InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FTC Advisory Opinion Supports Money Transmitters' Proposed Information Exchange
On September 4, the FTC’s Bureau of Competition issued an advisory opinion responding to a national money transmitters’ trade association inquiry about its planned information exchange regarding terminated U.S. money transmitter agents. According to the opinion, (i) the database will contain information regarding former U.S. sending and receiving agents whose contractual relationships were terminated due to failure to comply with federal and/or state law, or money transmitter contract terms or policies, (ii) exchange membership will be open to all licensed non-bank money transmitters, and (iii) participation in the information exchange will be voluntary, and each member of the information exchange will retain the right to decide unilaterally whether to appoint an agent that has been terminated by another exchange member. The FTC staff determined that the program (i) appears unlikely to harm competition, (ii) will contain several safeguards to lessen the risk of harm to competition and consumers, such as the appointment of a third-party vendor to maintain and secure the information exchange database, and (iii) is likely to improve the money transmitters’ ability to comply with federal and state laws designed to prevent money laundering, terrorist financing, and other criminal behavior, and enhance consumer welfare by preventing the appointment of fraudulent or criminal money transmitter agents.
FTC Announces First "Internet of Things" Settlement
On September 4, the FTC announced its first action against a marketer of an everyday product with interconnectivity to the Internet and other mobile devices – what the FTC refers to as the “Internet of Things.” The company, which markets video cameras designed to allow consumers to monitor their homes remotely, agreed to settle the FTC’s allegation that its security practices exposed the private lives of hundreds of consumers to public viewing on the Internet. The FTC claimed that the company marketed its products as “secure” when, according to the FTC, they had faulty software that potentially allowed for online viewing and listening. The company resolved the complaint without paying a penalty, but agreed to establish a comprehensive information security program designed to address security risks that could result in unauthorized access to or use of the company’s devices, and to protect the security, confidentiality, and integrity of information that is stored, captured, accessed, or transmitted by its devices. The agreement also requires the company to obtain third-party assessments of its security programs every two years for the next 20 years, and prohibits the company from (i) misrepresenting the security of its cameras or the security, privacy, confidentiality, or integrity of the information that its cameras or other devices transmit and (ii) misrepresenting the extent to which a consumer can control the security of information the cameras or other devices store, capture, access, or transmit. The FTC is planning an “Internet of Things” workshop for later this year.
FTC Announces Consumer Reporting Settlement
On August 15, the FTC announced that it obtained a settlement from a Certegy Check Services, Inc., a check authorization service company and consumer reporting agency (CRA) that compiles and uses consumers’ personal information to offer retailers assistance in determining whether to accept a consumer’s check. The FTC alleged that the CRA violated the FCRA and the FTC’s Furnisher Rule by failing to (i) follow required dispute resolution procedures, (ii) implement reasonable procedures to ensure the accuracy of information the firm provided to retailers, (iii) create a streamlined process for consumers to obtain free annual reports, and (iv) implement reasonable written policies and procedures regarding the accuracy and integrity of information it furnishes to other CRAs. This is the first FTC action alleging violations of the Furnisher Rule, which took effect on July 1, 2010. To resolve the FTC’s allegations, the CRA, without admitting any violations of the law, will pay $3.5 million and is required to comply with the Furnisher Rule and maintain a streamlined process so that consumers can request their free annual reports.
August Beach Read Series: Growing Mobile Technology Impacts the Financial Services Industry
As the technology continues to grow and become a part of day-to-day life, smartphones and tablets are reshaping the delivery of financial services to consumers. The mobile device is quickly becoming a full-fledge platform for electronic financial services, especially for mobile payments.
The variety and number of mobile devices and service providers to support them has introduced new and different stakeholders – all of whom are competing with traditional financial institutions for dominance in the mobile commerce/mobile payment space. This new and rapidly evolving environment presents new and operational risks for consumers, payment providers, and the recipients of the payments. It will be vital to identify who has legal responsibility and liability for the various risks associated with payment platforms and payment transactions.
To learn more about the mobile technology issues impacting the financial services industry, please review some of our recent articles on the issue. In “Federal Regulators Issue Guidance on Social Media and Mobile Privacy” Ian Spear discussed the recent guidance and flexible guidelines issued by the FFIEC and FTC.
Magistrate Judge Finds Tribal Payday Lender Subject to FTC Act; Lender Agrees to Settle Some FTC Charges
On July 22, the FTC announced that it obtained a partial settlement of claims it filed last year against a Native American Tribe-affiliated payday lending operation that allegedly charged undisclosed and inflated fees, and collected on loans illegally by threatening borrowers with arrest and lawsuits. FTC v. AMG Servs, Inc. No. 12-536 (D. Nev.). The agreement does not include any monetary resolution of the claims, but (i) prohibits the defendants from certain collection practices, (ii) prohibits the defendants from conditioning the extension of credit on preauthorized electronic fund transfers, and (iii) requires the defendants to implement enhanced compliance policies that are subject to new reporting requirements. The settlement follows a report and recommendation issued last week by the magistrate judge assigned to the case in which he concluded that the FTC has authority under the FTC Act to regulate “Indian Tribes, Arms of Indian Tribes, employees of Arms of Indian Tribes and contractors of Arms of Indian Tribes” with regard to the payday lending activities at issue in the case. Relying on Ninth Circuit precedent, the magistrate judge held that while the FTC Act does not expressly apply to Indian Tribes, it is a statute of general applicability with reach sufficient to cover the Tribal entities. Further, the magistrate judge concluded that “both TILA and EFTA provide the FTC the power to enforce the statutes without regard for any jurisdictional limitations contained in the FTC Act.” The FTC will continue litigating other charges against the defendants, including allegations that they deceived consumers about the cost of their loans by charging undisclosed charges and inflated fees.
