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  • 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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  • FTC settles with financial services company

    Federal Issues

    On July 14, the FTC announced an $18 million settlement with a financial services company (defendant) over allegations that it deceived consumers. The FTC originally filed a complaint in 2018 claiming, among other things, that the defendant violated the FTC Act, the Privacy of Consumer Financial Information Rule, and the Gramm-Leach-Bliley Act, by falsely advertising loans with “no hidden fees” and misleading consumers with respect to whether their loan applications had been approved. The complaint also alleged that the defendant withdrew double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or paid off their loan, leading to overdraft fees and preventing borrowers from making other payments. Under the terms of the stipulated final order, the defendant is permanently barred from (i) misrepresenting fee amounts, the status of an application, and other material facts concerning any extension of credit; and (ii) making any representation about a specific loan amount prior to accepting a loan application, without clear and conspicuous disclosure of the dollar amount of any prepaid, up-front, or origination fee or the total amount of funds that would be disbursed to the consumer.

    Federal Issues FTC Enforcement Loans Consumer Finance Deceptive UDAP FTC Act Gramm-Leach-Bliley Privacy of Consumer Financial Information Rule

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  • FTC settles with payment processors in student loan debt relief scam

    Federal Issues

    On July 12, the FTC announced a settlement with two Florida-based payment processing companies and their CEO (collectively, “defendants”) accused of participating in a student loan debt relief scam. As previously covered by InfoBytes, in 2018, the FTC alleged the student loan debt relief operation violated the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, falsely claiming borrowers had pre-qualified for federal loan assistance programs that would reduce their monthly debt payments or result in total loan forgiveness and accepting monthly payments that were not applied towards student loans. A settlement was reached last December (covered by InfoBytes here). According to the FTC’s most recent complaint, the defendants allegedly “applied for and obtained merchant accounts for the [scam] by knowingly and repeatedly providing false information to payment processors about the [operation’s] three companies.” The defendants’ payment processing applications, the FTC contended, concealed the fraudulent activity, denied that the operation was offering consumers prohibited debt relief services, and repeatedly ignored warnings and direct evidence that the operation was defrauding consumers.

    Under the terms of the settlement order, the defendants are permanently banned from payment processing or acting as an independent sales organization or sales agency. The defendants are also prohibited from assisting and facilitating any unfair and deceptive trade practice, including to obtain payment processing services. In addition, the order imposes a $28.6 million judgment against the defendants, which is partially suspended following the payment of $20,493, due to the defendants’ inability to pay the full amount.

    Federal Issues FTC Enforcement Payment Processors Student Lending Debt Relief Consumer Finance UDAP FTC Act Telemarketing Sales Rule

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  • Biden orders federal agencies to evaluate banking, consumer protections

    Federal Issues

    On July 9, President Biden issued a broad Executive Order (E.O.) that includes provisions related to the financial services industry.

    • CFPB. The E.O. encourages the CFPB director to issue rules under Section 1033 of Dodd-Frank “to facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products.” As previously covered by InfoBytes, last October, the Bureau issued an advanced notice of proposed rulemaking on Section 1033, seeking comments on questions related to consumers’ access to their financial records. The E.O. also instructs the Bureau to enforce Section 1031 of Dodd-Frank, which prohibits unfair, deceptive, or abusive acts or practices in consumer financial products or services, “to ensure that actors engaged in unlawful activities do not distort the proper functioning of the competitive process or obtain an unfair advantage over competitors who follow the law.”
    • Treasury Department. The E.O. calls on Treasury to submit a report within 270 days on the effects on competition of large technology and other non-bank companies’ entry into the financial services space.
    • FTC. The E.O. tasks the FTC with establishing rules to address concerns about “unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy.” The FTC already commenced that process on July 1, when it approved changes to its Rules of Practice to amend and simplify the agency’s procedures for initiating rulemaking proceedings. According to Commissioner Rebecca Kelly Slaughter, “[s]treamlined procedures for Section 18 rulemaking means that the Commission will have the ability to issue timely rules on issues ranging from data abuses to dark patterns to other unfair and deceptive practices widespread in our economy.”
    • Bank Mergers. The E.O. encourages the Attorney General, in consultation with the Federal Reserve Board, FDIC, and OCC, to “review current practices and adopt a plan, not later than 180 days after the date of this order, for the revitalization of merger oversight under the Bank Merger Act and the Bank Holding Company Act of 1956.”

    Federal Issues Biden CFPB FTC Dodd-Frank UDAAP Privacy/Cyber Risk & Data Security Consumer Finance Department of Treasury Federal Reserve FDIC OCC Agency Rule-Making & Guidance

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  • FTC settles with program operators

    Federal Issues

    On July 2, the FTC announced a settlement with operators of a Florida-based recruitment program (defendants) for allegedly promising that participants could receive large amounts of money from selling memberships to other participants. The FTC filed a complaint in 2020 as part of an initiative called “Operation Income Illusion,” which encompasses more than 50 enforcement actions against alleged scams targeting consumers with false promises of income and financial independence (covered by InfoBytes here). According to the complaint, the defendants allegedly violated the FTC Act, among other things, by selling expensive memberships to programs by promoting earnings between $500 and $12,500 per sale. Under the terms of the stipulated final order, the defendants are prohibited from: (i) “creating, advertising, marketing, promoting, offering for sale, or selling” any business or investment opportunity or misrepresenting the amount of money someone can earn from any type of business; (ii) assisting others in such activity; and (iii) owning any financial interest in a business entity that engages in such activity. A $3.6 million monetary judgment is ordered against the company and its owners, in addition to a $217,426 monetary judgment against the company’s promoter. Due to the defendants’ inability to pay the full amount, the judgments will be partially suspended once all four defendants’ turn over various assets. A default judgment was entered in March against two additional defendants who promoted the scheme that included similar requirements, in addition to a $600,000 and $171,500 monetary judgment.

