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  • FTC to ban auto warranty operation

    Federal Issues

    On March 24, the FTC announced that a Florida-based group of operators (defendants) faces a permanent ban from the extended automobile warranty industry and will be barred from any further involvement in outbound telemarketing. As previously covered by InfoBytes, the defendants allegedly violated the FTC Act and the Telemarketing Sales Rule by allegedly engaging in deceptive practices when marketing and selling automobile warranties. According to the FTC, the defendants, among other things, (i) misrepresented their affiliation with consumers’ car dealers or manufacturers; (ii) misrepresented warranty coverage; (iii) falsely promised consumers they could obtain a full refund if they cancelled within 30 days; (iv) used remotely created checks, which are illegal in telemarketing transactions; and (v) placed unsolicited calls to numbers on the do not call registry. The proposed stipulated order for permanent injunction, filed in the U.S. District Court for the Southern District of Florida, would require the defendants to pay a $6.6 million monetary judgment and would impose a permanent industry ban. However, the monetary judgment is largely suspended based on the defendants’ inability to pay.

    Federal Issues FTC Enforcement Courts FTC Act Telemarketing Sales Rule Auto Finance

  • FTC finalizes gaming company order on dark patterns

    Federal Issues

    On March 14, the FTC finalized an administrative order requiring a video game developer to pay $245 million in refunds to consumers allegedly tricked into making unwanted in-game purchases. As previously covered by InfoBytes, the FTC filed an administrative complaint claiming players were able to accumulate unauthorized charges without parental or card holder action or consent. The FTC alleged that the company used a variety of dark patterns, such as “counterintuitive, inconsistent, and confusing button configuration[s],” designed to get players of all ages to make unintended in-game purchases. These tactics caused players to pay hundreds of millions of dollars in unauthorized charges, the FTC said, adding that the company also charged account holders for purchases without authorization. Under the terms of the final decision and order, the company is required to pay $245 million in refunds to affected card holders. The company is also prohibited from charging players using dark patterns or without obtaining their affirmative consent. Additionally, the company is barred from blocking players from accessing their accounts should they dispute unauthorized charges.

    Separately, last month the U.S. District Court for the Eastern District of North Carolina entered a stipulated order against the company related to alleged violations of the Children’s Online Privacy Protection Act (COPPA). The FTC claimed the company failed to protect underage players’ privacy and collected personal information without first notifying parents or obtaining parents’ verifiable consent. Under the terms of the order, the company is required to ensure parents receive direct notice of its practices with regard to the collection, use or disclosure of players’ personal information, and must delete information previously collected in violation of COPPA’s parental notice and consent requirements unless it obtains parental consent to retain such data or the player claims to be 13 or older through a neutral age gate. Additionally, the company is required to implement a comprehensive privacy program to address the identified violations, maintain default privacy settings, obtain regular, independent audits, and pay a $275 million civil penalty (the largest amount ever imposed for a COPPA violation).

    Federal Issues FTC Enforcement Dark Patterns COPPA Privacy, Cyber Risk & Data Security FTC Act Unfair UDAP Consumer Finance

  • FTC examines small business credit reporting

    Federal Issues

    On March 16, the FTC launched an inquiry into the small business credit reporting industry, seeking information from firms on how information is collected and processed for business credit reports, how these reports are marketed, and firms’ approaches for addressing factual errors contained in the reports. Firms are also asked to provide information on the types of services provided to businesses for monitoring or enhancing their own credit reports. The FTC noted that currently there is no federal law that specifically outlines credit reporting processes and protections for small businesses, unlike individual consumer credit reports, which are governed by the FCRA.

    Federal Issues FTC Small Business Credit Report FCRA Credit Reporting Agency

  • FTC asks how cloud computing affects competition and data security

    Federal Issues

    On March 22, the FTC announced it is seeking information on cloud computing providers’ business practices with respect to the potential impact on competition and data security. FTC staff noted that the agency is also interested in how cloud computing is impacting specific industries, including healthcare, finance, transportation, e-commerce, and defense. The request for information (RFI) solicits feedback on a range of issues, including (i) market power and competition (e.g. do particular segments of the economy have to rely on a small handful of cloud service providers); (ii) contract negotiation flexibility; (iii) incentives given to customers to ensure they obtain more of their cloud services from a single provider; (iv) security risks (e.g. what are the data security implications if particular segments of the economy rely on a small number of cloud service providers, and are these providers competing on their ability to provide secure storage for customer data); (v) products or services tied to artificial intelligence; and (vi) how cloud providers identify and notify customers of security risks related to security design, implementation, or configuration. Comments on the RFI are due May 22.

