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FTC, DOJ and CFPB warn consumers about potential scams after natural disasters
On October 9, the FTC, DOJ and CFPB warned consumers about potential fraud and price gouging during natural disasters. According to the agencies, scammers often exploit weather emergencies to take advantage of people trying to recover or donate to disaster victims.
FTC Chair Lina M. Khan highlighted reports of price gouging for essentials like hotels and groceries, and Deputy Assistant Attorney General Manish Kumar of the DOJ’s Antitrust Division warned companies against using the recent hurricane as an excuse for illegal behavior. CFPB Director Rohit Chopra condemned price gouging during natural disasters as unfair and illegal.
The FTC outlined common types of disaster-related scams, including fraudulent charities, scammers impersonating government officials or promoting non-existent businesses or investment opportunities, and price gouging for essential goods and services. To avoid scams, consumers are advised to be cautious of anyone insisting on payment by wire transfer, gift card, payment app, cryptocurrency, or cash. Officials emphasized that FEMA never requires those affected by a natural disaster to pay a fee to get disaster relief. The federal government also recommends taking measures to prevent fraud such as researching contractors, obtaining multiple estimates, and securing written contracts for repairs. Consumers can report scams to the FTC here.
FTC orders billing companies to shut down and issues $40M payout for fraud
On September 17, the FTC announced that the U.S. District Court for the Middle District of Florida approved the Commission’s order, effectively shutting down several companies (here, here and here) named in the FTC’s June complaint and required them to surrender over $40 million in assets. The FTC filed a complaint against the companies and individuals, the defendants, for allegedly operating unauthorized billing scams that defrauded consumers of over $200 million. The defendants were accused of employing deceptive practices to market CBD and keto-related products online, enrolling consumers in continuity programs without their consent, and charging them for products they did not order.
The FTC’s complaint detailed how the defendants misrepresented the cost of their products and failed to disclose automatic enrollment in subscription programs, leading to unauthorized charges on consumers’ credit and debit cards. The defendants also allegedly engaged in credit card laundering by using shell companies to obtain merchant accounts, conceal their identities, and avoid detection by consumers and law enforcement. The FTC charged the defendants with multiple violations, including deceptive acts under Section 5(a) of the FTC Act, failure to meet disclosure requirements under the Restore Online Shoppers’ Confidence Act (ROSCA), and unauthorized debiting under the EFTA. Additionally, specific counts included other charges such as misrepresenting that consumers would receive free products, charge consumers unfairly without consent, and engage in credit card laundering. The FTC’s complaint sought a permanent injunction to prevent future violations, monetary relief and other remedies such as an asset freeze and the appointment of a receiver — all approved by the district court.
FTC orders billing companies to shut down and issues $40M payout for fraud
On September 17, the FTC announced that the U.S. District Court for the Middle District of Florida approved the Commission’s order, effectively shutting down several companies (here, here and here) named in the FTC’s June complaint and required them to surrender over $40 million in assets. The FTC filed a complaint against the companies and individuals, the defendants, for allegedly operating unauthorized billing scams that defrauded consumers of over $200 million. The defendants were accused of employing deceptive practices to market CBD and keto-related products online, enrolling consumers in continuity programs without their consent, and charging them for products they did not order.
The FTC’s complaint detailed how the defendants misrepresented the cost of their products and failed to disclose automatic enrollment in subscription programs, leading to unauthorized charges on consumers’ credit and debit cards. The defendants also allegedly engaged in credit card laundering by using shell companies to obtain merchant accounts, conceal their identities, and avoid detection by consumers and law enforcement. The FTC charged the defendants with multiple violations, including deceptive acts under Section 5(a) of the FTC Act, failure to meet disclosure requirements under the Restore Online Shoppers’ Confidence Act (ROSCA), and unauthorized debiting under the EFTA. Additionally, specific counts included other charges such as misrepresenting that consumers would receive free products, charge consumers unfairly without consent, and engage in credit card laundering. The FTC’s complaint sought a permanent injunction to prevent future violations, monetary relief and other remedies such as an asset freeze and the appointment of a receiver — all approved by the district court.
FTC provides annual debt collection activities to CFPB in letter
On September 5, the FTC published a letter to the CFPB on the Commission’s annual summary of debt collection activities in 2023. Addressed to CFPB Director Rohit Chopra, the report aimed to assist the Bureau in preparing its annual report to Congress on implementing the FDCPA.
