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  • FTC seeks comments on possible adjustments to privacy and data security rulemaking authority

    Privacy, Cyber Risk & Data Security

    On August 6, the FTC published a request for comments in the Federal Register—in advance of a series of 15 to 20 public hearings scheduled to start this September—on whether the agency should make adjustments to competition and consumer protection law, enforcement priorities, and policy in light of evolving technologies and market developments. The hearings will cover a range of consumer-related issues, including the agency’s “remedial authority to deter unfair and deceptive conduct in privacy and data security matters” and the “interpretation and harmonization of state and federal statutes and regulations that prohibit [such conduct].” According to testimony presented by FTC Chairman Joseph Simons at a July 18 House Subcommittee on Digital Commerce and Consumer Protection hearing, there exists a need for expanded rulemaking and civil penalty authority. Specifically, Simons discussed Section 5 of the FTC Act, which he stated is too limited to address all of the privacy and security concerns in the marketplace and does not provide for civil penalties. Comments on the hearing topics must be received by August 20.

    Privacy/Cyber Risk & Data Security FTC Federal Register FTC Act

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  • FTC announces charges against auto dealerships for falsifying consumer information on auto financing documents

    Lending

    On August 1, the FTC announced charges against a group of four auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border alleging, among other things, that the defendants advertised misleading discounts and incentives through their vehicle advertisements, and falsely inflated consumers’ income and down payment information on certain financing applications. The charges brought against the defendants allege violations of the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act. According to the complaint, by allegedly falsifying the customers’ income and down payments, the defendants “inaccurately made consumers appear more creditworthy” on the false financing applications. Moreover, the FTC claims the defendants often prevented consumers from reviewing the falsified information provide in the financing applications prior to signing. As a result, credit was extended to consumers—many of whom are members of the Navajo Nation—who then subsequently “defaulted at a higher rate than properly qualified buyers.” Furthermore, the complaint asserts that the defendants’ deceptive advertising practices concealed the true nature and terms of the financing or leasing offers, and were in violation of federal law for failing to disclose the required terms. The complaint seeks, among other remedies, a permanent injunction to prevent future violations, restitution, and disgorgement.

    Lending Consumer Finance FTC Auto Finance FTC Act TILA Consumer Leasing Act

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  • FTC testifies before House subcommittees about combating consumer fraud

    Federal Issues

    On July 26, the Director of the FTC’s Bureau of Consumer Protection, Andrew Smith, testified before subcommittees of the U.S. House Committee on Oversight and Government Reform regarding the FTC’s program to combat consumer fraud. The prepared testimony discusses the FTC’s anti-fraud program and highlights the agency’s enforcement actions against illicit companies that pose as government agents, such as the IRS, to convince consumers and small businesses to send them money. The FTC touts the steps taken to spur development of technological solutions to unlawful robocalls, including call-blocking and call-filtering products. The testimony also focuses on the FTC’s efforts to curb payment processors from assisting fraudulent actors in violation of the FTC Act. The FTC notes that the Commission has brought 25 actions against payment processors that failed to comply with requirements to ensure their systems were not being used to process fraudulent merchant transactions. The FTC emphasized that while the “overwhelming majority” of payment processors abide by the law, when certain processors do not, they cause “significant economic harm to consumers and legitimate businesses.”

    Federal Issues Payment Processors Consumer Finance Fraud Robocalls FTC FTC Act U.S. House

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  • FTC and New York Attorney General reach deal with debt collection firm

    Courts

    On July 20, the U.S. District Court for the Western District of New York issued a judgment to resolve a suit brought by the FTC and the New York Attorney General against a debt collection firm and an affiliated officer (defendants) accused of allegedly engaging in deceptive and abusive practices, including unlawfully threatening to arrest consumers if debts were not paid. (See previous InfoBytes coverage here.) Under the stipulated final order for permanent injunction and settlement of claims pursuant to the FTC Act and the Fair Debt Collection Practices Act, the defendants—who have not admitted to the allegations—are held jointly and severally liable for paying the more than $22.5 million under a suspended judgment should it ever be determined that the financial disclosures provided to the state and the FTC were not completely truthful, accurate, or complete. The defendants are also banned from the debt collection industry and required to file compliance reports with the FTC. The judgment further authorizes the receiver to liquidate the debt collection firm’s assets.

