prices; (iii) accurately disclose a vehicle’s sale price; (iv) disclose previous damage and substantial repairs done to used cars when advertising; (v) clearly and conspicuously disclose all disclaimers, qualifiers, or offer limitations in advertisements; and (vi) enter binding arbitration to resolve any pending consumer complaints, as well as any additional complaints received by the Division for a one-year period.

    State Issues Enforcement State Attorney General Consumer Finance Fees Auto Finance New Jersey Deceptive UDAP


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