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FTC Chairman Simons stresses collaboration with state AGs
On March 5, FTC Chairman Joseph Simons spoke at the National Association of Attorneys General (NAAG) Winter Meeting to advocate for increased collaboration with state Attorneys General. Noting that such collaboration is critical to the agency’s mission, Simons highlighted FTC consumer protection goals as well as several collaborative efforts, including joint task forces and investigation and enforcement initiatives.
Court bans telemarketing grant scheme in Arizona
On March 5, the FTC announced the U.S. District Court for the District of Arizona entered three orders on February 26, settling the FTC’s case against the operators of a telemarketing grant scheme. As previously covered by InfoBytes, the FTC’s complaint alleged the operators charged consumers upfront fees ranging from $295 to $4,995 and promised to obtain $10,000 or more in government, corporate, or private grants that could help the consumers pay off personal expenses such as medical bills; however, “most, if not all,” of the consumers ultimately received nothing in return. The three stipulated orders (available here, here, and here) impose a suspended $3 million judgment, (based on the operators’ inability to pay) and: (i) require the operators to surrender significant assets; (ii) ban the operators from telemarketing or making misrepresentations or unsubstantiated claims about any product or services; and (iii) prohibit the operators from making false or misleading statements to financial entities, including misrepresenting businesses to payment processors and banks.
FTC seeks comments on Safeguards and Privacy rules
On March 5, the FTC released proposed amendments to two rules that protect the privacy and security of customer data held by financial institutions. The agency seeks comments on proposed changes to the Safeguards Rule and the Privacy Rule under the Gramm-Leach-Bliley Act. The Safeguards Rule requires financial institutions to develop, implement, and maintain comprehensive information security programs, whereas the Privacy Rule requires financial institutions to notify customers about information-sharing practices, as well as enable customers to opt out of sharing their information with certain third parties. The FTC’s proposed amendments to the Safeguards Rule would, among other things, add more detailed requirements for financial institutions, including mandatory encryption of customer data and the use of multi-factor authentication to prevent unauthorized access to customer information. The proposed amendments to the Privacy Rule would change the rule to account for statutory changes in the Dodd-Frank Act, which gave the majority of the FTC’s rulemaking authority for the Privacy Rule to the CFPB with the exception of certain motor vehicle dealers. The agency plans to remove examples of financial institutions that do not apply to motor vehicle dealers, as well as clarify when annual customer privacy notices must be provided. In addition, the FTC proposes to expand the definition of “financial institution” in both rules to include “finders,” which include persons or entities that charge a fee to introduce consumers to a lender.
National Consumer Protection Week March 3 - 9
On March 3, the 21st annual National Consumer Protection Week (NCPW) began. According to the FTC announcement, NCPW will run from March 3 through March 9 and aims to help consumers understand their rights while giving them access to free educational materials. The FTC, together with its federal, state and local partners, consumer groups, and other national advocacy organizations intend to provide advice on scams, identity theft, and other fraudulent business practices. A schedule of three specific social media events hosted by the FTC is provided in the announcement.
Video social networking app settles COPPA allegations
On February 27, the FTC announced a $5.7 million settlement with the operators of a video social networking app concerning alleged violations of the Children’s Online Privacy Protection Act (COPPA). Among other things, the FTC claims the operators failed to provide parents notice of its information collection practices, illegally collected personal information from children under the age of 13 without first obtaining verifiable parental consent, failed to delete personal information when parents requested, and retained information “longer than reasonably necessary to fulfill the purpose for which the information was collected.” Under COPPA, operators of websites and online services directed at children are prohibited from collecting personal information of children under the age of 13, unless the company has explicit parental consent. The FTC alleges that the operators knew a “significant percentage” of its users were under 13 and received thousands of complaints from parents that their children under 13 had created accounts on the app. While neither admitting nor denying the allegations, the operators have agreed to the monetary penalty, will change their business practices to comply with COPPA, and will remove all videos made by children younger than 13. According to the FTC, this settlement is the largest civil penalty obtained to date by the agency for COPPA violations.
FTC issues annual summary of ECOA activity to CFPB
On February 26, the FTC announced it had recently provided the CFPB with its annual summary of work on ECOA-related policy issues including the following FTC research and policy development initiatives:
- The FTC held a series of public hearings on competition and consumer protection in the 21st century. Session seven specifically addressed issues related to the use of algorithms, artificial intelligence, and predictive analytics. Panelists addressed how fairness, bias, and discrimination may impact the use of such technologies and debated whether current legal protections such as ECOA sufficiently cover these issues.
