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On April 2, the FTC announced that it joined the Food and Drug Administration (FDA) in sending letters to three supplement companies warning them that making allegedly unsupported health and efficacy claims in their advertising may violate the FTC Act. According to the letters (available here, here, and here), the three companies advertise supplements they say contain cannabidiol (commonly known as CBD), and, allegedly, among other things, effectively treat diseases such as cancer, Alzheimer’s disease, fibromyalgia, and neuropsychiatric disorders. The letters emphasize that it is unlawful under the FTC Act “to advertise that a product can prevent, treat, or cure human disease unless you possess competent and reliable scientific evidence, including, when appropriate, well-controlled human clinical studies, substantiating that the claims are true at the time they are made.” The letters also note that the products constitute “new drugs” and cannot be introduced or delivered into interstate commerce without prior FDA approval. The letters appear related to the FTC’s initiative to target advertisers who make deceptive claims about their products. As previously covered by InfoBytes, FTC Chairman, Joseph Simons, spoke about this initiative at a recent conference, and cited several of the agency’s enforcement actions, including challenges to dietary supplement health benefit claims and deceptive environmental claims. Additionally, he stated the agency is prepared to “proceed in federal court as warranted.”
On March 27, the FTC announced it had entered into two stipulated orders for permanent injunction and monetary judgment (see here and here) against an office supply company and its California-based tech-support services vendor (defendants) for allegedly violating the FTC Act by selling computer repair and technical services to consumers who were told the company’s software program had detected malware symptoms on their computers. According to the FTC’s complaint, from approximately 2009 to November 2016, the defendants allegedly used a software program marketed as a “PC Health Check Program”—among other names—to “facilitate the sale of computer repair services to . . . retail customers.” The program, which claimed to detect malware symptoms on consumers’ computers, actually based the results on answers to questions consumers were asked at the beginning of the program, including whether the computer had issues with displayed pop-up ads or other problems, ran slow, received virus warnings, or crashed often. The FTC claimed the scan had no connection to the malware symptoms results and that, since at least 2012, the defendants allegedly knew that the program falsely reported malware symptoms but continued to reward store managers and employees who generated sales from the program until late 2016. The proposed order imposes a combined $35 million monetary judgment, bans the office supply company from making misrepresentations concerning the security or performance of consumers’ electronic devices, and requires the company to ensure that existing and future software providers do not engage in the prohibited conduct. The order also prohibits the vendor from misrepresenting or helping others to misrepresent the performance or detection of security issues on consumers’ electronic devices.
On March 26, the FTC announced settlements issued against four separate operations for allegedly placing billions of illegal robocalls to consumers selling auto warranties, debt-relief services, home security systems, veterans’ charities and Google search results services. The actions are part of the FTC’s ongoing efforts to combat illegal robocalls. According to the FTC, the companies—along with several of their affiliates and leaders—allegedly violated the FTC Act and the Telemarketing Sales Rule (TSR), including its Do Not Call provisions.
Proposed settlements issued against two related operations and their leaders—who, according to the FTC’s complaint, developed and enabled a software dialing platform that resulted in more than one billion robocalls—ban the defendants from engaging in telemarketing activities utilizing an autodialer, and imposes judgements ranging from $1 million to $2.7 million, of which two are fully suspended due to the defendants’ inability to pay. The FTC also reached a final settlement against defendants who allegedly placed robocalls to pitch fake debt-relief services promising lowered credit card interest rates and interest payment savings. The order permanently bans the defendants from engaging in telemarketing and debt-relief services, and imposes a $3.15 million judgment, which will be suspended following the turnover of available assets. Separately, the FTC reached a proposed settlement with a defendant who allegedly used robocalls promoting fake veterans’ charities to solicit donations, which he eventually sold for his own benefit. The proposed order bans the defendant from engaging in telemarketing services or soliciting charitable contributions, prohibits him from making future misrepresentations, and imposes a $541,032 monetary judgment, which will also be suspended following the turnover of available assets. Finally, the FTC announced proposed settlements against three defendants (see here, here, and here) whose Florida-based operations allegedly violated the TSR by falsely claiming to represent Google and making threats and promises to businesses concerning search results and page placements. The terms of the proposed settlements, among other things, ban the defendants from deceptive sales practices, and require the defendants to disclose their identities during telemarketing sales calls. Monetary judgements imposed against the defendants and their companies range from $1.72 million to $3.62 million, and will be partially suspended due to their inability to pay.
