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  • FTC sues national retailer for allegedly facilitating money transfer fraud

    Federal Issues

    On June 28, the FTC filed a complaint against a national retailer for allegedly allowing its money-transfer services to facilitate fraud. The complaint alleges the retailer knew about the role money transfer services play in scams but failed to properly secure the services offered at its stores, thus allowing money to be sent to “domestic and international fraud rings.” According to the FTC, at least 226,679 complaints totaling more than $197 million were received by several money transfer services companies about fraud-induced money transfers that were sent from or received at one of the retailer’s stores between January 1, 2013 and December 31, 2018. An investigation by the FTC purportedly revealed that the retailer’s practices allegedly harmed consumers by, among other things, (i) allowing the payout of suspicious money transfers, which allowed scammers to retrieve fraud proceeds at one of the retailer’s stores; (ii) failing to have in place a written anti-fraud policy or consumer protection program until November 2014; (iii) allowing cash pickups for large payments, often through the use of fake IDs; (iv) failing to display or provide materials warning consumers about potential frauds; (v) failing to effectively train or retrain employees; and (vi) allowing money transfers to be used for telemarketing purchases, which are prohibited under the Telemarketing Sales Rule (TSR) due to the high risk of fraud.

    According to the complaint, the retailer “is well aware that telemarketing and other mass marketing frauds, such as ‘grandparent’ scams, lottery scams, and government agent impersonator scams, induce people to use [the retailer’s] money transfer services to send money to domestic and international fraud rings. Nevertheless, [the retailer] has continued processing fraud-induced money transfers at its stores—funding telemarketing and other scams—without adopting policies and practices that effectively detect and prevent these transfers.”

    The complaint seeks a permanent injunction, monetary relief, civil penalties, restitution, and other relief for each violation of the FTC Act and the TSR. The FTC also requests the “rescission or reformation of contracts, the refund of money, the return of property, the payment of damages, public notification, or other relief necessary to redress injury to consumers damages.”

    The retailer issued a press release following the FTC’s announcement, stating that it considers the agency’s claims to be “misguided and legally flawed,” and that the civil lawsuit “was approved by the FTC by the narrowest of margins after Chair Lina Khan refused [the retailer] the due process of hearing directly from the company.” The retailer noted that the FTC’s decision comes after DOJ declined to pursue the case in court. Among other thing, the retailer contended that because it maintains robust anti-fraud measures there is no need for injunctive relief requiring the retailer to change its practices. The retailer pointed to the U.S. Supreme Court’s ruling in AMG Capital Management LLC v. FTC, which limited the FTC’s ability to obtain monetary relief in federal court (covered by InfoBytes here), to argue that the FTC “pivoted their focus in this case after AMG to a distorted interpretation of the TSR to effectively try and hold [the retailer] strictly liable for money transfers that third-party criminals reportedly persuaded some consumers to send.” The retailer added that “[s]witching their main legal theory to the TSR is an obvious attempt to get around the Supreme Court’s ruling in AMG.”

    Federal Issues FTC Enforcement FTC Act Telemarketing Sales Rule Money Service / Money Transmitters Fraud

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  • FTC, Florida file complaint against grant funding operation

    Federal Issues

    On June 27, the FTC and the Florida attorney general filed a complaint against a Florida-based grant funding company and its owner (collectively, “defendants”) alleging that the defendants violated the Consumer Protection Act, the FTC Act, and the Florida Deceptive Unfair Trade Practices Act. According to the complaint, the defendants deceptively marketed grant writing and consulting services to minority-owned small businesses by, among other things, (i) promising grant funding that did not exist and/or was never awarded; (ii) misleading customers about the status of grant awards; and (iii) failing to honor a “money-back guarantee” and suppressing customer complaints. The complaint also alleged that the owner relied on funds that she acquired through the federal Paycheck Protection Program Covid-19 stimulus program to start the company. The U.S. District Court for the Middle District of Florida issued a restraining order with asset freeze, appointment of a temporary receiver, and other equitable relief order against the defendants, which also prohibits them from engaging in grant funding business activities.