- The FTC continued its qualitative study of consumer experiences when buying and selling automobiles at dealerships, which the agency believes will help focus initiatives, such as educating consumers about the purchase and financing process and providing business education to promote compliance with the FTC Act and ECOA.
- The FTC’s Military Task Force, which consists of a cross-section of agency representatives, continued to work on military consumer protection issues. Workshops were conducted to examine financial issues and scams targeting military consumers, including servicemembers and veterans. In addition, the FTC participated in a training program for servicemembers and their families to discuss ECOA and Regulation B protections.
- The FTC maintained its membership in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and the federal banking regulatory agencies, and participated in the Financial Fraud Enforcement Task Force.
Concerning fair lending, the FTC stated that it provided education on several topics, including those related to credit transactions that fall under Regulation B.
FTC files action against Puerto Rican defendants for negative option marketing
On February 28, the FTC announced it filed a complaint in the U.S. District Court for the District of Puerto Rico alleging a business owner and the companies he operates (defendants) violated the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by allegedly offering deceptive online “free-trial” offers that mislead consumers into enrolling into negative option plans. According to the complaint, the defendants sold skin care products online between February 2016 and August 2017 and marketed a free trial for the products for the cost of around $4.99 in shipping. The complaint alleges consumers who ordered the free trial (i) were charged more than $90 and then subsequently enrolled into a monthly auto-ship program; (ii) were charged for additional products without their consent; and (iii) had a difficult time canceling their enrollment in the auto-ship plan. Moreover, the FTC argues that the defendants avoided detection by using shell companies to obtain merchant processing accounts and fake and real websites in order to avoid detection by credit card companies and law enforcement. The FTC is seeking monetary and injunctive relief against the defendants.
FTC and CFPB reauthorize cooperation MOU
On February 26, the FTC announced its coordination with the CFPB to reauthorize their memorandum of understanding (MOU), which outlines the two agencies’ cooperation under the Consumer Financial Protection Act to prevent duplication of efforts and ensure consistency. The interagency agreement outlines processes for, among other things, coordinated law enforcement activities; consultation on rulemaking activities, including rulemaking regarding prohibitions on unfair, deceptive, and abusive acts or practices; and coordinated sharing of supervisory and examination information, strategic and operational planning, consumer complaint information, and consumer education efforts. The MOU also addresses provisions related to information sharing and claims of confidentiality.
FTC hits online student loan lender with order
On February 25, the FTC announced it has approved a final consent order with an online student loan refinance lender resolving allegations that the lender violated the FTC Act by misrepresenting in television, print, and internet advertisements how much money student loan borrowers can save from refinancing their loans with the company. As previously covered by InfoBytes, the FTC alleged that the lender inflated the average savings consumers have achieved by refinancing through the lender, in some instances doubling the average savings by selectively excluding certain groups of consumers from the data. Additionally, the FTC also alleged that in some instances, the lender’s webpage misrepresented instances where a loan option would result in the consumer paying more on a monthly basis or over the lifetime of the loan, simply stating the savings would be “0.00.” In October 2018, without admitting or denying the allegations, the lender agreed to a consent order that required it to cease the alleged misrepresentations and agree to compliance monitoring and recordkeeping requirements. Following a public comment period, the FTC Commission voted 5-0 to approve the final consent order.
FTC and NY claim of deceptive supplement advertising gets new life
On February 21, the U.S. Court of Appeals for the 2nd Circuit issued a summary order reversing the lower court’s dismissal of an FTC and New York State action, which alleges a biotechnology group’s (defendants) marketing campaign for a dietary supplement was deceptive under the FTC Act. According to the opinion, defendants claimed in advertising and marketing materials that a suite of dietary supplements (i) improve memory and provide other cognitive benefits; (ii) the effects are clinically proven; and (iii) have an active ingredient that “supplements” brain proteins. The FTC and New York State brought an action alleging deceptive marketing in violation of the FTC Act because the defendants study of the supplements showed “no statistically significant improvement in the memory and cognition of the participants,” and the few positive findings did not “provide reliable evidence of a treatment effect.” The lower court dismissed the action, finding the challenge to the study “never proceed[ed] beyond the theoretical” as the complaint only showed there were “possibilities that the study’s results do not support its conclusion.”
On appeal, the 2nd Circuit found the complaint adequately alleges that the results of the study contradict representations made in the marketing materials, such as, the supplement “improved memory for most subjects within 90 days,” and concluded the lower court erred in dismissing the action.