Skip to main content
Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • FTC settles with bankrupt crypto company and bans asset management

    Federal Issues

    On October 12, the FTC announced it has reached a settlement with a bankrupt crypto company, which will permanently ban the company from managing consumer assets. According to the federal court complaint, the FTC alleged that from at least 2018, respondent attracted customers by promising their deposits would be secure, but when the company failed, consumers lost access to significant assets, resulting in over $1 billion in cryptocurrency asset losses.  The FTC alleges violations of the FTC Act and the Gramm-Leach-Bliley Act's prohibition on obtaining financial information through false statements.  Respondent allegedly misled consumers by claiming their assets were safe on the platform, stating that "YOUR USD IS FDIC INSURED." However, respondent is not a bank and the deposits were not eligible for FDIC insurance. The FTC complaint also alleged that the FDIC does not insure cryptocurrency assets, and consumers' cash deposits were placed in an account held by respondent at a traditional bank. Consumers' funds were protected only if that bank failed, but their cryptocurrency was not protected at all.

    The proposed settlement with respondent and its affiliates permanently bans them from offering, marketing, or promoting any product or service related to depositing, exchanging, investing, or withdrawing assets. Respondent and its affiliates have agreed to a judgment of $1.65 billion, which will be suspended to allow the bankrupt company to return its remaining assets to consumers through bankruptcy proceedings. The proposed settlement also prohibits respondent and its affiliates from managing consumer assets, misrepresenting product benefits, making false representations to obtain financial information, and disclosing nonpublic personal information without consent.

    The FTC also announced that it is filing a lawsuit against the respondent’s CEO for making false claims that consumer accounts were FDIC-insured. Respondent’s CEO has not agreed to a settlement, and the FTC's case against him will proceed in federal court. “In a parallel action, on October 12, the Commodity Futures Trading Commission separately charged [respondent’s CEO] with fraud and registration failures,” the FTC added.


    Federal Issues Settlement FTC Cryptocurrency Bankruptcy FTC Act Deceptive Enforcement FDIC

  • FTC announces second request for public comment on rule to ban “junk fees”

    Federal Issues

    On October 11, the FTC released a notice of proposed rulemaking meant to prohibit unfair and deceptive, costly fees, also known as “junk fees.” After announcing its Advance Notice of Proposed Rulemaking last year (covered by InfoBytes here), and after considering more than 12,000 public comments, the FTC determined that some businesses misrepresent overall costs by omitting mandatory fees from advertised prices until consumers are “well into completing the transaction,” and fail to adequately explain the nature and amount of fees. The Commission is seeking another round of comments for its proposed rule, which, for any entity that “offers goods or services” to consumers, would prohibit:

    • Offering, displaying, or advertising an amount a consumer may pay without “clearly and conspicuously” disclosing the “total price,” which must be displayed “more prominently than any other pricing information.”
    • Misrepresenting “the nature and purpose of any amount a consumer may pay.”
    • Disclosing “any other pricing information” besides the total price “more prominently” than disclosures of the total price in an “offer, display, or advertisement.”

    The proposed rule would also grant the FTC more robust enforcement authority to seek refunds for harmed consumers and impose monetary penalties of up to $50,120 per violation. The proposed rule also requires businesses to include any mandatory costs for ancillary goods or services in their price disclosures.

    The FTC is working alongside the CFPB, OCC, FCC, HUD and the Department of Transportation to develop and implement rules banning junk fees. The CFPB has also issued guidance emphasizing that large banks and credit unions are prohibited from imposing unreasonable obstacles on customers, such as charging excessive fees, for basic information about their accounts. Further, the White House has called on federal agencies “to reduce or eliminate hidden fees, charges, and add-ons for everything from banking services to cable and internet bills to airline and concert tickets.” 

    The Commission is seeking public input on 37 questions, with comments due 60 days after publication in the Federal Register.

    Federal Issues Agency Rule-Making & Guidance FTC Junk Fees Consumer Protection Federal Register Fees

  • FTC data spotlight reveals social media as primary source for scams over other contact methods

    Federal Issues

    On October 6, the FTC released a data spotlight showing that more scams have originated on social media than on any other method of contact with consumers, accounting for $2.7 billion in consumer losses from 2021 to 2023. The FTC reports that the most frequently reported frauds in 2023 were online shopping scams on social media. However, promotions of fake investment opportunities, mostly those relating to cryptocurrency, on social media had the largest overall monetary losses. The FTC also provided a list of tips for consumers to limit their risks of fraud on social media, including restricting who can contact them on these platforms.