Florida District Court Orders Disgorgement of Profits from Unfair, Deceptive Online Payday Loan Referral Practices
On July 18, the U.S. District Court for the Middle District of Florida held that an online payday loan referral business engaged in unfair and deceptive billing practices and failed to provide adequate disclosures to its customers. FTC v. Direct Benefits Group, LLC, No. 11-1186, 2013 WL 3771322 (M.D. Fla. Jul. 18, 2013). The FTC alleged that the defendants violated the FTC Act by obtaining consumers’ bank account information through payday loan referral websites and debiting their accounts without their consent. The FTC also alleged that the defendants failed to adequately disclose that, in addition to using consumers’ financial information for a payday loan application, they would use it to charge them for enrollments in unrelated programs and services. During a bench trial, the parties presented evidence and arguments regarding the content and operation of the websites and whether consumers could enroll in the referral programs without taking affirmative steps to do so. The court agreed with the FTC’s claims that the defendants’ practices were deceptive and held that the “pop-up box” used to enroll consumers in the programs at issue was misleading. The court explained that the defendants’ website and the online payday loan application form created the overall impression that they were intended for applying for payday loans and that the bank account information that applicants were asked to enter would be used for deposit of the payday loan—not so that the account could or would be debited for the purchase of an unrelated product or service. Further, the court held that the defendants’ disclosures were not clear and conspicuous under the principles included in the FTC’s “.com disclosures guidance.” The court also held that the FTC established that the billing practices were unfair, and ordered the defendants to disgorge over $9.5 million and permanently cease the practices at issue.
FTC Extends Time to Comment on Proposed TSR Changes
On July 12, the FTC extended the comment deadline on proposed changes to its Telemarketing Sales Rule (TSR). In May, the FTC proposed to prohibit the use of certain payment methods it believes are favored by “fraudulent telemarketers,” and sought comments by July 29, 2013. Because a slightly modified version of the original proposal was published in the Federal Register on July 9, 2013, the FTC now will accept comments through August 8, 2013.
FTC Announces Largest Civil Penalty Ever Against Third-Party Debt Collector
On July 9, the FTC announced that a third-party debt collector and its subsidiaries agreed to pay a $3.2 million civil penalty to resolve allegations that the companies violated the FDCPA and FTC Act by (i) calling individuals multiple times per day, including early in the morning or late at night, (ii) calling even after being asked to stop, (iii) calling individuals’ workplaces despite knowing that the employers prohibited such calls, (iv) leaving phone messages for third parties, which disclosed the debtor’s name and the existence of the debt, and (v) continuing collection efforts without verifying a debt, even after individuals said they did not owe the debt. In addition to the monetary penalty, which the FTC described as the largest it has ever obtained against a third-party collector, the stipulated order requires, with regard to consumers who dispute the validity or the amount of a debt, that the companies close the account and end collection efforts, or suspend collection until they have conducted a reasonable investigation and verified that their information about the debt is accurate and complete. The order also restricts situations in which the defendants can leave voicemails that disclose the alleged debtor’s name and the fact that he or she may owe a debt, and requires the companies to halt or limit other alleged practices. The companies also must record at least 75% of all their debt collection calls beginning one year after the date of the order, and retain the recordings for 90 days after they are made.
FTC Obtains Settlement Regarding Marketing of Mortgage Refinancing Services to Servicemembers; Announces First Settlements in "Cardholder Services" Robocalls Sweep
On June 27, the FTC announced that a mortgage broker will pay a $7.5 million civil penalty to resolve alleged violations of the agency’s Telemarketing Sales Rule (TSR) and Mortgage Acts and Practices – Advertising Rule (MAP Rule). The broker allegedly violated the TSR by calling more than 5.4 million telephone numbers listed on the National Do Not Call Registry to offer home loan refinancing services to current and former U.S. military consumers and by failing remove consumers from its call list upon demand. The broker also allegedly violated the MAP Rule by misleading consumers about its affiliation with the Department of Veterans Affairs and leading consumers to believe that it was offering low interest, fixed rate mortgages with no costs, when in reality it was offering adjustable rate mortgages with closing costs. In the same announcement, the FTC stated that it had obtained the first settlements in cases related to a 2012 sweep of telemarketers alleged to have placed automated calls to consumers to make deceptive “no-risk” offers to substantially reduce the consumers’ credit card interest rates in exchange for an upfront fee. According to the FTC, the telemarketers claimed to be calling from the consumers’ credit card company, or otherwise used the generic “Cardholder Services” title to suggest a relationship with a bank or credit card company.
FTC Updates Guidance for Search Engines on Advertising
On June 25, the FTC announced updated guidance for the search engine industry on distinguishing paid search results from natural search results. The updated guidance was in the form of letters sent to seven general purpose search engines and 17 high traffic specialized search engines. The FTC noted that the principles of its original 2002 guidance still apply, but that changes in the search industry and requests from industry and consumer groups led the agency to issue the revised guidance. The guidance states that the failure to clearly and prominently distinguish advertising from natural search results, such as through visual cues, labels, or other techniques, could constitute a deceptive practice. The FTC also noted that the principles of the guidance should be applied to new means used by consumers to search for information, such as social media, mobile applications and voice assistants on mobile devices.