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Financial Services Law Insights and Observations

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  • FTC Warns That Mobile Background Screening Apps May Violate FCRA

    Fintech

    On February 7, the FTC announced that it had warned three mobile application marketers that their mobile background screening applications may be violating the Fair Credit Reporting Act (FCRA). The FTC described some of the six applications at issue as including criminal record histories, which are a type of information typically used in employment and tenant screening. While the FTC has not made a determination as to whether these firms are violating FCRA, it reminded the companies that if they have reason to believe the mobile applications include information about individuals’ character, reputation, or personal characteristics that is used or expected to be used for purposes such as employment, housing or credit, the marketers and their customers must comply with FCRA. Under FCRA, firms that assemble or evaluate such information to provide to third parties qualify as consumer reporting agencies and are required to (i) take reasonable steps to ensure the user of each report has a “permissible purpose” to use the report, (ii) take reasonable steps to ensure the maximum possible accuracy of the information conveyed in its reports, and (iii) provide users of its reports with information about their obligations under the FCRA.

    FTC FCRA

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  • FTC Settles Claims Against Negative-Option Sales Operators

    Fintech

    On February 1, the Federal Trade Commission (FTC) announced a settlement with two individuals alleged to have operated businesses that improperly collected consumer information and then used that data to enroll consumers in negative-option programs that promised to match consumers with payday lenders. The FTC claimed the operators enrolled consumers in the payday lender matching program without consumer consent and refused to provide promised refunds. Under the settlement agreement, the individuals must pay nearly $10 million and will be prohibited from marketing secured loan products. The agreement also bars the individuals from making certain misrepresentations and prohibits the conduct at issue.

    FTC

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  • FTC and DOJ Obtain Settlement of Claims Against Debt Buyer

    Consumer Finance

    On January 30, the FTC and the DOJ announced that a Michigan-based debt buyer had agreed to pay a $2.5 million civil penalty to settle allegations of misconduct in connection with the company's debt collection activities. The FTC alleged that the debt buyer violated the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act by, among other things, (i) misrepresenting without substantiation that consumers owed a debt, (ii) failing to disclose that certain time-barred debt did not have to be repaid, (iii) knowingly providing false information to credit reporting agencies, and (iv) failing to investigate disputes raised by credit reporting agencies. In addition to paying the civil penalty, the company must address the failures and misconduct alleged by the FTC. For example, it must inform consumers when a debt is too old to be legally enforceable. Further, the company is prohibited from engaging in certain conduct, such as placing debt on consumer credit reports without notifying the consumer. Concurrent with the announcement, the FTC released a publication to help consumers understand their rights with regard to time-barred debt.

    FTC FDCPA FCRA

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  • CFPB, DOD, FTC, and State AGs Partner to Develop Enforcement Action Database

    Financial Crimes

    On January 25, the CFPB, the Department of Defense, the FTC, and the New York Attorney General announced a partnership to develop the Repeat Offenders Against Military (ROAM) Database to track enforcement actions against entities or individuals engaged in consumer financial frauds against military personnel, veterans, and their families. The database, which should be available by mid-February, will compile publicly available information about completed civil and criminal legal actions and will be accessible and searchable by state attorneys general, U.S. Attorneys, and Judge Advocates from all branches of the armed services. The Consumer Protection Committee of the National Association of Attorneys General already has sent a letter to state attorneys general asking them to populate the new database with their enforcement action information. The FTC noted that the ROAM database will complement its Consumer Sentinel Network, which collects and provides wide access to consumer complaints, including those related to the frauds against servicemembers and their families.

    CFPB FTC Servicemembers State Attorney General

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  • CFPB and FTC Announce Memorandum of Understanding to Coordinate Regulatory Activities

    Consumer Finance

    On January 23, the CFPB and the FTC announced that the agencies had entered into a memorandum of understanding (MOU) to facilitate coordination of the agencies’ consumer financial rulemaking, enforcement, and supervision activities. The MOU establishes regular meetings between the two entities, as well as processes for providing notice of enforcement activities. Under the MOU, the CFPB and the FTC will be able to share consumer complaint information, and the FTC can request CFPB examination reports and confidential supervisory information.

    CFPB FTC

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  • FTC Enhances Confidentiality of Investigations and Proposes Rule to Expedite Investigatory Processes

    Courts

    On January 13, by a vote of 5-0, the FTC adopted a new rule of practice (Rule 2.17) that streamlines internal procedures for staff seeking a court order to prevent investigation targets from learning about subpoenas and civil investigative demands issued by the FTC. The rule allows individual FTC Commissioners or the FTC’s general counsel to authorize the filing of a court action to delay notification to individuals required under the Right to Financial Privacy Act and the Electronic Communications Privacy Act when the FTC is seeking records from financial institutions or service providers.

    Also on January 13, the FTC proposed additional changes to Parts 2 and 4 of its Rules of Practice to expedite Commission investigations and ensure that the FTC’s investigatory processes keep pace with electronic discovery advances. Among the proposed changes is a requirement for an accelerated meet-and-confer schedule to resolve electronic discovery disputes, as well as a proposal to relieve parties of their obligations to preserve documents after a year passes with no written communication from the FTC. The public can comment on the proposed rule changes through March 23, 2012.

    FTC

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  • Upromise Settles with FTC Over Collection of Consumers' Personal Information

    Fintech

    On January 5, the FTC announced that Upromise had agreed to settle charges that its collection of consumers’ personal information was deceptive and an unfair practice, and that the collection violated federal law. Upromise’s website offered consumers a “TurboSaver Toolbar” download with a “Personalized Offers” feature to tailor savings opportunities to the consumer. The FTC alleged that the feature collected and transmitted, without encryption, the names of websites consumers visited, which links they clicked on, and information entered into webpages such as search terms, user names, and passwords. According to the FTC, the information collected also included credit card and financial account numbers, security codes and expiration dates, and Social Security numbers. Upromise’s privacy statement, however, stated that (i) the toolbar would only infrequently and inadvertently collect personal identifying information, (ii) personal information would be removed before the data was transmitted, and (iii) Upromise automatically encrypts users’ sensitive information. The proposed settlement requires in part that Upromise (i) destroy data collected, (ii) update its disclosures, (iii) notify consumers regarding the type of information collected and how to disable the toolbar, and (iv) obtain a biennial independent audit for the next twenty years. The proposed settlement is open for public comment through February 6.

    FTC Privacy/Cyber Risk & Data Security

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  • FTC Obtains Agreement from Payment Processor to Prohibit Use of New Payment Method

    Fintech

    On January 5, the FTC announced a settlement with a payment processor and two of its principals that will prohibit the company from using a new payment method, through which accounts were debited without account-holder consent. The FTC alleged that the company actively promoted the method as a way to avoid scrutiny associated with other payment methods, and ignored red flags - such as payment-rejection rates exceeding 80 percent - that its merchant customers were seeking to defraud account-holders. As a result, according to the FTC, consumers incurred significant costs, including for overdraft fees. In addition to banning the use of this payment process, the settlement requires, among other things, that the company monitor client return rates and investigate rates exceeding 2.5 percent.

    FTC Payment Systems

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