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FTC paper discusses small business financing issues
On February 26, the FTC released a staff perspective paper covering topics discussed during the Commission’s “Strictly Business” forum on small business financing held in 2019, as well as an online tool for small businesses to submit lending- or financing-related complaints. As previously covered by InfoBytes, the forum heard from members of the small business marketplace who discussed the recent uptick in online loans and alternative financing products, and analyzed the potential for unfair and deceptive marketing, sales, and collection practices in the industry. The staff paper provides an overview of key issues discussed during the forum, as well as enforcement information, recent small business financing marketplace trends, potential benefits and risks of newer online financing products, and consumer protection issues associated with merchant cash advances. Among other things, the staff paper emphasized that “small business finance providers should avoid the sorts of practices that the Commission has alleged to be deceptive” in its enforcement actions involving either small business consumers or individual consumers, such as actions charging lenders with making “misleading claims regarding fees, consumer savings, payment amounts, and interest rates” in connection with personal loans. The staff paper also stressed that finance providers should understand that using marketing intermediaries, such as brokers and lead generators, “does not immunize them from liability under the FTC Act,” and that finance providers “should take steps to ensure that their marketers do not engage in deceptive or other unlawful conduct.” Small business consumers, the staff paper noted, would also likely benefit from more uniform and easily understood financing disclosures in order to compare costs and product features in the small business marketplace.
FTC report highlights 2019 privacy and data security work
On February 25, the FTC released its annual report highlighting the agency’s privacy and data security work in 2019. Among other items, the report highlights consumer-related enforcement activities in 2018, including:
- A $5 billion penalty—the largest consumer privacy penalty to date—against a global social media company to resolve allegations that the company violated its 2012 FTC privacy order and mishandled users’ personal information. (Covered by InfoBytes here.)
- A $170 million penalty against a global online search engine and its video-sharing subsidiary to resolve alleged violations of the Children’s Online Privacy Protection Act (COPPA). (Covered by InfoBytes here.)
- A proposed settlement in the FTC’s first case against developers of “stalking” apps that monitor consumers’ mobile devices and allegedly compromise consumer privacy in violation of the FTC’s Act prohibition against unfair and deceptive practices and COPPA.
- A global settlement of up to $700 million issued in conjunction with the CFPB, 48 states, the District of Columbia and Puerto Rico, to resolve federal and state investigations into a 2017 data breach that reportedly compromised sensitive information for approximately 147 million consumers. (Covered by InfoBytes here.)
The report also discusses the FTC’s enforcement of the EU-U.S. Privacy Shield framework, provides links to FTC congressional testimony on privacy and data security, and offers a list of relevant rulemaking, including rules currently under review. In addition, the report highlights recent privacy-related events, including (i) an FTC hearing examining consumer privacy as part of its Hearings on Competition and Consumer Protection in the 21st Century; (ii) the fourth annual PrivacyCon event, which hosted research presentations on consumer privacy and security issues (covered by InfoBytes here); (iii) a workshop examining possible updates to COPPA; and (iv) a public workshop that examined issues affecting consumer reporting accuracy.
FTC, New York settle with debt collection schemer
On February 25, the FTC and the New York attorney general announced a settlement with an individual defendant who controlled a New York-based debt collection operation for allegedly violating the FTC Act, the FDCPA, and New York state law by using false or deceptive tactics to collect money from consumers. As previously covered by InfoBytes, the FTC and the New York AG filed a complaint against the operation in 2018, alleging that operation employees threatened consumers with arrest or lawsuits and sometimes falsely posed as law enforcement officials or attorneys. In addition, the FTC and New York AG claimed employees allegedly increased pressure on consumers by telling them they owed more than indicated in the operation’s records, using forms that showed both the actual balance owed by the consumer as well as a higher balance the collectors claimed the consumers owed—a practice known as “overbiffing.” Under the terms of the settlement, the defendant—who neither admitted nor denied the allegations—is permanently banned from participating in debt collection activities and “is prohibited from misleading consumers about any financial-related products” or services. The settlement also imposed a $1.7 million judgment, of which all but $30,000 is suspended due to the defendant’s inability to pay.
