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CFPB and FTC issue annual report on 2017 debt collection activities
On March 20, the CFPB and the FTC issued an annual report to Congress on the agencies’ collective actions to combat illegal debt collection practices based on their shared enforcement responsibilities under the FDCPA. The report was released pursuant to a 2012 Memorandum of Understanding between the CFPB and the FTC that provides for coordination in enforcement, supervision, and consumer education. According to the report, the agencies’ actions against debt collectors include:
- CFPB. In addition to handling approximately 84,500 debt collection complaints in 2017, the CFPB reports it resolved one FDCPA enforcement case (previously covered by InfoBytes here) and filed two other complaints alleging FDCPA violations (previously covered by InfoBytes here and here). The Bureau also notes it uncovered a number of actions that the agency’s examiners deemed to be violations of the FDCPA, such as impermissible communications with third parties and implying authorized users are responsible for debt on the account. As for the Bureau’s pending FDCPA rulemaking, the report notes that the CFPB is still considering feedback from stakeholders regarding the July 2016 outline of proposals under consideration.
- FTC. The agency reports it obtained more than $64 million in judgments based on alleged violations of the FDCPA or the FTC Act and emphasized the FTC’s specific focus on phantom debt actions. In addition to working to educate consumers about their rights with regard to debt collection, the FTC emphasized multiple permanent injunctions, which prevent companies and individuals from working in the debt collection field again. As for research, the agency highlighted its July 2017 Military Consumer Financial Workshop, which covered debt collection as an issue faced by the military community (previously covered by InfoBytes here).
FTC and New York Attorney General announce orders banning debt collection operations from related activities
On March 22, the New York Attorney General’s office and the FTC announced settlements with the operators of an allegedly abusive debt collection scheme, resolving lawsuits filed in 2015. (See previous InfoBytes coverage here.) According to the FTC, the operators and associated companies allegedly violated the FTC Act, the Fair Debt Collection Practices Act, and New York state laws prohibiting deceptive acts and practices by using abusive language and making false threats that consumers would be arrested or sued in order to collect the supposed debts. The stipulated final orders impose combined judgments of over $48.7 million to be partially suspended upon the surrender of certain assets, including more than $1 million in corporate and individual assets. In addition to barring the operators from the debt collection business and from buying or selling debt, the orders further prohibit them from misrepresenting financial products and services or benefiting from consumers’ personal information collected in connection with the challenged practices.
FTC challenges virtual currency “chain referral schemes”—creates new working group
On March 16, the FTC announced that a U.S. District Court for the Southern District of Florida granted a temporary restraining order against four individuals who allegedly promoted cryptocurrency “chain referral schemes” in violation of the FTC Act. According to the complaint, the defendants falsely promised that by paying a small sum in virtual currency to enroll, such as bitcoin or Litecoin, the participant could earn significant returns. Three of the defendants promoted schemes that claimed participants could turn $100 into $80,000 in monthly income based on recruiting additional participants, when in actuality most of the participants failed to recoup their initial investments. Additionally, the fourth defendant promoted another scheme, which promised virtual currency investors a fixed rate of return on bitcoin investments in a passive investment operation and a multilevel investment program which participants would receive a commission for recruiting more investors. The scheme allegedly ended within two months of opening and many investors failed to recover the initial investments.
On the same day, the FTC announced a new FTC Blockchain Working Group, which will (i) “build on FTC staff expertise in cryptocurrency and blockchain technology through resource sharing and by hosting outside experts”; (ii) “facilitate internal communication and external coordination on enforcement actions and other related projects”; and (iii) “serve as an internal forum for brainstorming potential impacts on the FTC’s dual missions and how to address those impacts.” The announcement highlighted the properties of cryptocurrencies that make the payment form susceptible to scammers, including the fact that it can be transferred electronically without requiring validation from a trusted third party source.
FTC reaches $45.5 million settlement with companies over illegal telemarketing calls
On March 16, the FTC and three Utah-based movie companies (defendants) agreed to a proposed stipulated final order settling charges that they violated the FTC Act and the Telemarketing Sales Rule (TSR). In 2011, the DOJ filed a complaint on behalf of the FTC, which alleged defendants engaged in abusive telemarketing practices by making more than 117 million deceptive and unlawful calls to consumers to pitch movies and induce DVD sales in violation of the TSR, including 99 million calls to numbers on the Do Not Call Registry. In 2016, a federal court jury found the defendants guilty of six TSR violations and collectively responsible for the more than 117 million unlawful calls alleged in the complaint. The jury additionally found that the defendants had “actual or implied knowledge of the TSR violations,” meaning that the court was allowed to assess civil penalties under the FTC Act. According to the FTC’s press release, this was the first-ever jury verdict in an action to enforce the TSR and DNC Registry rules.