    Federal Issues Agency Rule-Making & Guidance Cryptocurrency Fraud Social Media Consumer Protection FTC

  • FTC roundtable on generative AI and the creative economy

    Federal Issues

    On October 4, the FTC hosted a virtual roundtable to hear directly from creators on how generative artificial intelligence (AI) is affecting their work and livelihood. FTC Chair Lina Khan noted the Commission’s role enforcing rules of fair competition and its intention to “keep pace” to fully understand how new technology can be used and the negative impacts. Khan reminded the audience that there is no “AI exemption” to the laws regarding unfair methods of competition or collusion, discrimination, or deception. In addition, Commissioner Kelly Slaughter mentioned that the generative AI dynamic of web scraping is often performed without the knowledge of creators whose livelihood depends on displaying a public portfolio.

    Duncan Crabtree-Ireland, chief negotiator for SAG AFTRA, stated that the companies using AI technology must receive informed consent and compensation for the use of individuals’ likenesses. John August, committee member for the Writers Guild of America, explained the union’s position that AI generated content can be considered an unfair method of competition, and that creators deserve protection against the unfair use of their work. Douglas Preston, author and former president of the Writers Guild of America, shared that he is part of a class action lawsuit with 16 other authors against a generative AI platform.

    Overall, participants asked the FTC to initiate rulemaking, and support in federal legislation as necessary to underpin the protection of creators’ livelihood, as technology is outpacing law and regulation. They suggested that moving forward, platforms should request creators to opt-in, rather than opt-out of the use of their works to teach and support generative AI output. Moreover, participants repeatedly mentioned a need for disclosures for consumers, so they know when synthetic AI-generated voices, among other things, are used in content generated for consumers.

    Federal Issues FTC Artificial Intelligence Disclosures Consumer Protection

  • FTC fines two companies $6M for inaccurate background reports

    Federal Issues

    The FTC fined two companies that sell consumer background reports through subscriptions for violations of the FTC Act and Fair Credit Reporting Act (“FCRA”). In addition to allegedly claiming, without substantiation, to have the most accurate reports available to the public, the complaint says two companies deceptively claimed individuals had criminal or arrest records when the individual did not; deceptively claimed consumers can remove information or flag it as inaccurate, and deceptively failed to disclose that third-party reviews were incentivized and biased.

    The companies also furnished consumer reports to subscribers “without reason to believe those subscribers have permissible purposes to obtain such reports.”

    The stipulated order requires the companies to pay a civil penalty of $5.8 million, prohibits them from advertising, marketing, promoting, or offering for sale certain reports including arrest records, bankruptcy records, and eviction records until the establish and implement a comprehensive monitoring program, and prohibits them from continuing any of the deceptive practices set forth in the complaint.

    Federal Issues FTC Enforcement FTC Act FCRA Consumer Reporting Deceptive Third-Party

  • FTC, DOJ issue permanent injunction and civil penalty for violations of CAN-SPAM Act

    Federal Issues

    On August 22, the DOJ and the FTC jointly announced a permanent injunction and civil penalty of $650,000 against a company that offers credit information, analytical tools, and marketing services for alleged violations of the CAN-SPAM Act, the CAN-SPAM Rule, and the FTC Act. The case, which was filed in the District Court for the Central District of California, asserts that millions of commercial emails sent to consumers did not give the recipients requisite notice of the option to opt-out of future such emails, in violation of the CAN-SPAM Act and Rule. The order enjoined the company from sending commercial emails that do not provide notice of the recipient’s ability to opt-out of future emails, it also enjoins the company from otherwise violating the CAN-SPAM Act, and subjects it to a civil penalty judgment of $650,000.

    Federal Issues Courts FTC CAN-SPAM Act California Marketing Opt-Out

  • FTC temporarily halts unlawful business opportunity scheme

    Federal Issues

    On August 22, the FTC announced that the U.S. District Court for the Southern District of California recently issued a temporary restraining order against a business opportunity operation for allegedly engaging in deceptive practices. According to the FTC’s complaint, the operation made claims in violation of the FTC Act, the FTC’s Business Opportunity Rule, and the Consumer Review Fairness Act of 2016 by, among other things; (i) making false claims that they offered a “venture capital-backed” and “artificial intelligence-integrated” e-commerce business opportunity for consumers to buy into; (ii) falsely promoting themselves as e-commerce experts and self-made millionaires who have assisted others in generating tens of millions of dollars; (iii) relying on false business projections, including that customers would make a “$4k-$6k consistently monthly net profit”; (iv) false claims about the use of AI tools to maximize revenues; and (v) false endorsements, including false claims of success on social media by an affiliate marketer.  The court’s temporary restraining order prohibited the operation from conducting business, froze its assets, appointed a temporary receiver, and required the operation to turn over business records to the FTC.  Beyond the temporary restraining order, the FTC is seeking preliminary and permanent injunctive relief, monetary relief, and additional relief as determined by the court. The FTC also highlighted that its ability to provide these refunds would not be possible if the action hadn't predated the 2021 Supreme Court ruling (covered by InfoBytes here) that the FTC lacks authority under Section 13(b) of the FTC Act to seek monetary relief in federal court. The FTC used the opportunity to encourage Congress to restore its ability to seek monetary relief in federal court.

