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  • FTC temporarily halts real estate workshops due to deceptive marketing

    Courts

    On October 4, the FTC announced that the U.S. District Court for the District of Utah granted a temporary restraining order against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. According to the complaint, filed by the FTC and the Utah Division of Consumer Protection, the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law, by marketing real estate events with false claims, using celebrity endorsements. The defendants allegedly told consumers they will (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “‘a minimum of three times’” the price of the workshop within six months. The complaint argues that these statements are false or unsubstantiated, and that consumers seeking refunds from the defendants often only received a partial refund on the condition they would not speak to the FTC or other state regulators about the defendants’ products. Among other things, the temporary court order prohibits the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.

    Courts FTC Enforcement FTC Act UDAP Deceptive Marketing

  • FTC settles with Belizean bank over real estate scheme

    Federal Issues

    On September 24, the FTC announced a proposed $23 million settlement with a Belizean bank resolving allegations that it assisted various entities in deceiving U.S. consumers into purchasing parcels of land in a luxury development in Belize. As previously covered by InfoBytes, in November 2018, the FTC filed charges and obtained a temporary restraining order against the operators of an international real estate investment scheme, which allegedly violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land through the use of deceptive tactics and claims. The FTC asserted that consumers who purchased lots in the development purchased them outright or made large down payments and sizeable monthly payments, including HOA fees, and that defendants used the money received from these payments to fund their “high-end lifestyles,” rather than invest in the development. The FTC argued that “consumers either have lost, or will lose, some or all of their investments.” At the time, the FTC filed separate charges against the Belizean bank for allegedly assisting and facilitating the scam.

    According to the FTC, the bank has now agreed to the proposed consent order to settle the allegations. The consent order requires the bank to pay $23 million, which will be used to provide equitable relief, including consumer redress, and to cease all non-liquidation business activities permanently. Additionally, the consent order prohibits the liquidator or anyone else from seeking to re-license and operate the bank’s business. The consent order must be approved by the U.S. District Court for the District of Maryland.

    Federal Issues FTC FTC Act Courts Telemarketing Sales Rule Settlement Consent Order

  • FTC supports CFPB on debt collection proposal

    Agency Rule-Making & Guidance

    On September 18, the FTC issued its comment letter to the CFPB’s Notice of Proposed Rulemaking (NPRM) amending Regulation F, to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”). As previously covered by InfoBytes, on May 7, the CFPB issued the Proposed Rule, which covers debt collection communications and disclosures and addresses related practices by debt collectors. The FTC is generally in support of the Proposed Rule, and the Commission voted unanimously to approve the submission of the comment. In addition to summarizing the FTC’s legal authority and efforts to protect consumers from unlawful debt collection practices (such as enforcement actions, workshops, and outreach) the comment letter addresses several topics covered in the Proposed Rule. In particular, the FTC supports the Proposed Rule’s provisions on passive collections, decedent debt, and time and place restrictions. Other highlights of the letter include:

    • Validation notices. The FTC supports the proposed changes to validation notices, which mandate more information to be provided to the consumer about the debt and the rights the consumer has associated with that debt. The comment letter encourages the CFPB to consider the benefits and risks with regard to the safe harbor for emailed validation notices in initial communications, noting it is important that debt collectors use email addresses that are current and also, that the emails are not sent to unauthorized third parties.
    • Time-barred debts. The FTC supports the proposed prohibition on collectors threatening or bringing legal action against consumers to collect on debts that they know or should know are time-barred. However, the comment letter notes that consideration should be given to whether requiring the showing that the collector knew or should have known about the age of the debt is a potential unnecessary additional burden on law enforcement agencies.
    • Prohibitions on the sale or transfer of certain debts. The FTC supports the proposed prohibition on selling, transferring, or placing for collection a debt that the collector knows or should know has been paid or settled, discharged in bankruptcy, or has been the subject of an identity theft report. The comment letter requests that the CFPB consider adding to this prohibition additional categories of debt that are “more squarely associated with phantom debt collection, including, for example, debts that are counterfeit or fictitious.”
    • Communications media. The FTC supports the proposed requirement that a debt collector include—in emails, text messages and other electronic communications—an option for the consumer to opt-out of communications through that particular medium. The comment letter encourages the CFPB to consider requiring collectors to provide a direct, simple, electronic mechanism to quickly exercise this opt-out right.
    • Restrictions on disclosures to third parties. The FTC supports the proposed definition of “limited-content messages” but encourages the CFPB to consider ways to minimize the likelihood that third parties would recognize limited-content messages as being associated with a debt collection and notes that allowing for these messages during live calls poses heightened risk for disclosure of the debt.
    • Telephone call frequency limits. The FTC supports the proposed restrictions on call frequency and notes that these protections should apply to calls that “may not cause a traditional ring,” including ringless voicemail messages. Additionally, the FTC supports the application of the protections to limited-content messages and location information calls to third parties.