    Federal Issues State Issues FTC Enforcement State Attorney General Florida Covid-19 FTC Act Deceptive UDAP

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  • FTC seeks to ban auto lending “junk fees” and “bait-and-switch tactics”

    Agency Rule-Making & Guidance

    On June 23, the FTC issued a notice of proposed rulemaking (NPRM) to ban “junk fees” and “bait-and-switch” advertising tactics related to the sale, financing, and leasing of motor vehicles by dealers. Specifically, the NPRM would prohibit dealers from making deceptive advertising claims to entice prospective car buyers. According to the FTC’s announcement, deceptive claims could “include the cost of a vehicle or the terms of financing, the cost of any add-on products or services, whether financing terms are for a lease, the availability of any discounts or rebates, the actual availability of the vehicles being advertised, and whether a financing deal has been finalized, among other areas.” The NPRM would also (i) prohibit dealers from charging junk fees for “fraudulent add-on products” and services that—according to the FTC—do not benefit the consumer; (ii) require clear, written, and informed consent (including the price of the car without any optional add-ons); and (iii) require dealers to provide full, upfront disclosure of costs and conditions, including the true “offering price” (the full price for a vehicle minus only taxes and government fees), as well as any optional add-on fees and key financing terms. Dealers would also be required to maintain records of advertisements and customer transactions. Comments on the NPRM are due 60 days after publication in the Federal Register.

    The FTC noted that in the past 10 years, the Commission has brought more than 50 auto-related enforcement actions and helped lead two nationwide law enforcement sweeps including 181 state-level enforcement actions in this space. Despite these efforts, the FTC reported that automobile-related consumer complaints are among the top ten complaint types submitted to the Commission.

    Agency Rule-Making & Guidance Federal Issues FTC Auto Finance Junk Fees Fees Disclosures Consumer Finance Federal Register

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  • FTC finalizes action against e-commerce platform for data breach cover up

    Federal Issues

    On June 24, the FTC announced a final decision and order against two limited liability companies (respondents) accused of allegedly failing to secure consumers’ sensitive personal data and covering up a major breach. As previously covered by InfoBytes, the respondents—former and current owners of an online customized merchandise platform—allegedly violated the FTC Act by, among other things, misrepresenting that they implemented reasonable measures to protect customers’ personal information against unauthorized access and misrepresenting that appropriate steps were taken to secure consumer account information following security breaches. The complaint further alleged that respondents failed to apply readily available protections against well-known threats or adequately respond to security incidents, which resulted in the respondents’ network being breached multiple times. Under the terms of the final settlement, one of the respondents is required to pay $500,000 to victims of the data breaches. The other respondent is required to provide notice to consumers impacted by a 2019 data breach. Among other things, the order prohibits respondents from misrepresenting their privacy and security measures and requires that respondents implement comprehensive information security programs that are assessed by an independent third party.

    Federal Issues Privacy/Cyber Risk & Data Security FTC Enforcement Data Breach FTC Act Deceptive UDAP

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  • Special Alert: House subcommittee hears testimony on privacy bill

    Privacy, Cyber Risk & Data Security

    The House Subcommittee on Consumer Protection and Commerce held a June 14 hearing, “Protecting America’s Consumers: Bipartisan Legislation to Strengthen Data Privacy and Security,” to listen to testimony from consumer advocates and industry representatives on the recently proposed American Data Privacy and Protection Act (ADPPA).

    The bipartisan initiative faces new headwinds following June 22 remarks by Senate Commerce Chair Maria Cantwell (D-WA), who cited “major enforcement holes” in the legislation on preemption issues — but expressed hope that the sponsors could offer revisions. 

