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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.
On November 3, the FTC announced an action against an internet phone service provider claiming the company imposed “junk fees” and made it difficult for consumers to cancel their services. The FTC alleged in its complaint that the company violated the FTC Act and the Restore Online Shoppers’ Confidence Act by imposing a series of obstacles, sometimes referred to as “dark patterns”, to deter and prevent consumers from canceling their services or stopping recurring charges. Consumers who were able to sign up for services online were allegedly forced to speak to a live “retention agent” on the phone during limited working hours in order to cancel their services. The company also allegedly employed a “panoply of hurdles” to cancelling consumers by, among other things, making it difficult for the consumer to locate the phone number on the website, obscuring contact information, failing to consistently transfer consumers to the appropriate number, imposing lengthy wait times, holding reduced operating hours for the cancellation line, and failing to provide promised callbacks. Additionally, the FTC claimed the company often informed consumers they would have to pay an early termination fee (sometimes hundreds of dollars) that was not clearly disclosed when they signed up for the services, and continued to illegally charge consumers without consent even after they requested cancellation. According to the FTC, consumers who complained often only received partial refunds.
Under the terms of the proposed stipulated order, the company will be required to take several measures, including (i) obtaining consumers’ express, informed consent to charge them for services; (ii) simplifying the cancellation process to ensure it is easy to find and use and is available through the same method the consumer used to enroll; (iii) ending the use of dark patterns to impede consumers’ cancellation efforts; and (iv) being transparent about the terms of any negative option subscription plans, including providing required disclosures as well as a simple mechanism for consumers to cancel the feature. The company will also be required to pay $100 million in monetary relief.
On August 8, the FTC announced it has taken action against a healthcare company, two subsidiaries, and the former CEO and former vice president of sales (collectively, “defendants”) for allegedly misleading consumers about their health insurance plans and using deceptive lead generation websites. According to the complaint, the defendants, along with their third-party partners, allegedly engaged in deceptive sales practices in violation of the FTC Act, the Telemarketing Sales Rule, and the Restore Online Shoppers Confidence Act (ROSCA). These practices included allegedly (i) lying to consumers about the nature of their healthcare plans; (ii) bundling and charging junk fees for unwanted products that were typically not clearly disclosed (consumers were often charged for these additional products after they cancelled their core healthcare plans); and (iii) making it difficult for consumers to cancel their plans. The FTC further alleged that the company (which sells association memberships and other healthcare-related products to consumers, often through telemarketing companies and lead generators), as well as the former CEO and former vice president of sales, were aware of the agents’ misconduct but allegedly “took steps to disguise and further the deception” instead of stopping the deceptive practices.
The FTC stated that the company and two of its subsidiaries have agreed to a proposed court order, which requires the payment of $100 million in consumer redress. The proposed order also requires the company to contact current customers and allow them to cancel their enrollment. The company is also required to send refunds to consumers who cancel right after their order is entered. Additionally, the proposed order prohibits the company from misleading consumers about their products, requires the disclosure of total costs and limitations prior to purchase, and requires consumers to provide express informed consent before they are billed. The company must also provide a simple and easy-to-use cancellation method and closely monitor other companies that sell its products.
The FTC also filed separate proposed court orders against the individual defendants (see here and here), which impose similar prohibitions and permanently bans them from playing any role in the sale or marketing of any healthcare-related product or service. The proposed orders also prohibit the former CEO from engaging in deceptive or abusive telemarketing practices, and bans the former vice president of sales from participating in any telemarketing whatsoever in the future.
On July 29, the FTC announced a settlement with a payment processing company and two of its sales affiliates (collectively, “defendants”) to resolve claims that they “trapp[ed] small businesses with hidden terms, surprise exit fees, and zombie charges.” The FTC alleged that the defendants made false claims about fees and cost savings, including “false and baseless claims about their processing services” to lure merchants, many of whom had limited English proficiency. According to the complaint, once merchants were enrolled, the defendants allegedly withdrew funds from their accounts without their consent and made it difficult and expensive for them to cancel the service. The complaint also alleged that the defendants violated the Restore Online Shoppers’ Confidence Act (ROSCA) by failing to disclose material terms, by charging consumers without their express informed consent, and by failing to provide a simple mechanism for consumers to cancel the agreements.
Under the terms of the proposed settlement, the defendants are, among other things, prohibited from making misrepresentations, making unsubstantiated claims, and using unfair debiting practices. The defendants will also be prohibited from making withdrawals from any of their customers’ bank accounts without authorization. The defendants must pay $4.9 million to the FTC, which will be used to provide refunds to affected businesses.