The letter began by detailing the FTC’s enforcement activities and rulemaking efforts, which included: (i) enforcement actions against small business debt collectors alleging unfair and deceptive debt collection practices; and (ii) actions to prevent the collection of illegal student debt as income-share agreements not compliant with applicable law. The letter also highlighted the FTC’s efforts against certain activities that add to consumers’ debt burden; (i) actions to combat “dark patterns” that prevent consumers from canceling subscriptions by making the cancellation process confusing and misleading; (ii) the proposal of the CARS Rule to ban bait-and-switch tactics and hidden junk fees assessed to customers financing the purchase of a vehicle; and (iii) the proposal of a rule to ban hidden and misleading fees in routine transactions, including booking hotels, buying concert tickets, renting apartments, and paying utility bills (covered by InfoBytes here).
The report also emphasized the FTC’s public outreach and cross-agency coordination, including efforts to coordinate with the CFPB and other law enforcement agencies to pursue consumer protection efforts.
FTC files amicus brief in defense of COPPA
On August 19, the FTC filed an amicus brief supporting a class of plaintiffs representing their minor children in a case alleging that an educational technology company unlawfully collected, used and sold the children’s data in violation of COPPA. In the class action litigation, the educational technology company moved to compel arbitration based on its agreement with school districts, arguing that, under COPPA, the school district acts as agents for the parents and thus the district’s agreement is binding on the parents.
The FTC’s amicus brief disputed the company’s conclusion, arguing instead that COPPA does not address whether parents and children were bound by arbitration agreements when school districts agree to terms of service for classroom software. The FTC emphasized that COPPA’s provisions are limited to parental notice and consent requirements and do not extend to contractual obligations.
The FTC clarified in its brief that its guidance on schools’ roles under COPPA is limited to the notice and consent process and made clear that the commission’s commentary relied on by the company does not create an agency relationship between parents and school districts beyond the context of this the notice and consent. The FTC argued that the educational technology company’s reliance on COPPA (to justify binding parents and children to arbitration agreements) is unfounded in the rule implementing COPPA or FTC commentaries on the rule. Through its submission, the FTC, as the agency primarily tasked with enforcing COPPA, aimed to provide the court with its interpretation of COPPA thus emphasizing that the statute and its implementing rule do not support compelling arbitration of the parents’ claims in this case. The agency’s involvement also aims to underscore its commitment to protecting children’s online privacy and ensuring that companies adhere to COPPA’s requirements.
FTC takes action against an online care services platform with an $8.5M fine
On August 26, the FTC released its complaint and stipulated order against an online platform offering child and senior care services, alleging violations of the FTC Act and the Restore Online Shoppers’ Confidence Act. The FTC claimed the company advertised inflated earnings and job opportunities to lure workers onto its platform and into purchasing auto-renewing memberships. The FTC also claimed that the company used dark patterns to frustrate consumers’ attempts to cancel memberships.
The FTC prayed the court to act. The FTC’s stipulated order would provide for a permanent injunction, a monetary judgment, and other relief. The order would prohibit the company from making earnings claims without reliable evidence to substantiate them and misrepresenting the number of available jobs on its platform. It would also mandate that the company provide a simple mechanism for consumers to cancel their auto-renewing memberships. The order also would require the company to pay $8.5 million in monetary relief to the FTC, which will be used for consumer redress. Additionally, under the order, the company must submit compliance reports to the FTC and retain records related to its compliance with the order.
FTC announces final rule prohibiting fake reviews and testimonials
On August 14, the FTC announced a final rule addressing fake reviews and testimonials, prohibiting businesses from generating misleading reviews of their products or services. The final rule addresses concerns raised by the Commission of unfair or deceptive practices involving consumer reviews and testimonials, which the Commission asserts wastes consumers’ time and drives business from honest competitors.
The rule prohibits several specific practices, including: (i) the creation, sale, or purchase of fake reviews; (ii) reviews written by company insiders without proper disclosure of insider status; (iii) misleading representations that a website or entity controlled by a company provides independent reviews of products or services offered by the same company; and (iv) the use of fake indicators of social media influence, such as inflated views generated by fake social media accounts. The final rule also prohibits business from using threats to suppress negative reviews from consumers, and the final rule bars a business from misrepresenting either negative or all reviews on its website.
