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FTC settles with company posing as SBA lender
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.
Supplement marketer again settles with FTC over negative option marketing
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.
FTC settles first consumer protection case against a VoIP service provider
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.
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.
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.
FTC settles with student debt relief operation for $835,000
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.
FTC settles with auto dealers for falsifying consumer financial documents
On September 4, the FTC announced a settlement with group of auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the defendants advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes in August 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.”
The court-approved settlement requires the defendants to cease all business operations and includes a monetary judgment of over $7 million. Because the defendants are currently in Chapter 7 bankruptcy proceedings, the settlement will make the FTC an unsecured claimant in the bankruptcy proceedings. The settlement also prohibits the bankruptcy trustee from using or selling the consumer information obtained from the defendants’ business activities as part of the bankruptcy liquidation.
FTC seeks $10 million settlement for negative option billing
On September 2, the FTC announced a proposed $10 million settlement with an online education company, resolving allegations the company engaged in negative option marketing and deceptive billing practices in violation of the FTC Act and the Restore Online Shoppers’ Confidence Act. According to the complaint, filed by the FTC in the U.S. District Court for the Central District of California, from 2015 through at least 2018, the company “failed to adequately disclose key terms of memberships to access online education content for children.” Specifically, the company failed to disclose that memberships automatically renewed indefinitely and kept the “ongoing nature of these term memberships only in separately hyperlinked terms and conditions,” with the automatic renewal “buried” in “dense text, in small font and in single-spaced type.” Moreover, the company allegedly created a difficult cancelation process, notwithstanding the promise of “easy cancellation” written in “bold, red text.”
Under the proposed settlement, the FTC is seeking $10 million in monetary relief and seeks to ban the company from making negative option misrepresentations. Additionally, the proposal would require the company to, among other things, clearly disclose terms of membership and obtain consumers’ informed consent before enrolling them in an automatic billing program.
Court backs FTC’s $120 million settlement in Belizean real estate scheme
On August 28, the U.S. District Court for the District of Maryland granted the FTC’s request for four individuals and the remaining corporate defendants who have not yet settled (collectively, “defendants”) to pay over $120 million in redress to resolve allegations the defendants operated an international real estate investment development scheme. As previously covered by InfoBytes, in November 2018, the FTC initiated the action against the individuals, several corporate entities, and a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. The FTC contends that consumers who purchased lots in the development purchased the lots outright or made large down payments and sizeable monthly payments, and paid monthly homeowners association fees, and that defendants used the money received from these payments to fund their “high-end lifestyles,” rather than to invest in the development. In September 2019, the FTC settled with the Belizean bank, requiring the bank to pay $23 million in equitable relief, including consumer redress (covered by InfoBytes here).
Following a trial, the district court has now agreed with the FTC, concluding that the remaining defendants violated the FTC Act and the TSR. The court found the defendants jointly and severally liable for over $120 million in restitution and granted the FTC’s request for permanent injunctions—banning the defendants from any telemarketing activity and banning one defendant, described as “nothing less than the mastermind” of the operations, from “engaging in any kind of real estate activity” in the future.
FTC proposes to amend five FCRA rules to apply only to auto dealers
On August 24, the FTC announced several Notices of Proposed Rulemaking (NPRM) intended to clarify that five Fair Credit Reporting Act (FCRA) rules promulgated by the FTC will now apply only to motor vehicle dealers. The NPRMs also propose non-substantive amendments to correspond to changes made to the FCRA by the Dodd-Frank Act, and will apply to the following rules:
- Address Discrepancy Rule. This rule requires users of consumer reports to implement policies and procedures for, among other things, handling notices of address discrepancy received from a nationwide consumer reporting agency (CRA) and furnishing an address for a consumer that a “user has reasonably confirmed as accurate to the CRA from whom it received the notice.” The proposed amendments narrow the scope of the rule to motor vehicle dealers excluded from CFPB jurisdiction.
- Affiliate Marketing Rule. This rule provides consumers the right to restrict a person from using certain information obtained from an affiliate to make solicitations to the consumer. While the proposed amendments narrow the scope of the rule to “motor vehicle dealers” excluded from CFPB jurisdiction, they retain the substantive provisions of the rule because they “addresses the relationship between covered motor vehicle dealers and their affiliates, which may not be motor vehicle dealers.”
- Furnisher Rule. Under this rule, furnishers are required to implement policies and procedures regarding the accuracy and integrity of the consumer information they provide to a CRA. The amendments propose changes including narrowing the rule’s scope to entities set forth in Dodd-Frank “that are predominantly engaged in the sale and servicing of motor vehicles, excluding those dealers that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party.”
- Prescreen Opt-Out Notice Rule. This rule outlines requirements for those who use consumer reports to make unsolicited credit or insurance offers to consumers. The proposed amendments will narrow the scope of the rule to cover only motor vehicle dealers. The model form is unchanged from the previous model notice and is identical to the model notice used by the CFPB.
- Risk-Based Pricing Rule. Under this rule persons that use information from a consumer report to offer less favorable terms are required to provide a risk-based pricing notice to consumers about the use of such data. Under the proposed amendments, only motor vehicle dealers will be required to comply.
The FTC seeks feedback on the effectiveness of the five rules, including (i) whether there exists a continuing need for each rule’s specific provisions; (ii) what benefits have been provided to consumers under each rule; and (iii) should modifications be made to each rule in order to benefit consumers and businesses or to account for changes in relevant technology or economic conditions.
Comments are due 75 days after the NPRMs are published in the Federal Register.