    Privacy/Cyber Risk & Data Security Federal Issues Special Alerts Federal Legislation Consumer Protection FTC House Subcommittee on Consumer Protection and Commerce

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  • FTC issues report to Congress on use of AI

    Privacy, Cyber Risk & Data Security

    On June 16, the FTC issued a report to Congress regarding the use of artificial intelligence (AI), warning that policymakers should use caution when relying on AI to combat the spread of harmful online conduct. In the 2021 Appropriations Act, Congress directed the FTC to study and report on whether and how AI “may be used to identify, remove, or take any other appropriate action necessary to address” a wide variety of specified “online harms,” referring specifically to content that is deceptive, fraudulent, manipulated, or illegal. The report suggests that adoption of AI could be problematic, as AI tools can be biased, discriminatory, or inaccurate, and could rely on invasive forms of surveillance. To avoid introducing these additional harms, the report suggests lawmakers instead focus on developing legal frameworks to ensure no additional harm is caused by AI tools used by major technology platforms and others. The report further suggests that Congress, regulators, platforms, scientists, and others focus their attention on creating frameworks to address the following related considerations, among others: (i) the need for human intervention in connection with monitoring the use and decisions of AI tools intended to address harmful content; (ii) the need for meaningful transparency, “which includes the need for it to be explainable and contestable, especially when people’s rights are involved or when personal data is being collected or used”; and (iii) the need for accountability with respect to the data practices and results of the use of AI tools by platforms and other companies. Other recommendations include use of authentication tools, responsible use of inputs and outputs by data scientist, and using interventions, such as tools that slow the viral spread or otherwise limit the impact of certain harmful content.

    The Commission voted 4-1 at an open meeting to send the report to Congress. Commissioner Noah Joshua Phillips issued a dissenting statement, finding that the report provides “short shrift to how and why AI is being used to combat the online harms identified by Congress,” and instead “reads as a general indictment of the technology itself.”

    Privacy/Cyber Risk & Data Security Federal Issues FTC Artificial Intelligence Congress

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  • CFPB revising its rulemaking approach

    Federal Issues

    On June 17, CFPB Director Rohit Chopra announced in a blog post that the agency plans to move away from overly complicated and tailored rules. “Complexity creates unintended loopholes, but it also gives companies the ability to claim there is a loophole with creative lawyering,” Chopra said. The Bureau’s plan to implement simple, durable bright-line guidance and rules will better communicate the agency’s expectations and will provide numerous other benefits, he added.

    With regards to traditional rulemaking, the Bureau outlined several priorities, which include focusing on implementing longstanding Congressional directives related to consumer access to financial records, increased transparency in the small business lending marketplace, and quality control standards for automated valuation models under Sections 1033, 1071, and 1473(q) of the Dodd-Frank Act. Additionally, the Bureau stated it will assess whether it should use Congressional authority to register certain nonbank financial companies to identify potential violators of federal consumer financial laws.

    Chopra also announced that the Bureau is reviewing a “host of rules” that it inherited from other agencies such as the FTC and the Federal Reserve. “Many of these rules have now been tested in the marketplace for many years and are in need of a fresh look,” Chopra said. Specifically, the Bureau will (i) review rules originated by the Fed under the 2009 Credit CARD Act (including areas related to “enforcement immunity and inflation provisions when imposing penalties on customers”); (ii) review rules inherited from the FTC for implementing the FCRA to identify possible enhancements and changes in business practices; and (iii) review its own Qualified Mortgage Rules to assess aspects of the “seasoning provisions” (covered by a Buckley Special Alert) and explore ways “to spur streamlined modification and refinancing in the mortgage market.”

    The Bureau noted that it also plans to increase its interpretation of existing laws through its Advisory Opinion program and will continue to issue Consumer Financial Protection Circulars to provide additional clarity and encourage consistent enforcement of consumer financial laws among government agencies (covered by InfoBytes here and here).

    Federal Issues Bank Regulatory CFPB Consumer Finance FTC Federal Reserve Agency Rule-Making & Guidance CARD Act Consumer Reporting Agency Qualified Mortgage Dodd-Frank Nonbank FCRA AVMs Mortgages Credit Cards

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  • Special Alert: Congress releases draft privacy bill

    Federal Issues

    A comprehensive federal privacy law drew one step closer to reality earlier this month when a bipartisan group of representatives and senators released a draft of the proposed American Data Privacy and Protection Act.

