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  • DOJ, FTC ban firm and CEO from negative option marketing

    Federal Issues

    On December 16, the DOJ and the FTC announced that a brokerage firm and its CEO (collectively, “defendants”) must pay $21 million in consumer redress and are permanently banned from engaging in deceptive negative option marketing for allegedly violating, among other things, the FCRA, TSR, and the Restore Online Shoppers’ Confidence Act (ROSCA). According to the FTC’s complaint filed by the DOJ, the defendants claimed that the company’s background reports on certain individuals had particular criminal records, even when they did not include such information, to mislead consumers into signing up for auto-renewing, premium subscriptions. The FTC claimed consumers who allegedly searched the firm’s website for an individual’s background report were shown search results that often falsely implied that the subject of the search may have records of criminal or sexual offenses, which could only be viewed by purchasing a subscription from the firm. The complaint alleged that the firm’s misleading statements resulted in some consumers believing that they, or other individuals, had arrest or criminal records. The complaint further alleged that the firm operated as a consumer reporting agency and violated the FCRA by, among other things, failing to maintain verifiable, reasonable procedures on how its reports would be utilized to ensure the information was accurate and to ensure that the information it sold would be used for legal purposes. Additionally, the defendants allegedly violated the TSR by misrepresenting its refund and cancellation policies. The complaint also alleged that the defendants’ misleading billing practices violated ROSCA by, among other things, failing to clearly disclose upfront charges.

    Under the terms of the settlement, the defendants agreed to separate judgments, which total approximately $33.9 million. The settlement also banned the defendants from engaging in deceptive negative option marketing. The CEO is ordered to pay a total of $5 million, and the firm is ordered to pay a partially suspended judgment of $16 million due to the company’s inability to pay the full amount. Together, the money will be used to provide refunds to consumers. The firm is required to pay the full remaining amount of the judgment if the company is found to have misrepresented its finances and must implement a monitoring program to ensure the company is complying with the FCRA.

    Federal Issues FTC Enforcement DOJ FCRA Telemarketing Sales Rule ROSCA Negative Option

  • District Court approves order permanently banning defendants from making robocalls

    Federal Issues

    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.

    Federal Issues FTC Enforcement Robocalls FTC Act Telemarketing Sales Rule UDAP

  • District Court approves non-party settlement in student debt-relief action

    Courts

    On October 20, the U.S. District Court for the Central District of California approved a settlement with two non-parties in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney, alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint asserted that the defendants violated the CFPA, the Telemarketing Sales Rule, and various state laws. Amended complaints (see here and here) also added new defendants and included claims for avoidance of fraudulent transfers under the FDCPA and California’s Uniform Voidable Transactions Act, among other things. A stipulated final judgment and order was entered against the named defendant in July (covered by InfoBytes here), which required the payment of more than $35 million in redress to affected consumers, a $1 civil money penalty to the Bureau, and $5,000 in civil money penalties to each of the three states. The court also previously entered final judgments against several of the defendants, as well as a default judgment and order against two other defendants (covered by InfoBytes hereherehere, and here). The most recent settlement resolves a dispute between a court-appointed receiver and the two non-parties. The settlement requires the non-parties to pay $675,000 to the receiver.

    Courts CFPB Enforcement State Attorney General State Issues CFPA UDAAP Telemarketing Sales Rule FDCPA Student Lending Debt Relief Consumer Finance Settlement

  • District Court orders student loan debt-relief defendant to pay $20 million

    Courts

    On September 23, the U.S. District Court for the Central District of California entered a judgment in favor of the CFPB against an individual defendant in an action taken by the Bureau against a 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 2020 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. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including 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, and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here, and here).

    In August the court granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. (Covered by InfoBytes here.) At the time, the court found that injunctive relief, restitution, and a civil money penalty were appropriate remedies. While the individual defendant objected to the proposed judgment, the court ultimately ordered that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here). Additionally, the court determined that the individual defendant “recklessly” violated the CFPA, TSR, and FCRA, warranting a $20 million civil money penalty. The individual defendant is also permanently banned from participating in telemarketing activities or from using or obtaining prescreened consumer reports.

    Courts CFPB Enforcement Student Lending Debt Relief Consumer Finance CFPA Telemarketing Sales Rule FCRA

  • FTC reaches $6.4 million settlement with remaining defendants in robocalling suit

    Federal Issues

    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).

    Federal Issues FTC Act Enforcement Telemarketing Sales Rule UDAP Robocalls FTC

  • CFPB sues software company for encouraging TSR violations

    Federal Issues

    On September 20, the CFPB filed a complaint against a California-based software company and its owner (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act by substantially assisting or supporting credit-repair businesses that charge unlawful advance fees to consumers. According to the Bureau, the defendants—who market and sell credit-repair business software and other tools to individuals looking to start their own businesses—encouraged these businesses to “charge unlawful advance fees” even though, under the TSR, companies that telemarket their services are prohibited from requesting or receiving fees from consumers until the company has provided consumers with a credit report showing the promised results have been achieved. The TSR also requires that the credit report be issued more than six months after such results have been achieved. The Bureau seeks consumer restitution, disgorgement, injunctive relief, and civil money penalties.