    Agency Rule-Making & Guidance CFPB Debt Collection FDCPA FTC Comment Letter

  • FTC lawsuits allege student loan scams

    Federal Issues

    On September 12, the FTC announced two separate suits filed in the U.S. District Court for the Central District of California against various entities and individuals who allegedly engaged in deceptive practices when promoting student loan debt relief schemes.

    In the first complaint, filed jointly with the Minnesota attorney general, a debt relief company and its owners (collectively, the “Minnesota defendants”) were alleged to have violated the FTC Act, TILA, the Telemarketing Sales Rule (TSR), and various state laws, by charging consumers who sought student loan payment reduction programs an advance fee of over $1,300 while falsely representing that the payment would go toward their student loans. The advance fee, the FTC contends, was allegedly financed through high-interest loans from a third-party finance company identified as a co-defendant in both complaints. The stipulated order entered against the Minnesota defendants prohibits them from, among other things: (i) making material misrepresentations related to their financial products and services, or any other kind of product or service; (ii) making unsubstantiated claims about their financial products and services; (iii) engaging in unlawful telemarketing practices; or (iv) collecting payments on accounts sold prior to the order’s date. The stipulated order also requires the Minnesota defendants to notify its customers that none of their prior payments have gone towards a Department of Education repayment program or towards their student loans, and orders the payment of $156,000, with the total judgment of approximately $4.2 million suspended due to inability to pay.

    The FTC filed a second complaint against a separate student loan debt relief operation for allegedly engaging in deceptive and abusive practices through similar actions, including charging consumers advance fees of up to $1,400 and enrolling consumers in the same finance company’s high-interest loan program. The action against the second student loan debt relief operation is ongoing.

    Both complaints also charge the finance company with violating the assisting and facilitating provision of the TSR by providing substantial assistance to both sets of defendants even though it knew, or consciously avoided knowing, that they were engaging in deceptive and abusive telemarketing practices. The FTC also alleges that the finance company violated TILA when it failed to clearly and conspicuously make certain required disclosures concerning its closed-end credit offers. Separate stipulated orders were entered by the FTC in each case (see here and here) against the finance company. The orders’ terms require the finance company to pay a combined $1 million out of a nearly $28 million judgment, with the rest suspended due to inability to pay, as well as relinquish its rights to collect on any outstanding loans. Among other things, the orders also permanently ban the finance company from engaging in transactions involving secured or unsecured debt relief products and services or making misrepresentations regarding financial products and services.

    Federal Issues FTC Enforcement Student Lending Debt Relief State Attorney General FTC Act Telemarketing Sales Rule TILA UDAP

  • FTC approves settlement with software provider over FTC Act and GLBA data security failures

    Federal Issues

    On September 6, the FTC voted 5-0 to approve a final settlement under which a software provider agreed to better protect the data it collects, resolving allegations that the company failed to implement reasonable data security measures and exposed personal consumer information obtained from its auto dealer clients in violation of the FTC Act and the Standards for Safeguarding Customer Information Rule, issued pursuant to the Gramm-Leach-Bliley Act.

    As previously covered by InfoBytes, in its complaint, the FTC alleged the company’s failure to, among other things, (i) implement an organization information security policy; (ii) implement reasonable guidance or training for employees; (iii) use readily available security measures to monitor systems; and (iv) impose reasonable data access controls, which resulted in a hacker gaining unauthorized access to the company’s database containing the personal information of approximately 12.5 million consumers. The approved settlement requires the company to, among other things, implement and maintain a comprehensive information security program designed to protect the personal information it collects, including implementing specific safeguards related to the FTC’s allegations. Additionally, the settlement requires the company to obtain third-party assessments of its information security program every two years and have a senior manager certify compliance with the order every year.