On March 28, the U.S. District Court for the Northern District of Georgia denied the majority of motions for summary judgment filed by the FTC and defendants in a 2017 action that charged the operators of a group of marketing entities and payment processors (collectively, “defendants”) with numerous violations of law for allegedly debiting more than $40 million from consumers’ bank accounts for membership in online discount clubs without their authorization. As previously covered by InfoBytes, the FTC’s 2017 complaint alleged that the online discount clubs claimed to offer services to consumers in need of payday, cash advance, or installment loans, but instead enrolled consumers in a coupon service that charged an initial application fee as well as automatically recurring monthly fees.
In reviewing the parties’ respective motions for summary judgment, the court first reviewed the FTC’s claims against the defendants allegedly responsible for launching the discount program (lead generator defendants) “as a way to salvage leads on loan-seeking consumers that the [lead generator defendants] were not able to sell to lenders or others.” The lead generator defendants allegedly used loan-seeking consumers’ banking information to enroll them in discount club memberships with automatically recurring monthly charges debited from the consumers’ bank accounts. While the lead generator defendants contended that the enrollments were authorized by the consumers themselves, the FTC claimed, among other things, that “loan-seeking consumers were redirected to the discount club webpage during the loan application process.” The court determined that because there exists a genuine issue of material fact as to whether the lead generator defendants’ loan application process, discount club webpages, and telemarketing practices were deceptive or if their practices violated the Restore Online Shoppers’ Confidence Act and the Telemarketing and Consumer Fraud and Abuse Prevention Act, the FTC is not entitled to judgment as a matter of law on its claim for injunctive relief or equitable monetary relief.
The court also concluded that the FTC failed to present evidence showing that another defendant—a now-defunct entity whose assets and business operations were sold to some of the defendants—is violating or is about to violate the law because the FTC’s action was filed more than three years after the defunct entity ceased all operations. As such, the court found that the statute of limitations applies and the defunct entity is entitled to judgment as a matter of law on the FTC’s claims. However, the court determined that there is evidence suggesting the possibility that two individual defendants involved in monitoring and advising the defendants in the alleged discount club scheme, may continue the scrutinized conduct.
With respect to the FTC’s claims against certain other individual defendants allegedly responsible for owning and managing some of the corporate defendants and their wholly-owned subsidiaries, the court considered defendants’ arguments “that they had a general lack of knowledge of (or authority to control) the alleged violative conduct” and “that the FTC does not have the right to seek equitable monetary relief” as a result. In denying the FTC’s motions for summary judgment against these individual defendants, the court found “that there are disputed issues of material fact as to these matters which should be decided by the trier of fact,” and that the FTC’s claim for equitable monetary relief required further analysis following the U.S. Supreme Court’s ruling in AMG Capital Management, LLC v. FTC, which held that the FTC does not have statutory authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. (Covered by InfoBytes here.)
Finally, the court concluded that sufficient evidence showed that another individual (who served as an officer of a defendant identified as being responsible for processing the remotely created checks used to debit consumers’ accounts during the discount club scheme) “knowingly and actively participated in acts that were crucial to the success of the . . . alleged discount scheme.” However, because there exists a genuine issue of material fact as to whether the lead generator and named defendants’ loan application process, discount club webpages, and telemarketing practices were deceptive, the court ruled that the FTC is not entitled to judgment as a matter of law as to its claims against the individual’s estate. The court also found that the individual’s estate is not entitled to summary judgment on either of its arguments related to the FTC’s request for monetary relief.
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.
On October 5, the FTC finalized a settlement with the operators of a movie subscription service, resolving allegations that the respondents violated the FTC Act by denying subscribers access to paid-for services and failed to secure subscribers’ personal information. As previously covered by InfoBytes, in June the FTC filed a complaint alleging the respondents, among other things, employed multiple tactics to prevent subscribers from using the advertised services, and failed to disclose all material terms before obtaining consumers’ billing information or obtain consumers’ express informed consent before charging them. The FTC further alleged that the respondents failed to take reasonable measures to protect subscribers’ personal information, including by storing personal data in unencrypted form and failing to restrict who could access the data, which led to a data breach in 2019. In a 4-1 vote, the FTC approved the settlement, which prohibits the respondents from misrepresenting their business and data security practices and requires the establishment of a comprehensive information security program. The respondents must also implement and annually test and monitor safeguards, take steps to address security risks, obtain biennial third-party information security assessments, notify the FTC of any future data breaches, and annually certify that they are complying with the order’s data security requirements. The FTC noted respondents may face monetary penalties of up to $43,792 per violation, per day, should they violate the terms of the order.