    Federal Issues FTC Enforcement FTC Act

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  • FTC settles with app for violating COPPA

    Federal Issues

    On July 1, the FTC announced a settlement with the operators of a coloring book app (collectively, “defendants”) for allegedly engaging in unfair or deceptive acts or practices and violating the Children’s Online Privacy Protection Act Rule (COPPA). The DOJ, on behalf of the FTC, filed a complaint claiming that the defendants, among other things, violated COPPA by collecting and disclosing personal information about children who utilized the app without notifying their parents and obtaining their consent. The FTC claimed that some children, including those under 13, were able to register for accounts and use the app’s social media features. The defendants allegedly received numerous complaints that children were using the app’s social media features, such as posting “selfies” on the app’s “gallery” for public viewing and interacting with other users, including adults. Under the terms of the proposed stipulated final order, the defendants must complete several steps to remedy the alleged violations, including deleting all personal information collected from children under the age of 13 within 60 days, unless parental consent is obtained. The defendants must also offer current paid subscribers a refund if they were under the age of 18 when they registered for the app. In addition, the defendants agreed to notify users about the alleged COPPA violations and the steps that users can take in response to the settlement. The proposed order provides for a $3 million civil money penalty that is suspended upon payment of $100,000 due to the defendants’ inability to pay the full amount. If the defendants sell the app within a year following the order, they are required to remit the net proceeds from the sale to the FTC after debts and other related expenses are paid.

    Federal Issues DOJ FTC COPPA Enforcement Privacy/Cyber Risk & Data Security

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  • District Court rules FTC cannot seek monetary relief in false advertising action under Section 19 of the FTC Act

    Courts

    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].”

    Courts FTC Enforcement ROSCA FTC Act U.S. Supreme Court

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  • AGs support FTC disgorgement authority

    Federal Issues

    On June 28, a coalition of 28 state attorneys general sent a letter to Congress in support of H.R. 2668, the Consumer Protection and Recovery Act. The bill would give the FTC authority to seek restitution and disgorgement, among other equitable remedies, for consumer protection and antitrust violations in federal court without first going through a lengthy administrative process. As previously covered by InfoBytes, in April, the U.S. Supreme Court unanimously reversed the U.S. Court of Appeals for the Ninth Circuit’s decision in AMG Capital Management v. FTC, holding 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.” The ruling reversed a $1.3 billion restitution award in a case alleging that payday loan companies had deceived and overcharged customers. The coalition urged lawmakers to reinstate the “essential tools that the FTC needs to combat fraud and anticompetitive conduct and protect an honest marketplace.”

    Federal Issues State Issues Disgorgement FTC U.S. Supreme Court State Attorney General Enforcement

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  • Biden announces key nominations

    Federal Issues

    On June 24, President Biden announced his intent to nominate seven individuals to serve in key roles, including two nominations to positions in the Department of Housing and Urban Development. Among them is Dave Uejio, the current acting Director of the CFPB, as the nominee for Assistant Secretary for Fair Housing and Equal Opportunity, Department of Housing and Urban Development. As previously covered by Infobytes, Uejio has been with the CFPB since 2012, and from 2015 to his appointment as acting director to replace Kathy Kraninger, he served as the Bureau’s Chief Strategy Officer. According to the announcement, Uejio also co-chairs the Federal Innovation Council, “a leading federal government interagency body [driving] public sector innovation.” In January, President Biden officially nominated FTC Democratic Commissioner Rohit Chopra as the permanent director of the CFPB (covered by InfoBytes here). He is currently awaiting a Senate confirmation vote on his nomination to serve as the Bureau’s Director. President Biden also announced Julia Gordon, who is the National Community Stabilization Trust President, as the nominee for Assistant Secretary for Housing, Federal Housing Commissioner, Department of Housing and Urban Development.

    Federal Issues Biden CFPB HUD FTC

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  • FTC settles with fertility-tracking app

    Federal Issues

    On June 22, the FTC issued a decision and order against a company operating a fertility-tracking mobile app. The order resolved claims that the company shared user’s sensitive health data with various marketing and analytics service providers to the company. The FTC filed a complaint in January claiming, among other things, that the company repeatedly promised to protect users’ personal health data but instead disclosed the data to third parties for years and did not contractually limit how those third parties could use the data. These actions, the FTC claimed, violated the FTC Act as well as frameworks under the EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield, which the company represented to users that it participated in, and require companies to provide notice, choice, and accountability for the transfer of personal data to third parties. Under the terms of the decision and order, the company is required to provide notice to users about the disclosure of their health data, obtain users’ affirmative express consent to share the information, and instruct any third party that received users’ health information to destroy the data. Additionally, the company is prohibited from misrepresenting: (i) the purposes for which it (or any entity to whom it discloses personal data) collects, maintains, uses, or discloses the data; (ii) the extent to which consumers can control the use of the data; (iii) its adherence to any privacy, security, or compliance program; and (iv) the extent to which it “collects, maintains, uses, discloses, deletes, or permits or denies access to any” users’ personal information. The FTC further noted in its announcement that it is “currently undertaking a review of the Health Breach Notification Rule and is actively considering public comments regarding the application of the Rule to mobile applications and other direct-to-consumer technologies that handle consumers’ sensitive health information.”

    Federal Issues FTC Enforcement Privacy/Cyber Risk & Data Security FTC Act UDAP EU-US Privacy Shield

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