The FTC noted that the final rule will be necessary to allow it to obtain consumer redress for violations of the rule, following the Supreme Court’s decision in AMG Capital Management, LLC v. FTC, limiting the commission’s ability to obtain monetary relief (covered by InfoBytes here).
The rule will take effect 60 days after its publication in the Federal Register.
FTC proposes fines, bans based on alleged credit repair scheme
On August 5, the FTC announced proposed court orders that would require a defendant credit repair operation, its owners and associated companies (collectively, defendants) to pay more than $12 million to resolve allegations related to their credit repair products. As previously covered by InfoBytes, defendants allegedly targeted consumers with low credit scores, promising that the company’s products could remove all negative information from consumers’ credit reports and significantly increase their credit scores. Defendants also allegedly charged consumers upfront for the service. Additionally, the FTC claimed that the defendants sought to recruit consumers to participate in a “pyramid scheme” by representing that consumers could make tens of thousands of dollars recruiting others into the service. The operation allegedly violated the FTC Act, the Credit Repair Organizations Act, and the Telemarketing Sales Rule. The proposed settlements will result in over $12 million being turned over to the FTC for consumer refunds, and also impose conduct prohibitions on individual defendants, including industry bans.
District Court prevents FTC from collecting $1.5M from judgment
On July 26, the U.S. District Court for the District of Nevada ruled that the Federal Trade Commission (FTC) could not collect $1,529,292.52 from a relief-defendant in an enforcement action. This origin of this case was a 2011 FTC enforcement action against multiple defendants that the FTC alleged had engaged in unfair or deceptive acts affecting commerce. The relief-defendant was not directly accused of wrongdoing, but was alleged to have received funds from unlawful acts, leading to a 2013 judgment that the relief-defendant never satisfied. Arguing that more than ten years had passed since the court’s entry of judgment, the relief-defendant claimed the FTC’s enforcement attempts were “inequitable.” The District Court agreed, finding that the FTC’s efforts violated Nevada's statute of limitations and that the Fair Debt Collection Practices Act (FDCPA) did not apply.
With respect to the statute of limitations argument, Nevada has a six-year limitation period for enforcing judgments, but the FTC did not seek garnishment of the relief-defendant’s bank accounts until June 2023, well beyond the limitations period. The judge rejected the FTC’s argument that the FDCPA applied and would preempt the state law limitations period. While the FTC had cited a Fifth Circuit case in support of this position, the district court determined that this out-of-circuit precedent was not binding. Furthermore, the court concluded that the FDCPA's scope was limited to the collection of debts owed to the federal government, whereas this case involved refunding ill-gotten gains to consumers.
The District Court granted the relief-defendant’s motion for judgment modification to preclude enforcement. This decision underscores the importance of timely enforcing judgments within state limitations periods, even in cases involving federal agencies like the FTC.
FTC asks court to approve $43.5M settlement against for-profit school
On July 29, the FTC released its complaint and stipulated order against a for-profit educational institution located in Georgia for allegedly making false or unsubstantiated representations to convince consumers to enroll in its programs, in violation of Section 5(a) of the FTC Act, Section 521 of the GLBA, the Telemarketing Act, and the Telemarketing Sales Rule. The FTC sought relief, including a permanent injunction and monetary relief. According to the complaint, the educational institution allegedly “lured” consumers — specifically, servicemembers and their families — with false employment rates and deceptive job placement rates, misrepresented externships and the time-to-completion of its programs, and used deceptive incentivized reviews to promote its services. The FTC levied five counts against the defendant. Three counts were for violations of the FTC Act — one for misrepresenting its educational services, one for falsely claiming that its consumer reviews were conducted independently, and one for failing to disclose its material connections to consumers who submitted reviews and endorsed the educational institution. Another count alleged a violation of the GLBA for making false statements to obtain consumers’ customer information about a financial institution, and the final count alleged a violation of the Telemarking Sales Rule for making deceptive telemarketing calls. The FTC requested that the court enter a permanent injunction to prevent future violations of the law and award monetary relief, among other things. The FTC’s stipulated order asked the federal court to approve a settlement to pay $43.5 million, which included $15.7 million for consumer redress and a cancellation of $27.8 million for debts owed to the defendant by consumers and former students.