District Court rules FTC cannot seek monetary relief in false advertising action under Section 19 of the FTC Act
On June 29, the U.S. District Court for the Central District of California granted in part and denied in part parties’ motions for summary judgment with respect to remedies, and in doing so, considered whether the FTC may seek monetary relief under Section 19 of the FTC Act. In 2018, the FTC alleged that the defendants violated the FTC Act, Restore Online Shoppers’ Confidence Act (ROSCA), EFTA, and the Telemarketing Sales Rule by engaging in false advertising and participating in an unauthorized billing scheme. In 2020, the court granted summary judgment in favor of the FTC on all counts, but reserved ruling on the appropriate remedies until after the Supreme Court issued decisions in the consolidated appeals in AMG Capital Management v. FTC. On April 22, the Supreme Court unanimously held that while 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,” nothing in its opinion prohibits the FTC “from using its § 5 or § 19 authority to obtain restitution on behalf of consumers.” (Covered by InfoBytes here.) Following the AMG decision, the FTC stated it was no longer seeking monetary relief under Section 13(b) but argued that it may still seek monetary relief under Section 19 for the defendants’ violations of ROSCA. The defendants countered that remedies for the ROSCA violations were unavailable because the FTC failed to specifically invoke Section 19 remedies in its complaint or timely disclose damage calculations or new witnesses under procedural rules, among other things.
The court observed that Section 19 authorizes the FTC to “seek equitable monetary relief to redress consumer injury resulting from ROSCA violations.” However, the court concluded in this case that the “FTC may proceed to trial on damages for ROSCA violations based only on evidence and witnesses that have been properly disclosed. Because none of the FTC's prior disclosures described its computation of damages for ROSCA violations, however, it appears that the FTC has no evidence to present at trial to support its nascent theory of damages. In the absence of any other theory of monetary relief after AMG, the Court concludes that the FTC cannot recover damages for consumers in this action.” While the court granted the defendants’ motion for summary judgment to the extent that the FTC cannot obtain monetary relief, it stated that “because the FTC has authority to pursue a permanent injunction and has shown the likelihood of recurrence of violations of the FTC Act,” it was granting in part the FTC’s motion for summary judgment “to the extent it seeks a permanent injunction against future enumerated unfair and deceptive acts or practices by the [defendants].”
FTC alleges subscription service failed to provide access to paid-for services or secure personal data
On June 7, the FTC announced a complaint and proposed consent order against the operators of a movie subscription service to settle allegations that the respondents denied subscribers access to paid-for services and failed to secure subscribers’ personal information. The FTC alleges in its complaint that the respondents violated the FTC Act by employing multiple tactics to prevent subscribers from using the advertised services, including by (i) invalidating subscribers’ passwords while deceptively claiming to have “detected suspicious activity or potential fraud” on the subscribers’ accounts; (ii) imposing a deceptive ticket verification program, which required subscribers to submit photos of physical movie ticket stubs within a certain timeframe in order to view future movies or risk having their subscriptions cancelled; and (iii) using undisclosed financial thresholds known as “trip wires” to block certain subscribers after they reached certain viewing thresholds based on their monthly cost to the company. The FTC also alleged the respondents violated the Restore Online Shoppers’ Confidence Act, by failing to (i) disclose all material terms before obtaining consumers’ billing information; or (ii) obtain consumers’ express informed consent before charging them. Furthermore, the respondents allegedly failed to take reasonable measures to protect subscribers’ personal information, including storing personal data such as financial information and email addresses in unencrypted form and failing to restrict who could access the data, which lead to a data breach in 2019.
An analysis of the FTC’s proposed consent order notes that the respondents are prohibited from misrepresenting their services and must establish a comprehensive information security program that requires them—and any businesses controlled by the respondents —to implement and annually test and monitor safeguards and take steps to address security risks. The respondents must also obtain biennial third-party assessments of its information security program, notify the FTC of any future data breaches, and annually certify that it is complying with the order’s data security requirements. The FTC noted that because certain respondents have filed for bankruptcy, the order does not include monetary relief.
On September 22, the FTC announced a $1.04 million settlement with a supplement marketer and its two officers (collectively, “defendants”), resolving allegations that the defendants engaged in deceptive sales and billing practices, in violation of the Restore Online Shoppers’ Confidence Act (ROSCA), the Telemarketing Sales Rule (TSR), and a previous court order. Previously, in 2016, the marketer entered into a settlement with the FTC covering allegations that the company engaged in negative option marketing by enrolling consumers in a membership program that billed up to $79.99 monthly unless the consumers canceled within an 18-day trial period. The 2016 settlement barred the company from, among other things, (i) obtaining consumers’ billing information without first disclosing they would be charged, that the charge would increase after a certain period, or that the charge would be reoccurring; (ii) obtaining payment from consumers without express written authorization; and (iii) failing to provide a simple way for consumers to cancel.
According to the FTC’s new complaint, from 2016 to 2019, the defendants violated the previous consent order, ROSCA, and TSR by failing to clearly and conspicuously disclose that in order to cancel, consumers must contact the company “at least one day before the end of the advertised Free Trial Period to avoid being charged for the monthly membership program.” The agreed-upon proposed contempt order requires the defendants to pay nearly $1.04 million to be used for equitable relief, including consumer redress.