InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FTC settles with program operators
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.
FTC settles with app for violating COPPA
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.
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].”
AGs support FTC disgorgement authority
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.”
Biden announces key nominations
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.
FTC settles with fertility-tracking app
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.”
FTC tackles illegal pyramid scheme
On June 16, the FTC and the Arkansas attorney general filed a complaint against the operators of a “blessing loom” investment program (defendants), alleging that they acted as an illegal pyramid scheme that bilked millions of dollars from thousands of consumers. The joint complaint alleges that the defendants violated the FTC Act, Consumer Review Fairness Act, and the Arkansas Deceptive Trade Practices Act by: (i) participating in a pyramid scheme, which constitutes a deceptive act; (ii) prohibiting the ability of an individual to engage in a covered communication; and (iii) falsely representing goods and services. The complaint alleges that the defendants lured people into enrolling in their program by falsely guaranteeing investment returns as high as 800 percent, with some members allegedly paying as much as $62,700 to participate in the program. In addition, the defendants allegedly, among other things, (i) targeted Black communities and stated in the “[program’s] Bible,” which contains program membership bylaws, that all program members must, with no exceptions, be of African-American descent; (ii) targeted financially distressed consumers; (iii) falsely claimed the program provided “a means to achieve financial freedom and generational wealth”; (vi) attempted to hide their illegal activity from law enforcement and payment processors by forbidding certain payment applications to be used by members; and (v) prohibited members from publishing material related to the program online, such as comments and reviews. The complaint seeks to permanently enjoin the defendants’ illegal operation and requests that the court award redress for injured consumers. The complaint also seeks to impose civil penalties on the defendants under Arkansas state law.
Khan sworn in as FTC chair
On June 15, Lina Khan was sworn in as Chair of the FTC following the Senate’s confirmation by a vote of 69-28. Her term on the Commission expires September 25, 2024. Khan stated that she looks forward to working with her colleagues “to protect the public from corporate abuse” and thanked former acting Chairwoman Rebecca Kelly Slaughter for her stewardship. Prior to becoming Chair, Khan was an associate professor of law at Columbia Law School, served as counsel to the U.S. House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law, was a legal adviser to FTC Commissioner Rohit Chopra (who is currently awaiting Senate confirmation on his nomination to serve as CFPB Director), and served as legal director at the Open Markets Institute. Chopra issued a statement following Khan’s confirmation stressing that the “overwhelming support in the Senate for Lina Khan’s nomination to serve on the [Commission] is a big win for fair competition in our country. There is a growing consensus that the FTC must turn the page on the failed policies spanning multiple administrations. Lina has an extraordinary record of achievement, and she will be instrumental in helping the Commission chart a new course grounded in rigor and reality.”
FTC adds charges against small-business financer
On June 14, the FTC announced additional charges against two New York-based small-business financing companies and a related entity and individuals (collectively, “defendants”). Last June, the FTC filed a complaint against the defendants for allegedly violating the FTC Act and engaging in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, and making unauthorized withdrawals from consumers’ accounts (covered by InfoBytes here). The amended complaint alleges that the defendants also violated the Gramm-Leach-Bliley Act’s prohibition on using false statements to obtain consumers’ financial information, including bank account numbers, log-in credentials, and the identity of authorized signers, in order “to withdraw more than the specified amount from consumers’ bank accounts.” Additionally, the FTC’s press release states that the defendants “engaged in wanton and egregious behavior, including laughing at consumer requests for refunds from [the defendants’] unauthorized withdrawals from customer bank accounts; abusing the legal system to seize the business and personal assets of their customers; and threatening to break their customers’ jaws or falsely accusing them of child molestation during collection calls.” The amended complaint seeks a permanent injunction against the defendants, along with civil money penalties and monetary relief including “rescission or reformation of contracts, the refund of monies paid, and other equitable relief.”
9th Circuit reverses $1.3 billion judgment following Supreme Court’s decision
On June 8, the U.S. Court of Appeals for the Ninth Circuit issued an order vacating its December 2018 judgment, reversing a district court’s award of equitable monetary relief following the U.S. Supreme Court’s recent decision in FTC v. AMG Capital Management, and remanding the case to the district court for further proceedings consistent with the Supreme Court’s opinion. The decision impacts defendants—a Kansas-based operation and its owner—who were ordered in 2016 to pay an approximately $1.3 billion judgment for allegedly operating a deceptive payday lending scheme and violating Section 5(a) of the FTC Act by making false and misleading representations about loan costs and payments (covered by InfoBytes here). The 9th Circuit previously upheld the judgment (covered by InfoBytes here) by, among other things, rejecting the defendant owner’s challenge, which was based on an argument that the district court overestimated his “wrongful gain” and that the FTC Act only allows the court to issue injunctions. At the time, the 9th Circuit concluded that the defendant owner failed to provide evidence contradicting the wrongful gain calculation and that a district court may grant any ancillary relief under the FTC Act, including restitution. However, as previously covered by InfoBytes, the Supreme Court reversed the 9th Circuit and held 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.”