    Federal Issues FTC Privacy/Cyber Risk & Data Security FTC Act Enforcement Settlement Consent Order Gramm-Leach-Bliley

  • District Court: FTC allegations against credit card processor can proceed

    Courts

    On August 28, the U.S. District Court for the District of Arizona denied motions to dismiss an enforcement action brought by the FTC against a group of individuals and entities that allegedly facilitated a telemarketing scheme that previously resulted in the principal actors in the scheme settling with the FTC and later pleading guilty to state criminal charges. The alleged scheme involved “credit card laundering”—the creation of fictitious entities to process customer credit card transactions so that the actual entity receiving the funds would not be identified. The defendants in the current matter are an Independent Sales Organization and several of its officers allegedly involved in that effort (prior Info Bytes coverage here). The defendants first argued that the relevant part of the FTC Act only permits injunctive relief and that the FTC’s requests for restitution and disgorgement were improper because those forms of relief are penalties, not equitable relief, under Kokesh v. Securities and Exchange Commission. The court noted, however, that the Supreme Court in Kokesh expressly limited the holding to the question of the statute of limitations applicable to the SEC, and that the Ninth Circuit has subsequently approved decisions granting restitution and disgorgement under the FTC Act. The defendants also argued that injunctive relief was not warranted where the unlawful conduct in question ceased in 2013, but the court ruled that the FTC need only show that it has “reason to believe” that a defendant is violating or is about to violate the law. The court declined to address the FTC’s argument that its “reason to believe” decision is unreviewable, but it found that the FTC had pled sufficient facts to establish that it has reason to believe that the defendants would violate the statute. In particular, the court noted that a “court’s power to grant injunctive relief survives the discontinuance of illegal conduct,” that “an inference arises from illegal past conduct that future violations may occur,” and that “courts should be wary of a defendant’s termination of illegal conduct when a defendant voluntarily ceases unlawful conduct in anticipation of formal intervention.” Those factors were all present, along with the fact that the defendants “remain in the same professional occupation.”

    Courts FTC Payment Processors FTC Act Credit Cards Telemarketing Sales Rule

  • Video-sharing site reaches $170 million settlement with FTC and New York AG

    Federal Issues

    On September 4, the FTC and the New York Attorney General announced (see here and here) a combined $170 million proposed settlement with the world’s largest online search engine and its video-sharing site subsidiary concerning alleged violations of the Children’s Online Privacy Protection Act (COPPA). According to the complaint, the video-sharing site allegedly collected personal information in the form of “persistent identifiers” from viewers of child-directed channels without first obtaining verifiable parental consent. The persistent identifiers allegedly generated millions of dollars in revenue by delivering targeted ads to viewers. The FTC and New York AG allege, among other things, that the defendants knew the video-sharing site hosted numerous child-directed channels but told advertisers that the video-sharing site contains general audience content, even informing one advertising company that it did not have users younger than 13 on its platform and therefore channels on its platform did not need to comply with COPPA.

    Under COPPA, operators of websites and online services directed at children are prohibited from collecting personal information of children under the age of 13—including through the use of persistent identifiers for targeted advertising purposes—unless the company has explicit parental consent. Furthermore, third parties—such as advertising networks—must also comply with COPPA where they have actual knowledge that personal information is being collected directly from users of child-directed websites and online services.

    While neither admitting nor denying the allegations, except as specifically stated within the settlement, the defendants will, among other things, (i) pay a $136 million penalty to the FTC and a $34 million penalty to New York; (ii) change their business practices to comply with COPPA; (iii) maintain a system for channel owners to designate their child-directed content on the video-sharing site; and (iv) disclose their data collection practices and obtain verifiable parental consent prior to collecting personal information from children. According to the FTC, the $136 million penalty is “by far the largest amount the FTC has ever obtained in a COPPA case since Congress enacted the law in 1998.”

    Federal Issues FTC State Attorney General Enforcement Privacy/Cyber Risk & Data Security COPPA

  • FTC settles with lead generator

    Federal Issues

    On August 27, the FTC announced a settlement with an Illinois-based educational services company and its subsidiaries (defendants) to resolve deceptive marketing allegations in violation of the FTC Act and the Telemarketing Sales Rule. In the complaint, the FTC claimed the defendants used third-party lead generators that posed as military recruiters or job-finding services to encourage consumers to provide contact information via websites. The websites did not clearly inform the consumers that the personal information entered into online forms might be sold or used in training or educational programs. Rather, the FTC asserted that the lead generators falsely informed consumers that their information would not be shared. According to the FTC, the defendants then purchased these leads to call consumers in an attempt to enroll them in post-secondary schools, with many of these calls made to consumers on the National Do Not Call Registry. While the defendants did not carry out the deceptive practices to generate the leads, the FTC stated that the defendants established control over the marketing materials and reviewed telemarketing scripts that allegedly directed lead generators to falsely identify themselves as military recruiters. The FTC’s press release emphasized that “[t]his case demonstrates that the FTC will seek to hold advertisers liable for the deceptive or illegal practices of their affiliates, publishers, or other lead generators. We expect companies purchasing leads to implement strong vendor management programs and stay on the right side of the law.” Under the terms of the settlement, the defendants are: (i) ordered to pay $30 million; (ii) required to implement a system to review any marketing materials used by lead generators; (iii), prohibited from calling numbers on the National Do Not Call Registry without obtaining written consent; and (iv) banned from falsely stating that they represent the military or prospective employers.

