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FTC reports on certain 2017 enforcement activities to the CFPB
On May 17, in response to a request from the CFPB, the FTC transmitted a letter summarizing its 2017 enforcement activities related to Regulation Z (TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act) for the CFPB’s use in preparing its 2017 Annual Report to Congress. The FTC highlighted numerous activities related to the enforcement of the pertinent regulations, including:
- Payday Lending. The FTC acknowledged the continued litigation against two Kansas-based operations and their owner for allegedly selling lists of counterfeit payday loan debt portfolios to debt collectors in violation of the FTC Act, previously covered by InfoBytes here.
- Military Protection. The FTC identified the July 2017 military consumer financial workshop and the launch of the new Military Task Force (previously covered by InfoBytes here and here) among the activities the agency engaged in related to protecting the finances of current and former members of the military. The FTC also noted continued participation in the interagency group working with the Department of Defense on amendments to its rule implementing the Military Lending Act.
- “Negative Option.” For actions under the Regulation E/EFTA, the FTC highlighted numerous “negative option” enforcement actions, in which the consumer agrees to receive goods or services from a company for a free trial option, but if the consumer does not cancel before the trial period ends, the consumer will incur recurring charges for continued goods or services. Among the actions highlighted is a case in which the FTC imposed a $179 million judgment (suspended upon the payment of $6.4 million) settling allegations that the online marketers’ offers of “free” and “risk free” monthly programs for certain weight loss and other products were deceptive.
- Auto Loans. The letter highlighted, among others, the FTC action against a Southern California-based group of auto dealerships that allegedly violated a prior consent order with the FTC by misrepresenting the cost to finance or lease a vehicle, previously covered by InfoBytes here.
District Court holds that FTC investigation and initiation of enforcement proceedings do not qualify as final agency actions subject to judicial review
On May 29, the U.S. District Court for the Northern District of California granted the FTC’s motion to dismiss a declaratory-judgment action filed by several California-based companies that provide student loan processing services, along with their CEO/primary shareholder (plaintiffs). In August 2017, having allegedly learned that the FTC “was in the final process of gathering information to file a lawsuit against one or more of [the] [p]laintiffs on the purported and factually unsupportable basis that the [c]ompanies made misrepresentations to consumers” and violated the TSR’s debt relief service provision, the plaintiffs filed for instant declaratory relief under the Declaratory Judgment Act, seeking a declaration that the Telemarketing Sales Rule’s (TSR) debt relief provisions did not apply to them or, alternatively, that they were in compliance with the provisions. In February 2018, the FTC filed an enforcement action against the plaintiffs alleging that their collection of fees in advance of providing services violated the FTC Act and the TSR, and seeking injunctive and equitable relief. The FTC also moved to dismiss the plaintiffs’ declaratory judgment for lack of subject-matter jurisdiction.
According to the order granting the FTC’s motion, the court agreed with the FTC that the Administrative Procedure Act (APA)—not the Declaratory Judgment Act—is the exclusive, proper vehicle to obtain judicial review of a federal agency’s action. The court then held that the plaintiffs failed to satisfy the two prerequisites for judicial review under the APA, that (i) the agency’s actions constitute as a “final” agency action, and (ii) there exists no other adequate remedy in court. Specifically, the court found that the plaintiffs failed to demonstrate that the FTC’s “investigation into the lawfulness of the [plaintiffs’] actions and initiation of enforcement proceedings” qualified as a “final” agency action subject, and that the plaintiffs’ alternative “adequate remedy” was to be had in the enforcement action brought against them by the FTC, where they would be able to present all of the same defenses and arguments they sought to advance in their declaratory judgment action.
FTC settles with two student loan debt relief companies
On May 31, as part of a coordinated effort between the FTC and state law enforcement called Operation Game of Loans, the FTC announced settlements with two student loan debt relief companies. According to the FTC, the settlements resolve claims that the companies violated the FTC Act and the Telemarketing Sales Rule (TSR) by illegally charging consumers upfront fees and falsely promising to reduce or eliminate their student loan debt. The first settlement is the result of a lawsuit filed by the FTC in 2017, alleging that the company would enroll consumers in debt relief programs with an upfront fee and subsequent monthly payments, but would not fulfill promises to apply the payments to the consumers’ student loans. In addition to a $17 million fine, which will be partially suspended if the defendants turn over substantially all assets worth more than $4 million, the settlement bars the defendants from debt relief and credit repair activities in the future.