On March 20, FTC Chairman Joseph Simons spoke at the 2019 ANA Advertising Law and Public Policy Conference to discuss FTC consumer protection initiatives, including those that target advertisers who make deceptive claims about their products. Simons noted that focusing solely on fraudulent advertising is not sufficient, and that the FTC is committed to investigating deceptive advertising intended to mislead consumers, even if the product or service is legitimate. Simons cited several recent enforcement actions, including challenges to dietary supplement health benefit claims and deceptive environmental claims, and stated the agency is prepared to “proceed in federal court as warranted.” (See InfoBytes coverage here and here.) Simons also commented that the FTC is rethinking its approach to the types of remedies used to enforce consumer protection laws in order to both deter future violations and provide meaningful relief to harmed consumers.
Concerning targeted advertising and its connection to privacy concerns, Simons discussed three relevant “fundamental principles of consumer protection”: companies should (i) be fully transparent about the true nature of their data collection and sharing practices; (ii) focus on consumer outcomes when making business decisions to use consumer data; and (iii) make themselves aware of the practices of companies with whom they do business.
On March 5, the U.S. District Court for the Eastern District of Arkansas denied a request for summary judgment by several defendant pawnbrokers and pawnshops concluding there exists “disputed general issues of material fact” concerning claims filed by two plaintiffs who entered into pawn-loan contracts with the defendants. Among other things, the plaintiffs alleged that the defendants violated Amendment 89 of the Arkansas Constitution (Amendment 89) and the Arkansas Deceptive Trade Practices Act (ADTPA) by charging usurious rates of interest, and violated ADTPA by making false statements on pawn loan contracts (pawn tickets). The plaintiffs additionally claimed that the defendants violated TILA by failing to identify creditors on the face of their pawn tickets.
In dismissing the defendants’ motion for summary judgment, the court determined that success of the claims hinged upon whether “the pawn transactions . . . are ‘loans’ charging usurious rates of interest under Arkansas law.” Specifically, genuine issues of material fact remained on: (i) whether the defendants knowingly entered into loans charging usurious interest because “the differences between traditional bank loans and pawn transactions . . . may not prevent the pawn transactions entered into by [the plaintiffs] from being classified as ‘loans’ under Arkansas law”; (ii) whether the plaintiffs were charged usurious interest or otherwise suffered damages under Amendment 89 or ADTPA as a result of the pawn transactions; (iii) whether the language on the pawn tickets stating that “the finance charge ‘is not interest for any purpose of the law,’” was a false statement in violation of the ADTPA; and (iv) whether the defendants’ failure to disclose the identity of the creditors on the pawn tickets is a violation of TILA, because, among other things, there remains a dispute as to whether the identified finance charges constitute as “credit,” and whether certain defendants qualify as “creditors” under TILA. Furthermore, the court rejected the defendants’ argument that they were entitled to summary judgment on the plaintiffs’ TILA claims “due to plaintiffs’ alleged failure to demonstrate detrimental reliance.”
On February 26, the FTC announced its first action against a company for using fake paid reviews on an independent retail website in violation of the FTC Act. According to the complaint, the company—which advertised and sold a pill on a retail website as an appetite suppressant, fat blocker, and weight loss supplement—paid a website to create and post reviews of its supplement on the retail website in order to keep the supplement’s rating high. The FTC argues that paying for the fake reviews constitutes a deceptive act or practice and the making of false advertisements in violation of the FTC Act because the company represented the reviews as truthful comments by actual product purchasers. Moreover, the FTC alleges that the company made deceptive or false claims about the effectiveness of its supplement on the retail website because the claims were unsubstantiated at the time the representations were made. The proposed order imposes injunctive relief prohibiting the company from making similar claims related to similar dietary supplements unless there is reliable evidence from human clinical testing to support the claims, and from misrepresenting that an endorsement is truthful or from an actual purchaser. As part of the settlement, the company has agreed to a 12.8 million suspended judgment after the payment of $50,000 based on the company’s financial condition. The proposed order has not yet been approved by the district court.