The proposed stipulated final order bans the defendants from engaging in the alleged misconduct, orders the defendants to train and monitor its solicitors to ensure compliance with the TSR, and imposes a $45.5 million civil money penalty, of which $487,735 is suspended unless it is determined that the financial statements defendants submitted to the FTC contain any inaccuracies.
FTC settles credit card laundering lawsuit
On March 9, the FTC entered into a settlement with a credit card merchant and its individual officer (collectively, “defendants”) relating to an allegedly deceptive credit card telemarketing operation. According to the FTC’s amended complaint, the defendants violated the FTC Act and the Telemarketing Sales rule by assisting a telemarketing company in masking its identity by processing the company’s credit card payments through multiple fictitious companies. The FTC previously had banned the telemarketing company from selling fraudulent “work-at-home” opportunities in 2015. The settlement, among other things, prohibits the defendants from processing payments or acting as an independent sales organization. The order also stipulates a judgment of approximately $1.3 million, which will be suspended unless it is determined that the financial statements defendants submitted to the FTC contain any inaccuracies.
FTC announces resolution of an action against the final defendant in a debt collection operation
On March 5, the FTC announced that the U.S. District Court for the Middle District of Florida entered a default judgment against the final defendant of a debt collection operation accused of violating the FTC Act and Fair Debt Collections Practices Act by allegedly posing as lawyers and threating individuals with lawsuits or prison time if they failed to pay debt they did not actually owe. (See InfoBytes coverage here on previously issued order against three other co-defendants.) Under the terms of the January 23 order, the defendant is prohibited from, among other things, (i) engaging in debt collection activities; (ii) buying or selling consumer or commercial debt; (iii) misrepresenting material facts regarding financial-related products or services; (iv) misrepresenting an affiliation with an attorney or law firm; (v) disclosing, using, or benefiting from consumers’ personal information; and (vi) improperly disposing of consumers’ information. In addition, the court assessed a $702,059 fine, jointly and severally with the co-defendants.
FTC issues annual summary of consumer complaints
On March 1, the FTC issued its annual summary on consumer complaints received by the agency over the past year, highlighting trends in various categories such as fraud and identity theft. The report, Consumer Sentinel Network Data Book 2017 (2017 Data Book), provides category breakdowns and national and state specific data extrapolated from the Consumer Sentinel Network (CSN)—a secure online database of millions of consumer complaints available only to law enforcement agencies. In compiling the 2017 Data Book, CSN collected and analyzed nearly 2.7 million consumer complaints—a decrease from the nearly 3 million complaints it received in 2016. However, total loses reported for 2017 increased by $63 million to nearly $905 million in total losses due to fraud.
The 2017 Data Book provides a breakdown of complaints sorted into 30 top categories. Highlights include the following:
- States. Florida, Georgia, and Nevada were the top states for fraud complaints, while Michigan, Florida, and California were the top states for identity theft complaints.
- Top categories. While there were 1.1 million fraud reports filed overall (42.5 percent of all reports), debt collection remained the top complaint in 2017, amounting to 22.7 percent of all complaints. Identity theft (13.8 percent) and imposter scams (13 percent) rounded out the top three. “While we received fewer overall complaints in 2017, consumers reported losing more money to fraud than they did the year before,” said Tom Pahl, Acting Director of the FTC’s Bureau of Consumer Protection in a press release issued by the agency. “This underscores the importance of the FTC’s work in educating consumers and cracking down on the scammers who try to take their money.” Rounding out the top ten consumer complaints for 2017 were: telephone and mobile services; banks and lenders; prizes, sweepstakes, and lotteries; shop-at-home and catalog sales; credit bureaus, information furnishers, and report users, auto related complaints, and television and electronic media.
- Military. Fraud and identify theft were the largest category of complaints from military consumers—the majority reporting imposter scams, credit card fraud, and bank fraud. Military retirees and veterans submitted the highest number of reports.