The second settlement also results from a 2017 complaint by the FTC alleging that a Los Angeles-based company defrauded consumers through programs offering mortgage assistance and student debt relief. According to the FTC, the company falsely promised distressed homeowners assistance in preventing foreclosure and promised student borrowers reduced monthly payments or loan forgiveness purportedly through the Department of Education. The $9 million settlement, which will be partially suspended once defendants turn over all assets worth $54,000 because of their inability to pay, also bans defendants from participating in debt relief and telemarketing activities in the future.
For more InfoBytes coverage on Operation Game of Loans see here.
District of Columbia mayor passes bill to make code consistent with FTC, federal court interpretations of unfair or deceptive trade practices
On May 21, District of Columbia Mayor Muriel Bowser signed B22-0185/D.C. Act 22-367 to, among other things, update portions of the District of Columbia’s Official Code concerning the term “unfair or deceptive trade practice” to make it consistent with interpretations made by the FTC and federal courts. Language under the Consumer Protection Clarification and Enhancement Amendment Act of 2018, has been amended to read as follows: “It shall be a violation of this chapter for any person to engage in an unfair or deceptive trade practice, whether or not any consumer is in fact misled, deceived, or damaged thereby.” The amendments also increase the civil penalty for first violations of the act to not more than $5,000 per violation, and to not more than $10,000 for repeat violations. The act will take effect following a 30-day congressional review period.
D.C. Circuit rejects challenge to FTC’s 2016 staff letter on soundboard technology
On April 27, the U.S. Court of Appeals for the D.C. Circuit dismissed a challenge to a November 2016 FTC staff letter, which announced the FTC would treat calls using soundboard technology as robocalls. According to the D.C. Circuit opinion, the FTC’s 2016 staff letter rescinded a 2009 staff letter, which reached the conclusion that soundboard technology was not subject to robocall regulation. The Soundboard Association filed suit, seeking to enjoin the rescission of the 2009 letter, arguing that the 2016 staff letter violated the Administrative Procedures Act (APA) by issuing a legislative rule without notice and comment and that it unconstitutionally restricted speech in violation of the First Amendment. The lower court granted summary judgment for the FTC holding that the 2016 letter did not violate the First Amendment and that the letter was an interpretive rule and therefore not subject to the notice and comment requirements of the APA. Upon appeal, the D.C. Circuit vacated the lower court’s decision and dismissed the action in its entirety, holding that the 2016 letter was not a “final agency action” and therefore, the plaintiffs failed to state a cause of action under the APA.
FTC Commissioner calls for stricter penalties and structural remedies against recidivist companies that violate consent orders
On May 14, FTC Commissioner Rohit Chopra released a memo to FTC staff and commissioners calling for more forceful penalties and structural remedies against companies and individuals that fail to comply with consent orders. Chopra announced that a key consideration for the FTC will be “whether the proposed remedies address the underlying causes of the noncompliance.” He proposed several “structural remedies” for the FTC to consider implementing against “recidivist” companies such as (i) banning certain business practices; (ii) forcing divestiture or closure of problematic operating units; (iii) removing company executives and board directors responsible for overseeing conduct that violates an order; (iv) dismissing third-party compliance consultants who fail to detect conduct that violates an order; (v) targeting company executives and through “clawbacks, forfeitures, and reforms to executive compensation agreements;” and (vi) requiring firms to raise equity capital should corporate debt “create risks to consumers and competition in the form of an order violation.” Chopra stated that repeat offenders who “flout our orders must face severe consequences—irrespective of whether they are small-time scammers or sophisticated corporations.”