    Federal Issues CFPB Enforcement Telemarketing Sales Rule CFPA

  • District Court denies request to set aside $120.2 million judgment in Belizean real estate scheme

    Courts

    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?”

    Courts FTC Act FTC UDAP Telemarketing Sales Rule Restitution U.S. Supreme Court Enforcement

  • District Court grants summary judgment against student loan debt-relief defendant

    Courts

    On August 10, the U.S. District Court for the Central District of California granted summary judgment against an individual defendant in an action by the CFPB against a 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 2020 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. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including 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, and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here and here).

    Responding to the Bureau’s motion for summary judgment against the individual defendant, the court, among other things, held that undisputed evidence showed that the individual defendant “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. The court also found that the individual defendant violated the TSR by mispresenting material aspects of the debt relief services and violated the CFPA by making false statements to induce consumers to pay advance fees for these services. Furthermore, the court rejected the individual defendant’s arguments involving boilerplate evidentiary objections and Fifth Amendment and statute of limitation claims. Because the individual defendant “was heavily involved in and controlled much of the [student loan debt relief businesses’] activities,” the court found that he acted recklessly and granted the Bureau’s motion for summary judgment, finding that injunctive relief, restitution, and a civil money penalty are appropriate remedies.

    Courts CFPB Enforcement Student Lending Debt Relief Consumer Finance CFPA Telemarketing Sales Rule FCRA

  • District Court allows CFPB, Massachusetts AG’s telemarketing suit to proceed

    Courts

    On August 10, the U.S. District Court for the District of Massachusetts denied a motion to dismiss filed by a credit repair organization and the company’s president and owner (collectively, “defendants”) in a joint action taken by the CFPB and the Massachusetts attorney general, which alleged the defendants committed deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA), the Massachusetts Consumer Protection Law, and the FTC’s Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, the complaint alleges the defendants, among other things, claimed their credit-repair services could help consumers substantially improve their credit scores and promised to fix “unlimited” amounts of negative items from consumers’ credit reports, but, in “numerous instances,” the defendants failed to achieve these results. The defendants also allegedly violated the TSR by engaging in abusive acts and by requesting and collecting fees before achieving any results related to repairing a consumer’s credit. The defendants moved to dismiss, arguing that they were governed by the Credit Repair Organizations Act (CROA), which cannot be reconciled with the TSR, the TSR definition of “telemarketing” is vague and violates the Due Process Clause, and that applying the TSR’s definition of telemarketing would place an unfair content-based restriction on speech that restricts when they can collect payments for their services. Moreover, the defendants claimed, among other things, that the FTC “exceeded its authority in promulgating rules targeting their conduct because Congress intended that only unsolicited telemarketing calls would be addressed by the FTC’s regulations.”

    The court disagreed, holding first that that the CROA and the TSR do not conflict. “[C]ompliance with the TSR’s payment requirement would not cause defendants to violate the CROA,” the court stated. “The TSR simply adds a precondition to requesting payment…” Additionally, the court noted that the TSR’s “restriction is on conduct—the timing of the payment—not on speech,” adding that while “Congress directed the FTC to create rules regarding specific telemarketing activities. . ., Congress also authorized the FTC to create additional rules addressing ‘deceptive telemarketing acts or practices’ at its discretion.” As such, the court held that defendants did not show that “Congress intended the FTC to exclusively address unsolicited telemarketing calls.” Furthermore, the court held that the plaintiffs adequately defined the defendants’ allegedly deceptive conduct and that the alleged violations of state law are plausible.

    Courts CFPB Enforcement Telemarketing Consumer Finance CFPA State Issues Telemarketing Sales Rule Credit Repair Organizations Act State Attorney General

  • FTC settles over illegal telemarketing practices

    Federal Issues

    On July 16, the FTC announced a $1.6 million settlement with a New Jersey-based septic tank cleaning company, its officers, and an individual connected to the officers (collectively, “defendants”) for allegedly making illegal robocalls to consumers, including tens of millions of calls to numbers listed on the FTC’s Do Not Call Registry. The complaint, which was filed on behalf of the FTC by the DOJ in July, alleged that the defendants violated the FTC Act and the Telemarketing Sales Rule, among other things, by engaging in illegal telemarketing practices, including the use of prerecorded messages. The defendants allegedly falsely told consumers they were calling from an unnamed “environmental company” to provide consumers with “free info” regarding their septic tank cleaning products. In addition, the defendants allegedly sent letters to customers “threatening to direct their purportedly delinquent accounts to a collection agency or legal department even though [the company] never intended to send customer accounts to either a collections agency or legal department.” Under the terms of the stipulated final order, the defendants are, among other things: (i) permanently banned from engaging in telemarketing; (ii) prohibited from making misrepresentations to consumers regarding referrals to attorneys or collection agencies or material facts concerning goods or services; (iii) prohibited from billing or attempting to collect payments from any consumers connected to the sale of their septic tank cleaning products; and (vi) required to notify all customers with unpaid balances that their balances have been cancelled. A $10.2 million monetary judgment will be partially suspended after the officers pay approximately $1.6 million and the individual pays $15,000 to the U.S. Treasury.

    Federal Issues FTC Enforcement DOJ FTC Act Telemarketing Sales Rule

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