    Courts FTC State Attorney General Debt Collection FTC Act FDCPA

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  • District Court agrees with FTC, enters $5 million judgment against credit monitoring scheme

    Courts

    On June 26, the U.S. District Court for the Northern District of Illinois granted the FTC’s motion for summary judgment, concluding that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge did not involve unfair or deceptive practices. The FTC argued that the defendants’ scheme, which used the promise of a free credit report to enroll the consumers into a monthly credit monitoring program, violated the FTC Act’s ban on deceptive practices. The court agreed, holding that the ad campaign was “rife with material misrepresentations that were likely to deceive a reasonable consumer.” Additionally the court agreed with the FTC that the defendants’ website was materially misrepresentative because it did not give “the net impression that consumers were enrolling in a monthly credit monitoring service” for $29.94 a month, as opposed to defendants’ claim that consumers were obtaining a free credit report.

    The court entered a judgment ordering the defendants to pay over $5 million in equitable monetary relief to the FTC and prohibiting defendants from, among other things, charging consumers for any credit monitoring services and disclosing or using any collected consumer information. The defendants must also submit to compliance reporting and monitoring by the FTC.

    Courts FTC Act Credit Report Credit Monitoring FTC

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  • FTC and New York Attorney General announce action against phantom debt operation

    Consumer Finance

    On June 27, the FTC and the New York Attorney General’s Office announced charges against two New York-based phantom debt operations and their principals. The complaint alleges they ran a deceptive and abusive debt collection scheme involving the marketing and selling of fictitious loan debt portfolios and collecting on debts consumers did not owe. The charges brought against the operations allege violations of the FTC Act, the Fair Debt Collection Practices Act, and New York state law. According to the complaint, the debt broker knowingly purchased fabricated debt from a phantom debt collection operation previously charged by the FTC and the Illinois Attorney General in a separate action for selling fabricated debt. (As previously covered by InfoBytes, the Illinois-based operation was banned from the debt collection business and prohibited from selling debt portfolios.) The debt broker then engaged a debt collection agency and its owner to collect on the fabricated debt using illegal collection tactics, while continuing to purchase debts and place them for collection despite having knowledge that consumers disputed the debts. The complaint seeks, among other things, injunctive relief, restitution, and disgorgement.

    Consumer Finance FTC State Attorney General Debt Collection Debt Buyer FTC Act FDCPA State Issues

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  • Native American tribes to forfeit $3 million in profits made from payday lending scheme

    Federal Issues

    On June 26, the Department of Justice (DOJ) filed two forfeiture complaints, which cover agreements with two Native American tribes to forfeit a combined $3 million in profits made from their involvement in an allegedly fraudulent payday lending scheme (see here and here). As previously covered by InfoBytes, in October 2016, the FTC required a Kansas-based operation and its owner to pay more than $1.3 billion for allegedly violating Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. The business owner and his attorney were subsequently found guilty in October 2017 of operating a criminal payday loan empire. As part of the agreements, the two tribes admit that representatives filed affidavits containing false statements in the legal actions against the payday loan scheme. If the tribes comply with agreement requirements, the DOJ will not pursue criminal action for the specified violations.

    In February, multiple federal agencies entered into a $613 million deferred prosecution agreement over Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program deficiencies with a national bank, which included allegations that the bank was on notice of the owner’s use of the bank to launder proceeds from his fraudulent payday lending scheme. (Previously covered by InfoBytes here.)

    Federal Issues DOJ Payday Lending FTC Consumer Finance Bank Secrecy Act Anti-Money Laundering FTC Act

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  • District Court grants preliminary injunction in FTC search engine suit

    Courts

    On June 6, the U.S. District Court for the Southern District of Florida granted the FTC’s request for preliminary injunction against an individual defendant and the company he owns and manages (stipulating defendants) for allegedly violating the FTC Act by making robocalls to small business owners claiming they represented a global search engine and could guarantee top search result placements. The stipulating defendants are part of a larger group of Florida-based companies, affiliates, and representatives (defendants) identified in the FTC’s 2018 complaint. According to the FTC’s May 23 press release, the defendants—who allegedly have no relationship with the search engine—threatened to remove companies from the search engine’s results or label them as “permanently closed” unless they accepted the robocall and paid a fee to participate in the defendants’ program. The complaint also claimed that the defendants—who lost the ability to accept payments by credit card after their merchant account was closed due to high chargeback rates—allegedly “took money, usually $100, from at least 250 of their prior or existing customers’ checking accounts without those customers’ advance knowledge, consent, or authorization, and with no apparent reason or justification.”