District Court grants FTC request for preliminary injunction against mortgage assistance relief operation that allegedly misrepresented material facts to distressed homeowners
On May 8, the FTC announced that the U.S. District Court for the Central District of California entered a preliminary injunction on April 27 at the FTC’s request against a mortgage assistance relief operation and its principals (defendants), prohibiting them from misrepresenting material facts to consumers and imposing an asset freeze and other equitable relief. According to a complaint filed by the FTC on April 12, which sought “temporary, preliminary, and permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief,” the defendants allegedly violated the FTC Act and the Mortgage Assistance Relief Services Rule (Regulation O) in their marketing and sale of mortgage relief services to distressed homeowners.
The FTC claimed in its press release that the defendants “misrepresent[ed] the likelihood of success” of their mortgage payment reduction program and directed “confirmed” consumers to pay thousands of dollars in “closing costs” prior to discussing the defendants’ terms with their loan holders or servicers. Furthermore, the defendants allegedly discouraged consumers from communicating with their mortgage lenders and encouraged consumers to stop payments to their lenders without informing them that their actions could lead to foreclosure or damage their credit ratings.
In granting the preliminary injunction, the court ruled that there was good cause to believe that, unless the defendants continued to be restrained and enjoined by order of the court, “the court’s ability to grant effective final relief in the form of monetary restitution and disgorgement of ill-gotten gains will suffer immediate and irreparable damage from [the] [d]efendants’ transfer, dissipation, or concealment of [a]ssets or business records.” Furthermore, the court found good cause to (i) appoint a temporary receiver; (ii) grant the FTC limited expedited discovery from third-parties related to assets; and (iii) freeze defendants’ assets.
FTC settles with cellphone manufacturer over data security issues
On April 30, the FTC and a Florida cellphone manufacturer entered into a settlement over allegations that the manufacturer allowed third party data collection from customer phones after falsely claiming data collection was limited only to information needed by the third parties to perform requested services. According to the complaint, released at the same time as the settlement, the manufacturer contracted with a Chinese technology company to issue security and operating system updates to the manufacturer’s devices. When issuing those updates, the Chinese company collected and transferred personal information about the device owners without their consent or knowledge, including text messages, call logs, and contact lists. In November 2016, the public became aware of this practice and the manufacturer issued a notice informing its customers that the Chinese company changed its software to no longer collect the personal information. However, the manufacturer allegedly continued to allow this practice on older devices. The FTC alleges that the manufacturer failed to perform adequate due diligence in the selection of the Chinese company and failed to adopt and implement written security standards for their third-party providers. Under the settlement, the manufacturer, among other things, is (i) prohibited from future misrepresentations about security and privacy; (ii) required to establish and implement a comprehensive data security program; and (iii) subject to data security assessments every two years by a third party for the next 20 years.
Senate confirms full slate of FTC commissioners
On April 26, the Senate confirmed Joseph Simons to lead the FTC, along with four other nominees—Republicans Noah Phillips and Christine Wilson and Democrats Rohit Chopra and Rebecca Slaughter. The FTC, which has been operating with only two commissioners, will now be headed by a full complement of commissioners. Acting Chairman Maureen Ohlhausen released a statement saying she looks forward to welcoming them to the FTC and noted that Ms. Wilson will take her seat once Acting Chairman Ohlhausen is confirmed as a judge on the U.S. Court of Federal Claims.
FTC and Florida Attorney General settle with debt relief scammers
On April 12, the FTC and the Florida Attorney General announced an $85 million settlement with three individuals who allegedly sold fake debt relief services. As previously covered by InfoBytes, in May 2017, the FTC and the Florida Attorney General filed a complaint against the individuals for allegedly violating the FTC Act, the FTC’s Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. According to the complaint, consumers, after collectively paying hundreds or thousands of dollars a month for promised debt-consolidation services marketed by the individuals, discovered their debts were unpaid, their accounts had defaulted, and their credit scores damaged. Under the proposed orders (here and here), all three marketers are restrained and enjoined from “advertising, marketing, promoting, offering for sale, selling” credit repair products and services, debt relief products and services, and financial products and services. The $85 million judgment is held jointly and severally against each of the individuals with a suspended judgment for two if all material assets are surrendered. The judgment for the third individual, considered the ringleader of the operation, is not suspended and the individual is still required to surrender all material assets.