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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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  • District Court holds that FTC investigation and initiation of enforcement proceedings do not qualify as final agency actions subject to judicial review

    Courts

    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.

    Courts FTC Enforcement FTC Act Telemarketing Sales Rule Administrative Procedures Act

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  • Court enters default judgment in favor of CFPB against debt relief companies

    Courts

    On May 22, the U.S. District Court for the District of Maryland entered a default judgment, in favor of the CFPB, against two debt relief companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. As previously covered by InfoBytes, the CFPB filed a complaint in October 2017 against the defendants for allegedly violating the Telemarketing Sales Rule and the Consumer Financial Protection Act by, among other things, purportedly claiming to be affiliated with the federal government and misrepresenting the abilities of their services. In granting the CFPB’s request for default judgment, the court held that the defendants failed to defend the action and ordered they pay almost $5 million in restitution, as well as $16 million in civil money penalties. In addition to the fines, the defendants are prohibited from engaging in telemarketing, debt relief and credit repair activities in the future.

    Courts CFPB Consumer Finance Debt Relief Enforcement CFPA Telemarketing Sales Rule UDAAP

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  • District Court partially denies defendants’ time-barred claims, rules certain TSR violations may proceed

    Courts

    On May 3, the U.S. District Court for the Central District of California addressed time-barred claims raised by a group of affiliated law firms and their managing attorneys (defendants) that partnered with a now-defunct entity to offer debt relief services to consumers. The court granted in part and denied in part defendants’ request for summary judgment after determining that many of the allegedly improper up-front fees charged to consumers seeking debt relief were collected within the three-year statute of limitations for enforcement actions. As previously covered in InfoBytes last January, the CFPB claimed, among other things, that the defendants violated the Telemarketing Sales Rule (TSR) by allegedly assisting a different, now-defunct debt relief service company with charging up-front fees. Last May, the district court denied the defendants’ bid for dismissal but at the time “declined to resolve the parties’ dispute over the applicable statute of limitations.” While the CFPB agreed to limit its request for relief to the three years preceding the filing of the suit, the defendants filed a motion for summary judgment arguing that the entire action should be barred because the alleged violations relate to a “singular scheme” discovered by the CFPB in 2012. However, according to the court, federal consumer financial law states that “any violations of the TSR that occur within the relevant limitations period are not time-barred.” Therefore, because the CFPB provided evidence that fees were collected in 2015—well within the applicable statute of limitations—the defendants’ request as to violations of the TSR that allegedly occurred within three years of the filing is denied. Notwithstanding, the court granted part of the defendants’ request for summary judgment and barred all claims related to conduct that occurred outside the three-year window because the CFPB did not oppose the motion.

    Courts CFPB Debt Collection Fees Enforcement Telemarketing Sales Rule Consumer Finance

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  • FTC reaches $45.5 million settlement with companies over illegal telemarketing calls

    Privacy, Cyber Risk & Data Security

    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.

    Privacy/Cyber Risk & Data Security FTC DOJ FTC Act Telemarketing Sales Rule Settlement

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  • FTC settles credit card laundering lawsuit

    Federal Issues

    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.

    Federal Issues Payment Processors FTC Act Telemarketing Sales Rule FTC Settlement

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  • 10th Circuit upholds TCPA statutory damages as uninsurable under Colorado law

    Courts

    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. 

    Courts TCPA Tenth Circuit Appellate Damages Insurance FTC Telemarketing Sales Rule State Issues

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  • FTC Seeks Order to Stop Alleged Telemarketing Debt Relief Scam

    Consumer Finance

    On December 4, the FTC announced that it charged two debt relief companies and five individuals with violations of the FTC Act and the Telemarketing Sales Rule (TSR) in connection with their sale of “bogus” credit card interest rate reduction services. According to the complaint, the defendants contacted consumers using illegal robocalls and made false guarantees to “substantially and permanently” lower the consumers’ credit card interest rates and/or save the consumer thousands of dollars in interest payments. However, the scheme rarely obtained the promised results. In some instances where consumers did get lower interest rates, those rates were only temporary “teaser” rates that did not result in a permanent rate reduction. In addition, defendants failed to disclose the associated balance transfer fees that accompanied the lower teaser rates. The FTC also charged the defendants with TSR violations for (i) collecting illegal upfront fees; (ii) making illegal robocalls; (iii) contacting consumers on the National Do Not Call Registry; and (iv) not paying the required fees to the Registry. The FTC charged one additional individual defendant with substantially assisting the two debt relief operations with the allegedly illegal conduct. The FTC is seeking a temporary restraining order (TRO) against the defendants, requesting the appointment of a receiver to control the two corporate entities, and an asset freeze to assist in potential consumer redress.

    Consumer Finance FTC Credit Cards Debt Settlement Telemarketing Sales Rule

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  • CFPB Takes Action Against Largest Debt Settlement Provider

    Consumer Finance

    On November 9, the CFPB announced the filing of a complaint against the largest debt settlement provider in the country and its co-CEO for allegedly deceiving consumers about its debt settlement services. According to the complaint, the defendants engaged in deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by:

    • misleading consumers about the settlement provider’s ability to negotiate with creditors that the settlement provider knew maintained policies against working with settlement companies;
    • instructing consumers to mislead creditors when asked about their participation in a debt settlement program;
    • leading consumers to believe the defendants would negotiate on their behalf when, in fact, some consumers were only “coached” on how to negotiate settlements on their own;
    • misleading consumers by charging them the full fee when creditors stop collection efforts without the defendants taking any action despite advertising that the fee is only charged if settlement is negotiated by the settlement provider and payments begin under the terms of a settlement; and
    • failing to clearly and conspicuously disclose consumers’ rights to refunds from their deposit accounts if they leave the settlement program.

    The CFPB is seeking monetary relief, civil money penalties, and injunctive relief against the defendants.

    Consumer Finance CFPB Debt Collection Enforcement Debt Settlement Telemarketing Sales Rule CFPA

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  • CFPB Takes Action Against Debt Relief Companies for Allegedly Violating the TSR and Claiming to be Affiliated With the Federal Government

    Consumer Finance

    On October 12, the CFPB announced the filing of a complaint in the U.S. District Court for the District of Maryland against two companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. According to the complaint, the defendants allegedly engaged in abusive and deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by purportedly (i) charging advance fees for debt-relief services before altering the terms of the consumers’ debts or achieving promised results; (ii) misrepresenting the abilities of their debt-relief and credit-repair services; (iii) failing to disclose to consumer that if they stopped making payments on debts enrolled in the service they may be subject to collections or lawsuits from creditors that could increase the overall amount of money owed due to fees and interest; and (iv) misrepresenting an affiliation, endorsement, or sponsorship with the federal government by using direct mailers designed to look like an official government notice.

    Consumer Finance CFPB Debt Relief Enforcement CFPA Telemarketing Sales Rule UDAAP

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