    In granting the preliminary injunction, the court found that there exists “good cause” to believe the FTC’s allegations against the stipulating defendants, and that the FTC is “likely to prevail on the merits of this action.” The injunction, among other things, blocks the stipulating defendants from continuing with their business, freezes their assets and records, and orders the appointment of a receiver to take control over those assets. A temporary restraining order was also issued against all defendants on May 8.

    Courts FTC Robocalls Privacy/Cyber Risk & Data Security FTC Act

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  • 11th Circuit vacates FTC data security cease and desist order issued against medical testing laboratory

    Courts

    On June 6, the U.S. Court of Appeals for the 11th Circuit vacated an FTC cease and desist order (Order) that directed a Georgia-based medical testing laboratory to overhaul its data security program, ruling that the Order was unenforceable because it lacked specifics on how the overhaul should be accomplished. In 2013, the FTC claimed that the laboratory’s violation of Section 5(a) of the FTC Act constituted an “unfair act or practice” by allegedly failing to implement and provide reasonable and appropriate data security for patient information. The now defunct laboratory argued, among other things, that the FTC did not have the authority under Section 5 to regulate how it handled its data security measures. But the three-judge panel chose not to rule on the broader question about the scope of the FTC’s Section 5 data security authority, choosing to focus its decision on the Order. As previously covered in InfoBytes, in 2016 the FTC reversed an Administrative Law Judge’s Initial Decision to dismiss the 2013 FTC complaint, ordering the laboratory to, among other things, employ reasonable security practices that complied with FTC standards.

    After the Order was issued, the laboratory asked the 11th Circuit to decide whether the FTC’s Order was “unenforceable because it does not direct it to cease committing an unfair ‘act or practice’ within the meaning of Section 5(a).” The 11th Circuit agreed to stay enforcement of the Order and ultimately permanently vacated it. “In the case at hand, the cease and desist order contains no prohibitions,” the panel wrote. “It does not instruct [the laboratory] to stop committing a specific act or practice. Rather, it commands [the laboratory] to overhaul and replace its data security program to meet an indeterminable standard of reasonableness. This command is unenforceable.” The court concluded that “[t]his is a scheme that Congress could not have envisioned.”

    Courts FTC Privacy/Cyber Risk & Data Security Eleventh Circuit Appellate FTC Act

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  • FTC files complaint against two operations allegedly responsible for making billions of illegal robocalls

    Privacy, Cyber Risk & Data Security

    On June 5, the FTC announced charges filed against two individuals and their related operations (defendants) for allegedly facilitating billions of robocalls to consumers across the country through a telephone dialing platform in violation of the FTC Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and the Telemarketing Sales Rule. According to the complaint filed in the U.S. District Court for the Central District of California, the alleged misconduct—dating back to 2001—centered around the principal and owner of a group of companies that operated and developed a computer-based telephone dialing platform, and a second individual defendant and his group of call center businesses that paid for the development and use of software designed to make autodial telephone calls and deliver prerecorded messages. The FTC alleged that for many years the two individual defendants jointly owned and operated businesses that resold access to a “bundle of services”—referred to as a “one-stop-shop for illegal telemarketers”—that provided, among other things, (i) servers to host the autodialing software, as well as the physical space housing the servers; and (ii) the ability to make calls using “spoofed” caller ID numbers, which made it look as if the calls came from a consumer’s local area code. According to the FTC, this “bundle of services” became so widely used within the industry that it has been named in at least eight other FTC lawsuits centered on the facilitation of unlawful calls. Among other things, the charges against the defendants include assisting with illegal robocalls, calling with prerecorded messages, calling numbers on the National Do Not Call Registry, calling with spoofed caller IDs, and abandoning calls. The FTC seeks civil monetary penalties, a permanent injunction against the defendants to prevent future violations, and reimbursement of costs for bringing the action.

    Privacy/Cyber Risk & Data Security FTC Robocalls FTC Act Telemarketing Sales Rule Telemarketing and Consumer Fraud and Abuse Prevention Act

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