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Financial Services Law Insights and Observations


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  • FTC temporarily halts unlawful debt collection operation

    Federal Issues

    On October 15, the FTC announced that the U.S. District Court for the Northern District of Georgia granted a temporary restraining order against a debt collection operation for allegedly engaging in fraudulent debt collection practices. According to the FTC’s complaint, the operation violated the FTC Act and the FDCPA by, among other things, (i) posing as law enforcement officers, prosecutors, attorneys, mediators, investigators, or process servers when calling consumers to collect debts; (ii) using profane language and threatening consumers with arrest or serious legal consequences if debts were not immediately paid; (iii) threatening to garnish wages, suspend Social Security payments, revoke drivers’ licenses, or lower credit scores; (iv) attempting to collect debts that were either never owed or were no longer owed; (v) unlawfully contacting third parties, such as family members or employers; and (vi) adding unauthorized or impermissible charges or fees to consumers’ debts. The complaint asserts that the operation also refused to provide written verification about the alleged debts as required by the FDCPA. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, contract rescission or reformation, restitution, disgorgement, the appointment of a receiver, immediate access to business premises, an asset freeze, and other equitable relief.

    The action is part of the FTC’s “Operation Corrupt Collector”—a nationwide enforcement and outreach effort established last month by the FTC, CFPB, and more than 50 federal and state law enforcement partners to address illegal debt collection practices. (Covered by InfoBytes here.)

    Federal Issues FTC Debt Collection Enforcement FTC Act FDCPA

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  • 3rd Circuit: Section 13(b) of the FTC Act does not give the agency restitution power


    On September 30, the U.S. Court of Appeals for the Third Circuit reversed a district court’s order of $448 million in disgorgement, concluding that disgorgement is not a remedy available under Section 13(b) of the FTC Act. According to the opinion, the FTC brought an action against the owners of a testosterone treatment patent (defendants) for allegedly “trying to monopolize and restrain trade over [the treatment],” in violation of Section 13(b) of the FTC Act. The district court dismissed the FTC’s claims related to the reverse-payment agreement the defendants entered into with another pharmaceutical company but held the defendants liable for the FTC’s sham-litigation allegations and ordered the defendants to pay $448 in disgorgement of ill-gotten gains. The district court denied the FTC’s request for an injunction.

    On appeal, the 3rd Circuit concluded, among other holdings, that the court erred by ordering disgorgement, as it lacked the authority to do so under Section 13(b) of the FTC Act. Specifically, the appellate court noted that Section 13(b) “authorizes a court to ‘enjoin’ antitrust violations,” but is silent on disgorgement. The appellate court rejected the FTC’s contention that Section 13(b) “impliedly empowers district courts” to order disgorgement as well as injunctive relief, concluding that “the context of Section 13(b) and the FTC Act’s broader statutory scheme both support ‘a necessary and inescapable inference’ that a district court’s jurisdiction in equity under Section 13(b) is limited to ordering injunctive relief.” Thus the appellate court reversed the order of $448 million in disgorgement.

    In reaching this conclusion, the appellate court noted its determination was consistent with the 7th Circuit’s decision FTC v. Credit Bureau Center (covered by InfoBytes here), which also held that the FTC does not have the power to order restitution under Section 13(b). As previously covered by InfoBytes, the U.S. Supreme Court granted consolidated review in Credit Bureau Center and in the 9th Circuit’s decision in FTC v. AMG Capital Management (covered by InfoBytes here). The Court will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.

    Courts FTC Restitution FTC Act Injunction Third Circuit Appellate Seventh Circuit Ninth Circuit U.S. Supreme Court

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  • CFPB, FTC, and states announce debt collection enforcement operation

    Federal Issues

    On September 29, the CFPB, FTC, and more than 50 federal and state law enforcement partners announced a nationwide enforcement and outreach effort titled “Operation Corrupt Collector” to address illegal debt collection practices. As of the date of the announcement, according to the CFPB, the operation includes five cases by the FTC, two cases by the CFPB, and three criminal cases by the DOJ and the U.S. Postal Inspection Service. Moreover, 16 states have also reported actions as part of the operation. Among the five cases brought by the FTC, two were announced in conjunction with the operation. In the first, the FTC brought charges in the U.S. District Court for the District of South Carolina alleging that a debt collection operation (consisting of five entities and three persons) used deceptive tactics to threaten false legal action through the use of robocalls in order to collect debts consumers did not owe or the operation did not have the legal right to collect. In the second, filed with the same district court, FTC alleges a company and its operators, with the assistance of the defendants in the first action, falsely claimed to represent a law firm and threatened consumers with arrest if the debts were not paid. According to the FTC, the district court granted temporary restraining orders against the defendants in both actions.