    Passage of the ADPPA, which combines elements of prior proposals in an effort to reach a legislative compromise, is still far from assured. But it represents a meaningful starting point for further discussions, and is already shaping the long-running debate on national privacy standards. This alert looks closely at the proposed statutory text that seeks to define the breadth and scope of a federal privacy regime that policymakers have contemplated for years.

    Greater clarity about bill text and its overall prospects for passage are likely to emerge at the House Energy and Commerce Committee’s hearing scheduled for tomorrow at 10:30 a.m. ET.

    Federal Issues Federal Legislation Privacy/Cyber Risk & Data Security Special Alerts House Energy and Commerce Committee FTC Consumer Protection American Data Privacy and Protection Act

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  • FTC bans MCA providers, returns $2.7 million to consumers

    Federal Issues

    On June 6, the FTC obtained a stipulated court order permanently banning a company and owner from participating in the merchant cash advance and debt collection industries. As previously covered by InfoBytes, last June the FTC filed an amended complaint against two New York-based small-business financing companies and a related entity and individuals (including the settling defendants), claiming the defendants engaged in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, deceiving consumers about personal guarantees, forcing consumers and businesses to sign confessions of judgment, providing less funding than promised due to undisclosed fees, and making unauthorized withdrawals from consumers’ accounts. Under the terms of the stipulated order, the settling defendants are required to pay a more than $2.7 million monetary judgment to go towards refunds for harmed consumers and must vacate any judgments against former customers and release any liens against their customers’ property. The announcement notes that the settling defendants are also “prohibited from misleading consumers about any key facts about any good or service, including any fees, the total cost of the product, and other facts that reflect their deceptions in this case.”

    Earlier in January, a stipulated order was entered against two other defendants (covered by InfoBytes here), which permanently banned them from participating in the merchant cash advance and debt collection industries and required the payment of a $675,000 monetary judgment.

    Federal Issues Enforcement FTC Merchant Cash Advance Debt Collection Consumer Finance Small Business Lending FTC Act UDAP Deceptive Unfair

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  • FTC shares 2021 enforcement report with CFPB

    Federal Issues

    On June 3, the FTC announced that it submitted its 2021 Annual Financial Acts Enforcement Report to the CFPB. The report covers FTC enforcement activities regarding the Truth in Lending Act (TILA), the Consumer Leasing Act (CLA), and the Electronic Fund Transfer Act (EFTA). Highlights of the enforcement matters covered in the report include, among other things:

    • Automobile Credit and Leasing. The report discussed the FTC’s July 2021 settlement with the owners of car dealerships in Arizona and New Mexico (collectively, “defendants”) resolving claims that the defendants misrepresented consumer information on finance applications and misrepresented financial terms in advertisements in violation of TILA and CLA (covered by InfoBytes here).
    • Payday Lending. The report highlighted the FTC’s settlement against a payday lending enterprise for allegedly overcharging consumers millions of dollars, deceiving them about the terms of their loans, and failing to make required loan disclosures. According to the report, the owners and operators of the settling entities are banned from making loans or extending credit, nearly all debt held by the company will be deemed paid in full, and the companies involved are being liquidated, with the proceeds to be used to provide redress to consumers harmed by the company.
    • Credit Repair and Debt Relief. The report discussed the FTC’s settlement with the operators of a student loan debt relief scheme, who were charged with falsely promising consumers the company could lower or eliminate student loan balances, illegally imposing upfront fees for credit repair services, and signing consumers up for high-interest loans to pay the fees without making required loan disclosures in violation of TILA. The order bans the defendants from providing debt relief services and collecting any further payments from consumers who purchased the services, and requires the defendants to return money to be used to refund consumers.

    Additionally, the report addressed the FTC’s research and policy efforts and highlighted the FTC’s Military Task Force’s work on military consumer protection issues.

    Federal Issues FTC CFPB Enforcement TILA CLA EFTA Consumer Finance UDAP

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