On October 29, the New York Attorney General announced the filing of a complaint against a national jewelry store, headquartered in New York, for allegedly engaging in fraudulent and deceptive conduct, deceptive credit repair services, and illegal lending in the financing of jewelry sales to active duty servicemembers. Specifically, the complaint alleges the company targets active duty servicemembers through a purported charitable program in which military-themed teddy bears are sold with a promise of a charitable donation by the company. The company also sells patriotic and military-themed jewelry and offers financing through a program exclusively available to servicemembers. The financing program is marketed as a credit repair or credit-establishing opportunity through a different entity, but according to the complaint, the separate entity is merely an “alter-ego” of the jewelry company, a relationship which is not disclosed to servicemembers. The company markets the financing program to active duty servicemembers as a way to build credit scores to purchase other consumer goods, such as a motor vehicle; however, once a servicemember agrees to the program, the Attorney General alleges the company’s employees are instructed to “’sell’ enough product to maximize the amount of credit [the company] is willing to advance.” The amount of credit is allegedly based on the amount of time the servicemember has left in active service, not on traditional underwriting standards such as credit history. Additionally, the complaint alleges the company marks up poor-quality jewelry between 600 and 1,000 percent over the wholesale price and advertises a “per payday” price on the merchandise, which bears “little resemblance to the total amount paid by a consumer at the end of the financing contract.” Of special interest to all creditors doing business in New York, the complaint appears to include in its civil and criminal usury claims the concept that the effective interest rate was higher because the good being purchased had “inflated retail prices.” The complaint seeks civil money penalties, restitution, and injunctive relief.
On October 18, the Colorado Court of Appeals held that a debt collector’s second collection letter violated the Colorado Fair Debt Collection Practices Act (CFDCPA) requirement for proper notification of the consumer’s right to dispute and request validation of the debt, reversing the lower court’s ruling. According to the opinion, a consumer filed a complaint against the debt collector alleging the two letters she received violated the CFDCPA, and the lower court disagreed, granting summary judgment in favor of the debt collector. Upon review, the appeals court determined that the first letter contained all the disclosures required under the CFDCPA but that the debt collector’s second letter, which prominently used the bold and capitalized phrase "we cannot help you unless you call," overshadowed or contradicted the statutorily required disclosures made by the company in the first letter. Specifically, the court concluded that the second letter, which arrived within the thirty-day statutory period initiated by the first letter, was “capable of being reasonably interpreted by the least sophisticated consumer as changing the manner in which the consumer was required by law to dispute the debt” and is therefore deceptive or misleading in violation of the CFDCPA.
Pennsylvania appeals court upholds broad standard for “deception” under state consumer protection law
On September 12, the Superior Court of Pennsylvania held that Pennsylvania’s Uniform Trade Practices and Consumer Protection Law (UTPCPL) imposes strict liability on businesses who deceive consumers and does not require proof of fraud or negligent misrepresentation to state a claim. The plaintiffs brought common law claims of fraudulent and negligent misrepresentation and a statutory claim under the UTPCPL against insurance companies related to the sale of various insurance products. The common law claims of fraudulent and negligent misrepresentation went to a jury, which returned verdicts on both counts in favor of the insurance companies. The trial judge, however, found that the insurance companies violated the “deceptive” provision of the UTPCPL and awarded damages to the consumers. The insurance companies appealed, arguing that (i) the jury verdict on the common law claims required the court to dismiss the UTPCPL claim, and (ii) challenging the judge’s damages award calculation.
The appellate court affirmed the trial court’s determination that the defendants acted deceptively under the UTPCPL. The insurance companies argued that the UTPCPL claim was barred by the doctrines of collateral estoppel and res judicata based on the jury’s determination that the defendants had not committed a negligent misrepresentation. The appellate court, however, explained that these doctrines do not apply because the UTPCPL raises distinct issues. The court rejected the argument that the consumer must prove common law negligent misrepresentation to bring a claim under the deceptive prong of the UTPCPL. The court concluded that “any deceptive conduct, ‘which creates a likelihood of confusion or of misunderstanding,’” is actionable under the UTPCPL “whether committed intentionally (as in a fraudulent misrepresentation), carelessly (as in a negligent misrepresentation), or with the upmost care (as in strict liability).” The court also upheld the trial court’s damages determination under the UTPCPL, finding that the judge’s calculation was appropriate and consistent with the statute.
- 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