    Federal Issues FTC Cloud Computing Privacy, Cyber Risk & Data Security Competition

  • FTC proposes changes to Negative Option Rule

    Agency Rule-Making & Guidance

    On March 23, the FTC announced a notice of proposed rulemaking (NPRM) seeking feedback on proposed amendments to the agency’s Negative Option Rule, which is used to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs. (See also FTC fact sheet here.) Claiming that current laws and regulations do not clearly provide a consistent legal framework for these types of programs, the NPRM, which applies to all subscription features in all media, proposes to add a new “click to cancel” provision that would make it as easy for consumers to cancel their enrollment as it was to sign up. The NPRM would also require sellers to first ask consumers whether they want to hear about new offers or modifications before making a pitch when consumers are trying to cancel their enrollment. If a consumer says “no” a seller must immediately implement the cancellation process. Sellers would also be required to provide consumers who are enrolled in negative option programs with an annual reminder involving anything other than physical goods before they are automatically renewed.

    Commissioner Christine Wilson issued a dissenting statement, in which she argued that while the NPRM “may achieve the goal of synthesizing the various requirements in one rule,” it “is not confined to negative option marketing [as it] also covers any misrepresentation made about the underlying good or service sold with a negative option feature.” Wilson commented, “as drafted, the Rule would allow the Commission to obtain civil penalties, or consumer redress under Section 19 of the FTC Act, if a marketer using a negative option feature made misrepresentations regarding product efficacy or any other material fact.”

    Agency Rule-Making & Guidance Federal Issues FTC Negative Option FTC Act Consumer Finance Subscriptions UDAP Unfair Deceptive

  • FTC orders refunds over compromised health data

    Federal Issues

    On March 2, the FTC filed a complaint against an online counseling service alleging the respondent violated the FTC Act by monetizing consumers’ sensitive health data for targeted advertising purposes. As part of the process to sign up for the respondent’s counseling services, consumers are required to provide sensitive mental health information, as well as other personal information. Consumers are promised that their personal health data will not be used or disclosed except for limited purposes, such as for counseling services. However, the FTC claimed the respondent used and revealed consumers’ sensitive health data to third parties for advertising purposes. According to the FTC, the respondent failed to maintain sufficient policies or procedures to protect the sensitive information and did not obtain consumers’ affirmative express consent before disclosing the health data. The respondent also allegedly failed to limit how third parties could use the health data and denied reports that it revealed consumers’ sensitive information.

    Under the terms of the proposed consent order, the respondent will be required to pay $7.8 million in partial refunds to affected users and will be banned from disclosing health information to certain third parties for re-targeting advertising purposes. This will be the first FTC action returning funds to consumers whose health data was compromised. The respondent will also be prohibited from misrepresenting its sharing practices and must also (i) obtain users’ affirmative express consent before disclosing personal information to certain third parties for any purpose; (ii) implement a comprehensive privacy program with strong safeguards to protect users’ data; (iii) instruct third parties to delete shared personal data; and (iv) implement a data retention schedule imposing limits on how long personal data can be retained.

    Federal Issues FTC Enforcement Advertisement Privacy, Cyber Risk & Data Security Consumer Protection UDAP FTC Act Unfair Deceptive

  • FTC, CFPB examine discriminatory background screenings

    Federal Issues

    On February 28, the FTC and CFPB issued a request for information (RFI) on background screening issues affecting consumers seeking rental housing in the U.S., including ways criminal and eviction records and algorithms may lead to discriminatory screening outcomes. (See also CFPB blog post here.) According to the agencies, information used and collected in rental-screening checks may “unfairly prevent consumers from obtaining and retaining housing.” The announcement comes as part of an effort to identify practices that unfairly prevent applicants and tenants from accessing or staying in housing. As previously covered by InfoBytes, the Biden administration announced in January new actions for enhancing tenant protections and furthering fair housing principles. This marks the first time the FTC has issued an RFI that explores unfair practices in the rental market. Collected data will be used to inform enforcement and policy actions under each agency’s jurisdiction, the agencies said, adding that the FCRA (which both agencies enforce) also imposes requirements on several aspects of the tenant screening process. 

    Seeking feedback from current and prospective tenants, advocacy groups, landlords, and others who use or are subject to rental-screening checks, the RFI requests information covering a wide array of issues, including: (i) how housing decisions are impacted when criminal and eviction records (which may contain potential inaccuracies) are used; (ii) whether consumers are made aware of the criteria used in the screening process or notified about the reasons leading to a rejection; (iii) how application and screening fees are set; (iv) how the screening process uses algorithms, automated decision-making, artificial intelligence, or similar technology; and (v) ways the current screening process can be improved. Comments on the RFI are due May 30.