    Federal Issues CFPB FTC Enforcement Debt Collection State Issues

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  • District court: FTC allegations fail due to lack of credible experts


    On September 24, the U.S. District Court for the Western District of Pennsylvania entered an order granting a Pennsylvania-based home insulation manufacturer’s motion under Fed. R. Civ. P. 52(c). The insulation manufacturer was accused of violating the FTC Act by making misrepresentations regarding the performance of its home insulation product. In particular, the FTC “challenge[d] the veracity” of the company’s “R-value” claims about the performance of its house insulation product. In the order, the court ruled that the FTC “offered no reliable or credible expert testimony.” The court explained that “[w]hen the FTC challenges the veracity of a corporation’s R-value and energy saving claims, expert testimony is required,” and emphasized that the FTC has the burden of proving that a company’s “purported substantiation is inadequate.” The FTC’s two expert witnesses, the court determined, were not credible and did not express “a reasonable degree of scientific certainty.” The court further ruled that the FTC failed to demonstrate by a preponderance of evidence that the company’s substantiation lacked a reasonable basis. As a result of the order, judgment will be entered in favor of the defendant and against the FTC.

    Courts FTC FTC Act

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  • FTC settles with company posing as SBA lender

    Federal Issues

    On September 25, the FTC announced a settlement with a Rhode Island-based company and its owner (defendants), resolving allegations that the defendants violated the FTC Act by claiming to be an approved lender for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) even though the defendants are neither affiliated with the SBA nor an SBA-authorized lender. As previously covered by InfoBytes, the FTC filed an action against the defendants in April, alleging that the defendants made deceptive statements on their websites, such as “WE ARE A DIRECT LENDER FOR THE PPP PROGRAM!,” and directly contacted small businesses claiming to represent the SBA in order to solicit loan applications on behalf of the businesses’ banks. The settlement prohibits the defendants from engaging in the conduct subject to the action, including misrepresenting that they are affiliated with the SBA and that they are authorized to accept or process applications on behalf of the SBA. Moreover, the defendants are prohibited from disclosing or benefitting from consumer information obtained prior to the settlement without express, informed consent from the consumer, and are subject to certain reporting and recordkeeping requirements.

    Federal Issues Covid-19 SBA FTC Enforcement Small Business Lending UDAP FTC Act CARES Act Deceptive

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  • Supplement marketer again settles with FTC over negative option marketing

    Federal Issues

    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.

    Federal Issues FTC ROSCA Disclosures Negative Option Enforcement Telemarketing Sales Rule

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  • FTC settles first consumer protection case against a VoIP service provider

    Federal Issues

    On September 22, the FTC and the Ohio attorney general announced several proposed stipulated final orders against a Voice over Internet Protocol (VoIP) service provider, along with an affiliated company, the VoIP service provider’s former CEO and president, and a number of other subsidiaries and individuals, to settle allegations concerning their facilitation of a credit card interest rate reduction scheme. This marks the FTC’s first consumer protection case against a VoIP service provider. According to the FTC and the AG, the VoIP service provider provided one of the defendants with the ability to place illegal robocalls in order to market “phony credit card interest rate reduction services.” Both of these defendants were controlled by the VoIP service provider’s former CEO who was also named in the lawsuit. In addition, the defendant that placed the illegal calls, along with four additional defendants, are accused of managing the overseas call centers and other components used in the credit card interest rate reduction scheme.

    One of the settlements will prohibit the former CEO, along with two corporations under his control, from (i) participating in any telemarketing in the U.S.; (ii) marketing any debt relief products or services; and (iii) making misrepresentations when selling or marketing any products or services. These defendants will collectively be subject to a $7.5 million judgment, which is mostly suspended due to their inability to pay.

    The settlement with the VoIP service provider and the affiliated company will require a payment of $1.95 million. The VoIP service provider and its U.S.-based subsidiaries will also be prohibited from hiring the former CEO or any of his immediate family members, as well as from hiring two of the other defendants. These defendants will also be required to follow client screening and monitoring provisions, and are prohibited from providing VoIP and related services to clients who pay with stored value cards or cryptocurrency, or to clients who do not maintain public-facing websites or a social media presence. Additionally, the defendants will be required to block calls that may appear to come from certain suspicious phone numbers, block calls that use spoofing technology, and terminate certain high-risk relationships.

    The settlements (see here, here, and here) reached with the defendant that placed the illegal calls and four additional defendants include prohibitions similar to those issued against the former CEO, and will require the payment of a total combined judgment of $10.3 million, which will be largely suspended due to their inability to pay.

    All settlements are subject to court approval.

    Federal Issues FTC Enforcement Telemarketing Sales Rule VoIP State Attorney General Credit Cards Interest Rate Consumer Finance

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  • Court orders investment training operation to pay $362 million in FTC action


    On September 11, the U.S. District Court for the Central District of California ordered a California-based investment training operation to pay $362 million to resolve FTC allegations that the operation used deceptive claims to sell costly “training programs” targeting older consumers. As previously covered by InfoBytes, the FTC argued that the operation violated the FTC Act and the Consumer Review Fairness Act by using false or unfounded claims to market programs that purportedly teach consumers investment strategies designed to generate substantial income from trading in the financial markets “without the need to possess or deploy significant amounts of investable capital.” Additionally, the FTC alleged the operation required that dissatisfied customers requesting refunds sign agreements barring them from posting negative comments about the operation or its personnel, and prohibited customers from reporting potential violations to law enforcement agencies.