    Federal Issues FTC FTC Act Enforcement Marketing Deceptive State Issues

  • District Court files temporary restraining order to stop scammers in FTC suit

    Federal Issues

    On August 21, the FTC announced it has stopped California-based scammers (defendants) who allegedly preyed on students seeking debt relief by pretending to be affiliated with the Department of Education. According to the August 14 complaint, since at least 2019, the defendants allegedly targeted students and illegally collected $8.8 million in advance fees in exchange for student loan debt relief services that did not exist. The defendants allegedly misled consumers by charging them for services that are free through the Department of Education, claiming consumers needed to pay fees or make payments to access federal student loan forgiveness, using names like "Biden Loan Forgiveness," that does not correspond to any actual government program. For instance, one consumer was asked to pay $375 for a processing fee to have up to $20,000 in loans forgiven because of a Pell Grant. Another was told they would get a $10,000 reduction in their loan balance and a new repayment plan with six $250 monthly payments under the “student loan forgiveness program.” The FTC alleges violations of Section 5 of the FTC Act, which prohibits deceptive acts or practices, TCPA, and the Gramm-Leach-Bliley Act. The complaint also alleges that the defendants used such misrepresentations to illegally obtain consumers’ banking information, and typically collected hundreds of dollars in unlawful advance fees—sometimes through remotely created checks in violation of the Telemarketing Sales Rule. The U.S. District Court of the Central District of California filed a temporary restraining order, resulting in an asset freeze, among other things. The FTC seeks preliminary, and permanent injunctive relief, monetary relief, and other relief.

    Federal Issues Courts Enforcement FTC Department of Education Student Lending Consumer Protection FTC Act TCPA Gramm-Leach-Bliley Deceptive

  • Senators, Reps request record retention information from the FTC

    Federal Issues

    On August 18, members of the House and the Senate issued a letter to the FTC with various inquiries related to the FTC’s preservation of agency records. The letter notes that the FTC “has struggled to comply” with the Federal Records Act citing a February 2022 memo from the FTC Inspector General issuing two recommendations for improving records management. The letter further indicates that the FTC has not provided explanations for instances of document deletion and have asked for responses by the end of the month to identify (i) what records have been deleted and why; (ii) how the FTC is working to company with retention requirements; (iii) whether it has notified National Archives and Records Administration of any deleted records; and (iv) how it has addressed prior recommendations.

    Federal Issues U.S. Senate U.S. House FTC Recordkeeping

  • CSBS announces Nonbank Model Data Security Law

    Privacy, Cyber Risk & Data Security

    The Conference of State Bank Supervisors (CSBS) recently released a comprehensive framework for safeguarding sensitive information held at nonbank financial institutions. CSBS’s Nonbank Model Data Security Law is largely based on the FTC’s updated Safeguards Rule, which added specific criteria for financial institutions and other entities, such as mortgage brokers, motor vehicle dealers, and payday lenders, to undertake when conducting risk assessments and implementing information security programs. (Covered by InfoBytes here.) Adopting the Nonbank Model Data Security Law allows for a streamlined and efficient approach to data security regulations for nonbank financial institutions, CSBS explained, adding that by leveraging the existing Safeguards Rule’s applicability to state covered nonbanks, the model law imposes minimal additional compliance burdens and ensures smoother implementation for financial institutions. States can also choose an alternative approach by requiring nonbank financial institutions to conform to the Safeguards Rule, CSBS said.

    The Nonbank Model Data Security Law outlines numerous provisions, which are intended to protect customer information, mitigate cyber threats, and foster a secure financial ecosystem. These include standards for safeguarding customer information, required elements that must be included in a nonbank financial institution’s information security program, and an optional section that requires entities to notify the commissioner in the wake of a security event. CSBS noted that because “the proposed rule on notification requirements for the FTC Safeguards Rule is still pending, the model law allows each state to establish their own customer threshold number, providing flexibility in determining the extent of impact that triggers the notification obligation.” CSBS also provided a list of resources for adopting the Nonbank Model Data Security Law.

    Privacy, Cyber Risk & Data Security State Issues CSBS Nonbank FTC Safeguard Rule Compliance


Upcoming Events