    Federal Issues CFPB FTC Consumer Finance Discrimination

  • FTC says fraud cost consumers $8.8 billion in 2022

    Federal Issues

    On February 23, the FTC released data showing 2.4 million consumers reported losing a total of nearly $8.8 billion to fraud in 2022—a more than 30 percent increase from the prior year. Investment scam losses totaled more than $3.8 billion (the most of any category in 2022 and double the amount of investment scam losses reported in 2021). Imposter scam losses came in at $2.6 billion, up from $2.4 billion in 2021. The FTC reported receiving more than 5.1 million reports directly from consumers, federal, state, and local law enforcement agencies, the Better Business Bureau, industry members, and non-profit organizations. In addition to fraud reports, the FTC received identity theft reports and complaints related to issues concerning problems with credit bureaus, banks, and lenders. Reports received through the FTC’s database serve as the starting point for many of the FTC’s enforcement investigations, the agency said, adding that reports are also shared with federal, state, local, and international law enforcement professionals. Full coverage of the reports received in 2022 can be accessed here.

    Federal Issues FTC Consumer Finance Fraud Enforcement Consumer Complaints

  • FTC, DOJ sue telemarketers of fake debt relief services

    Federal Issues

    On February 16, the DOJ filed a complaint on behalf of the FTC against several corporate and individual defendants for alleged violations of the FTC Act and the Telemarketing Sales Rule (TSR) in connection with debt relief telemarketing campaigns that delivered millions of unwanted robocalls to consumers. (See also FTC press release here.) According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants are interconnected platform providers, lead generators, telemarketers, and debt relief service sellers. Alleged violations include: (i) making misrepresentations about their debt relief services; (ii) initiating telemarketing calls to numbers on the FTC’s Do Not Call Registry, as well as calls in which telemarketers failed to disclose the identity of the seller and services being offered; (iii) initiating illegal robocalls without first obtaining consent; (iv) failing to make oral disclosures required by the TSR, including clearly and truthfully identifying the seller of the debt relief services; (v) misrepresenting material aspects of their debt relief services; and (vi) requesting and receiving payments from customers before renegotiating or otherwise altering the terms of those customers’ debts. The complaint seeks permanent injunctive relief, civil penalties, and monetary damages. Two of the defendants (a debt relief lead generator and its owner) have agreed to a stipulated order that, if approved, would prohibit them from further violations and impose a monetary judgment of $3.38 million, partially suspended to $7,500 to go towards consumer redress due to their inability to pay.

    Federal Issues FTC DOJ Enforcement Robocalls Debt Relief Consumer Finance FTC Act Telemarketing Sales Rule Telemarketing

  • District Court allows FTC suit against owners of credit repair operation to proceed

    Federal Issues

    On February 13, the U.S. District Court for the Eastern District of Michigan denied a motion to dismiss filed by certain defendants in a credit repair scheme. As previously covered by InfoBytes, last May the FTC sued a credit repair operation that allegedly targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. At the time, the court granted a temporary restraining order against the operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. The temporary restraining order was eventually vacated, and the defendants at issue (two individuals and two companies that allegedly marketed credit repair services to consumers, charged consumers prohibited advance fees in order to use their services without providing required disclosures, and promoted an illegal pyramid scheme) moved to dismiss themselves from the case and to preclude the FTC from obtaining permanent injunctive and monetary relief.

    In denying the defendants’ motion to dismiss, the court held, among other things, that “controlling shareholders of closely-held corporations are presumed to have the authority to control corporate acts.” The court pointed to the FTC’s allegations that the individual defendants at issue were owners, officers, directors, or managers, were authorized signatories on bank accounts, and had “formulated, directed, controlled, had the authority to control, or participated in the acts and practices set forth in the complaint.” The court further held that the FTC’s allegations raised a plausible inference that the individual defendants have the authority to control the businesses and demonstrated that they possessed, “at the most basic level, ‘an awareness of a high probability of deceptiveness and intentionally avoided learning of the truth.’”

    The court also disagreed with the defendants’ argument that the permanent injunction is not applicable to them because they have since resigned their controlling positions of the related businesses, finding that “[t]his development, if true, does not insulate them from a permanent injunction.” The court found that “the complaint contains plausible allegations of present and ongoing deceptive practices that would authorize the [c]ourt to award a permanent injunction ‘after proper proof.’” In addition, the court said it may award monetary relief because the FTC brought claims under both sections 13(b) and 19 of the FTC Act and “section 19(b) contemplates the ‘refund of money,’ the ‘return of property,’ or the ‘payment of damages’ to remedy consumer injuries[.]” 

    Federal Issues Courts FTC Enforcement Credit Repair Consumer Finance FTC Act Credit Repair Organizations Act UDAP Deceptive Telemarketing Sales Rule

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