FTC gives annual ECOA summary to CFPB
On February 21, the FTC announced it recently provided the CFPB with its annual summary of work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B. The summary discusses, among other things, the following FTC research and policy development initiatives:
- The FTC continued its series of Hearings on Competition and Consumer Protection in the 21st Century. Session 12 of these hearings specifically focused on consumer privacy and “the use of big data in automated decision making and how . . . ECOA should inform the use of data collected from consumers.” Session 14 included a roundtable of state attorneys general and senior staff who addressed consumer protection issues related to “the impact of big data and algorithms on equal access to credit.”
- The FTC held a forum with a variety of business leaders, enforcement attorneys, and policymakers to discuss ECOA’s applicability to small business financing.
- The FTC held a consumer reporting workshop to discuss ECOA as well as (i) consumer report furnisher practices; (ii) making credit decisions based on fairness; and (iii) avoiding the use of a prohibited basis in extending credit.
- The FTC’s Military Task Force continued to work on military consumer protection issues, including military consumers’ rights to “various types of notifications as applicants for credit, including for adverse action, and information about the anti-discrimination provisions, in ECOA and Regulation B.”
- The FTC continued to participate in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and federal banking regulatory agencies.
The summary also highlights FTC business and consumer education efforts on fair lending issues, as well as blog posts discussing the online marketplace for small business financing.
FTC seeks injunction against online investment training academy for deceptive claims
On February 12, the FTC filed a complaint in the U.S. District Court for the Central District of California against a California-based investment training operation alleging use of deceptive claims to sell costly “training programs” targeting older consumers. According to the complaint, the operation allegedly 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.” The FTC also alleges that the operation’s instructors claim to be successful traders who have amassed substantial wealth using the strategies, but are actually salespeople working on commission. However, the FTC asserts, among other things, that the operation fails to track customers’ trading results and that its earnings claims are false or unsubstantiated. Moreover, the FTC alleges the operation requires that dissatisfied customers requesting refunds sign agreements barring them from posting negative comments about the operation or its personnel, and specifically prohibits customers from reporting potential violations to law enforcement agencies. Among other things, the FTC seeks injunctive relief against the operation, as well as “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
FTC settles deceptive ranking charges with lead generator
On February 3, the FTC announced a settlement with operators of a lead generator website (respondents) that compares and ranks consumer financial products such as student loans, personal loans, and credit cards. According to the FTC’s complaint, the respondents violated the FTC Act by allegedly making false representations to consumers that their rankings were objective, honest, accurate, and unbiased, when in fact, the defendants allegedly offered higher rankings to companies that paid for placement. In addition, the complaint alleges that certain highly ranked companies dropped placement spots after refusing to pay for their positions. The complaint further contends that the respondents allegedly claimed that customer reviews were impartial, but in reality most reviews were written by company employees or their family friends, or others associated with the company, or by fabricated consumers. Without admitting or denying the allegations, the respondents have agreed to pay $350,000 under the terms of the proposed settlement, and are prohibited from making future misrepresentations connected with the “advertising, promotion, offering for sale, or sale of any product or service.”
FTC settles with credit repair companies
On January 17, the FTC announced it had reached settlements with a number of defendants alleged to have operated “an unlawful credit repair scam that has deceived consumers across the country.” According to the FTC’s complaint, the defendants purportedly made false representations to consumers regarding their abilities to improve credit scores, falsely promised to remove any negative entries on the consumers’ credit reports, illegally collected upfront fees from consumers before the services were fully performed, and used threats and coercion to intimidate consumers from disputing charges. The FTC alleged these misleading statements and illegal actions violated TILA, the FTC Act, the Telemarketing Act, and the Credit Repair Organizations Act, among other things. Additionally, the FTC claimed that the defendants “routinely engage in electronic fund transfers from consumers’ bank accounts without obtaining proper authorization, and use remotely created checks to pay for credit repair services they have offered through a telemarketing campaign, in violation of the TSR.” The defendants, without admitting or denying the allegations, agreed to settlements that ban the defendants from offering credit repair services through “advertising, marketing, promoting, offering for sale, or selling,” impose a total monetary penalty of nearly $14 million, and require several defendants to turn over the contents of bank and merchant accounts as well as investment and cryptocurrency accounts. See the settlements here, here, and here.