- Fraud losses by age. The 2017 Data Book includes data broken out by age groups for the first time. Younger consumers aged 20-29 reported losing money to fraud more than consumers over age 70, but for older consumers who reported losing money, the median amount lost was greater.
Additional information about the 2017 Data Book is available here.
Online payments system company settles FTC privacy, security, and money transfer allegations
On February 23, the FTC announced a proposed settlement with a global online payments system company (company) to resolve a complaint filed in 2016 concerning allegations that its payment and social networking service (service) violated the FTC Act when it, among other things, failed to adequately disclose to consumers that transfers to external bank accounts were subject to review and that funds could be frozen or removed based on a review of the underlying transaction. According to FTC allegations, many consumers who relied on notifications from the service that funds were available for transfer found themselves unable to pay rent or other bills. In some instances, the service reversed transactions after initially notifying consumers the funds were available. Additionally, the service allegedly violated the Gramm-Leach-Bliley Act’s Privacy and Safeguard Rules (GLBA Rules) by misleading consumers about protections for their accounts when it claimed to use “bank-grade security systems” and failed to have a written security program or implement basic security safeguards. As a result, the FTC claims unauthorized users were able to, in certain cases, withdraw funds from consumer accounts or change passwords and/or associated email addresses without consumers being notified.
Under the proposed settlement, the company—which did not admit or deny liability and is not required to pay a fine—has agreed that it will not misrepresent any material restrictions on the use of its service, the extent of control provided by any privacy settings, and the extent to which it “implements or adheres to a particular level of security.” The company will also, among other things, make certain disclosures to consumers about its transaction and privacy practices, obtain biennial third-party assessments of its compliance with these rules for 10 years, and refrain from violating any provisions of the GLBA Rules.
FTC files charges against operations that target elder Americans as part of DOJ’s elder fraud enforcement sweep
On February 22, the FTC announced two separate legal actions taken against individuals and their operations for allegedly engaging in schemes exploiting elder Americans. The two cases are part of an enforcement sweep spearheaded by the DOJ in conjunction with the FBI, the FTC, the Kansas Attorney General, and foreign law enforcement agencies, which—according to a press release issued the same day by the DOJ—includes cases from around the globe involving over 250 defendants accused of victimizing more than a million U.S. citizens, the majority of whom are elderly. Charges were brought against both transnational criminal organizations and individuals who allegedly engaged in schemes including (i) mass mailings; (ii) telemarketing and investment frauds; and (iii) guardian identity theft.
According to the FTC’s announcement, charges were brought against two individuals and their sweepstake operation accusing them of allegedly bilking consumers out of tens of millions of dollars though personalized mailers that falsely implied the recipients had won or were likely to win a cash prize if they paid a fee. Since 2013, the FTC claims consumers have paid more than $110 million towards the scheme. The second complaint was brought against a group of telemarketers who claimed their software and technical support services would prevent cyber threats. However, the FTC alleges that the telemarketers instead charged up to tens of thousands of dollars for “junk” software or older software available for free or for a much lower price, and communicated “phony” reasons for consumers to purchase additional software to avoid the risk of new threats.
10th Circuit upholds TCPA statutory damages as uninsurable under Colorado law
On February 21, the U.S. Court of Appeals for the 10th Circuit affirmed a district court’s decision that under Colorado law, an insurance company had no duty to indemnify and defend its insured against TCPA claims seeking statutory damages and injunctive relief. According to the appellate opinion, the FTC and the states of California, Illinois, North Carolina, and Ohio sued a satellite television company for violations of the TCPA, Telemarking Sales Rule (TSR), and various state laws for telephone calls made to numbers on the National Do Not Call Registry (FTC lawsuit). The FTC lawsuit sought statutory damages of up to $1,500 per alleged violation and injunctive relief. The defendant requested that its insurer defend and indemnify it for the claims pursuant to existing policies. The insurance company filed a complaint for declaratory judgment, seeking a declaration that it need not defend or indemnify the company in the FTC lawsuit. The district court determined that there was no coverage for several reasons, including: (i) that the statutory TCPA damages were a “penalty,” rendering them uninsurable under Colorado law; and (ii) that the injunctive relief sought did not qualify as damages under the policies’ definition. The 10th Circuit Court of Appeals affirmed both holdings, concluding that no coverage existed.