    Federal Issues FTC Enforcement Lead Generation UDAP FTC Act Telemarketing Sales Rule

  • 7th Circuit overturns precedent, rejects restitution under Section 13(b) of FTC Act

    Courts

    On August 21, the U.S. Court of Appeals for the 7th Circuit held that Section 13(b) of the FTC Act does not give the FTC power to order restitution, overruling that court’s 1989 decision in FTC v. Amy Travel Service, Inc. As previously covered by InfoBytes, in June 2018, the U.S. District Court for the Northern District of Illinois granted the FTC’s motion for summary judgment against a credit monitoring service and its sole owner in an action filed under Section 13(b) of the FTC Act. The court concluded that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge could occur without engaging in unfair or deceptive practices. The FTC argued that the defendants’ scheme, which used the promise of a free credit report to enroll the consumers into a monthly credit monitoring program, violated the FTC Act’s ban on deceptive practices. The court agreed, holding that the ad campaign was “rife with material misrepresentations that were likely to deceive a reasonable consumer.” Additionally the court agreed with the FTC that the defendants’ website was materially misrepresentative because it did not give “the net impression that consumers were enrolling in a monthly credit monitoring service” for $29.94 a month, as opposed to defendants’ claim that consumers were obtaining a free credit report. The court also found that the defendants’ websites failed to meet certain disclosure requirements imposed by the Restore Online Shopper Confidence Act. The court entered a permanent injunction and ordered the defendants to pay over $5 million in “equitable monetary relief” to the FTC.

    On appeal, the 7th Circuit affirmed the district court’s liability determination, and affirmed the issuance of the permanent injunction. However, the appellate court took issue with the restitution award ordered pursuant to Section 13(b) of the FTC Act. The appellate court noted that the FTC has long viewed Section 13(b) as authorizing awards of restitution, and even acknowledged that the 7th Circuit agreed with the FTC’s position in its decision in Amy Travel. However, subsequent to the Amy Travel decision, the Supreme Court, in Meghrig v. KFC W., Inc., clarified that “courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme.” Applying Meghrig, the 7th Circuit noted that “nothing in the text or structure of the [FTC Act] supports an implied right to restitution in section 13(b), which by its terms authorizes only injunctions.” The panel emphasized that the FTC Act has two other provisions that expressly authorize restitution if the FTC follows certain procedures, but the current reading of Section 13(b), based on Amy Travel, allows the FTC “to circumvent these elaborate enforcement provisions and seek restitution directly through an implied remedy.” Therefore, based on the Supreme Court precedent in Meghrig, the panel concluded that Section 13(b)’s grant of authority to order injunctive relief does not implicitly authorize an award of restitution, overturning its previous decision in Amy Travel and vacating the district court’s award of restitution.

    Courts Appellate Seventh Circuit FTC Act Enforcement Restitution FTC

  • FTC settles with email company for deceptively collecting consumer information

    Federal Issues

    On August 8, the FTC announced a settlement with an email management company, which requires the company to delete the personal information it obtained from consumers’ email receipts after allegedly misleading consumers about the company’s services. In the complaint, the FTC alleges that the company, which assisted consumers in unsubscribing from unwanted subscription emails, deceptively told consumers that it would “never touch [their] personal stuff,” when providing the company access to their emails, but in reality, the company would access inboxes to collect consumers’ e-receipts to sell the purchase information to other companies. Moreover, the complaint alleges that, even after consumers chose to decline to allow the company access to their email, the company persisted with deceptive messages, which resulted in “[o]ver 20,000 consumers chang[ing] their minds and decid[ing] to complete the sign-up process after viewing the messages.” The settlement requires the company to: (i) delete from its system, and its parent company’s system, the email receipts it collected from consumers, unless it obtains their affirmative consent to maintain the information; (ii) cease misrepresenting the way it collects, uses, stores, or shares the information it collects; and (iii) notify consumers who have signed up for the service, after viewing the deceptive messages, about how it collects and shares information.

    Federal Issues FTC Deceptive UDAP

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