After settlement, six remain in FTC robocalling suit
On January 10, the FTC announced that it entered into two settlement agreements: one with a call center and two individuals, and one with an additional individual (together, “the settling defendants”) that it claims made illegal robocalls to consumers as part of a cruise line’s telemarketing operation allegedly aimed at marketing free cruise packages to consumers. According to the two settlements (see here and here), the settling defendants “participated in unfair acts or practices in violation of . . . the FTC Act, and the FTC’s Telemarketing Sales Rule [(TSR)]” by “(a) placing telemarketing calls to consumers that delivered prerecorded messages; (b) placing telemarketing calls to consumers whose telephone numbers were on the National Do Not Call Registry; and (c) transmitting inaccurate caller ID numbers and names with their telemarketing calls.” The defendants are permanently banned from making telemarketing robocalls, and have been levied judgments totaling $7.8 million, all but $2,500 of which has been suspended due to the defendants’ inability to pay.
Also on January 10, the FTC filed a complaint in the U.S. District Court for the Middle District of Florida against the remaining six defendants allegedly involved in the telemarketing operation, for violations of the FTC Act and TSR based on the same actions alleged against the settling defendants.
CFPB denies petitioner’s request to postpone CID pending Seila decision
On December 26, the CFPB denied a petition by a student loan relief company to modify or set aside a civil investigative demand (CID) issued by the Bureau last October. According to the company’s petition, the CID requested information as part of an investigation into the company’s promotion of student loan debt relief programs. As previously covered by InfoBytes, stipulated orders were entered against the company by the FTC and the Minnesota attorney general for violations of TILA and the assisting and facilitating provision of the Telemarketing Sales Rule, which resulted in the company being permanently banned from engaging in transactions involving debt relief products and services or making misrepresentations regarding financial products and services. In its petition, the company argued that the CFPB’s requests were duplicative of the FTC’s earlier investigation. The company also argued that the documents and materials sought in the CID were overly burdensome and the time frame to respond was too short. Furthermore, the company stated that until the U.S. Supreme Court issues a decision in Seila Law v. CFPB on whether the Bureau’s structure violates the Constitution’s separation of powers under Article II, the CID should either be withdrawn or stayed because of the uncertainty surrounding the Bureau’s ability to proceed with enforcement actions.
The Bureau denied the petition, arguing that “the administrative CID petition process is not the proper forum for raising and deciding constitutional challenges to provisions of the Bureau’s statute.” The Bureau also noted that the company failed to show that it engaged with Bureau staff on ways to alleviate undue burden, such as proposing modifications to the substance of the requests, and that even though the Bureau proposed an extension to the CID deadline, the company did not seek such an extension.
Mortgage broker allegedly violated federal laws by posting customers’ personal information on website
On January 7, the FTC announced a proposed settlement with a California mortgage broker and his company to resolve alleged violations of the FTC Act, FCRA, Regulation P, and the Safeguards Rule. According to a complaint filed by the DOJ on behalf of the FTC, the defendants published the personal information of customers who posted negative reviews on a public website, including customers’ “sources of income, debt-to-income ratios, credit history, taxes, family relationships, and health.” The alleged posts containing negative financial information violated the defendants’ responsibilities under Regulation P (Privacy of Consumer Financial Information) as the required privacy disclosure provided to the customers stated that the defendants would not share personal information with any third party. Regulation P also “prohibits financial institutions from disclosing to any nonaffiliated third party any nonpublic personal information about a customer unless it has provided the customer with an opt-out notice, . . . a reasonable opportunity to opt out of the disclosure, and the customer has not opted out.” In this instance, customers were not given the opportunity to opt out of disclosure of their personal financial information in response to online consumer reviews, the complaint asserts. In addition, the complaint alleges that the defendants also violated the FTC Act by causing unfair or deceptive acts or practices that “deprived consumers of the ability to control whether and to whom they disclosed sensitive information.” The defendants also allegedly violated the FCRA by using consumer reports for impermissible purposes, and the FTC’s Safeguards Rule by failing to implement or maintain an adequate information security program. Under the terms of the proposed settlement, the defendants will pay a $120,000 civil penalty and are prohibited from (i) misrepresenting their privacy and data security practices; (ii) using consumer reports for anything other than a permissible purpose; (iii) not providing required privacy notices; and (iv) improperly disclosing nonpublic personal information to third parties. Among other things, the company is also prohibited from transferring, selling, sharing, collecting, maintaining, or storing nonpublic personal information unless it implements a comprehensive information security program; and must obtain independent third-party assessments of its information security program every two years.