    The district court agreed with the FTC, approving an order that requires the operation to pay a partially suspended judgment of $362 million, with three individual defendants required to pay $8.3 million, $158,000, and $736,300, respectively, and to surrender various assets. The remainder of the total judgment is suspended upon the completion of the individuals’ respective payments and surrender of assets, conditioned on the “truthfulness, accuracy, and completeness” of the sworn financial representations. Moreover, among other things, the order prohibits the operation from (i) making misleading claims of potential earnings or misrepresenting the time or effort required by consumers to “attain proficiency” in the operation’s trading strategy; and (ii) restricting customers from communicating with law enforcement or posting negative reviews. Additionally, the operation must notify all clients of their rights to post honest reviews and to file complaints.

    Courts FTC Civil Money Penalties FTC Act Deceptive UDAP Advertisement

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  • 9th Circuit upholds $50 million order in FTC action against publisher


    On September 11, the U.S. Court of Appeals for the Ninth Circuit, in a split decision, upheld the district court order requiring a publisher and conference organizer and his three companies (defendants) to pay more than $50.1 million to resolve allegations that the defendants made deceptive claims about the nature of their scientific conferences and online journals and failed to adequately disclose publication fees in violation of the FTC Act. As previously covered by InfoBytes, in an action filed in the U.S. District Court for the District of Nevada, the FTC alleged the defendants misrepresented that their online academic journals underwent rigorous peer reviews; instead, according to the FTC, the defendants did not conduct or follow the scholarly journal industry’s standard review practices and often provided no edits to submitted materials. Additionally, the FTC alleged that the defendants failed to disclose material fees for publishing authors’ work when soliciting authors and that the defendants falsely advertised the attendance and participation of various prominent academics and researchers at conferences without their permission or actual affiliation. The district court agreed with the FTC and, among other things, ordered the defendants to pay more than $50.1 million in consumer redress.

    On appeal, the split 9th Circuit agreed with the district court, concluding that the defendants violated the FTC Act, noting that the despite the “overwhelming evidence against them,” the defendants “made only general denials” and did not “create any genuine disputes of material fact as to their liability.” The appellate court emphasized that the misrepresentations made by the defendants were “material” and “did in fact, deceive ordinary customers.” Moreover, among other things, the appellate court held that the defendants failed to meet their burden to show that the FTC “overstated the amount of their unjust gains by including all conference-related revenue.” Specifically, the appellate court determined that conferences were “part of a single scheme of deceptive business practices,” even though the conferences were individual, discrete events. Because the marketing was “widely disseminated,” the court determined that the FTC was entitled to a rebuttable presumption that “all conference consumers were deceived.”

    In partial dissent, a judge asserted the FTC “did not reasonably approximate unjust gains” by including all conference-related revenue, because “the FTC’s own evidence indicates that only approximately 60% of the conferences were deceptively marketed.” Thus, according to the dissent, the case should have been remanded to the district court to determine whether the FTC can meet its initial burden.

    Courts FTC FTC Act UDAP Deceptive Advertisement Settlement Appellate Ninth Circuit

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  • FTC settles with student debt relief operation for $835,000

    Federal Issues

    On September 9, the FTC announced an $835,000 settlement with the operators of a student loan debt relief operation, resolving allegations against five individuals (collectively, “defendants”) whom the FTC claims engaged in deceptive marketing and charged illegal upfront fees. According to the November 2019 complaint, filed in the U.S. District Court for the Central District of California against the defendants and several others, the defendants allegedly used telemarketing calls, as well as media advertisements, to enroll consumers in student debt relief services in violation of the FTC Act and the Telemarketing Sales Rule. The defendants allegedly misrepresented that they were affiliated with the U.S. Department of Education and misrepresented “material aspects of their debt relief services,” including by promising to enroll consumers in repayment programs to reduce or eliminate payments and balances. Additionally, the defendants charged illegal upfront fees, and often placed the consumers’ loans into temporary forbearance or deferments with their student loan servicers, without the consumer’s authorization.

    The settlement order includes a monetary judgment of over $43 million, which is partially suspended due to the defendants’ inability to pay. The defendants “will be required to surrender at least $835,000 and additional assets, which will be used for consumer redress.” Additionally, the defendants are prohibited from providing student debt relief services in the future and they must cooperate in the FTC’s pursuit of the case against the remaining defendants.

    Federal Issues FTC Telemarketing Sales Rule FTC Act Deceptive UDAP Student Lending Debt Relief

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