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  • FTC obtains injunction and monetary judgment against telemarketing company

    Federal Issues

    On January 31, the U.S. District Court for the Northern District of Illinois finalized, in actions brought by the FTC, a permanent injunction and monetary judgment against a telemarketing company and certain individuals for violating the FTC Act, 15 U.S.C. § 45, and the Telemarketing and Consumer Fraud and Abuse Prevention Act, specifically the Telemarketing Sales Rule (“TSR”). The FTC’s motion for summary judgment was granted by the court, whereby the defendants were ordered to pay a monetary judgment for a civil penalty of $28,681,863.88 in favor of the FTC, and the defendants were permanently banned from participating in telemarketing or assisting and facilitating others engaged in telemarketing to consumers. The court found that the defendants violated the TSR by “initiating or causing the initiation of outbound telephone calls to consumers whose telephone numbers were on the National Do Not Call Registry… and by assisting and facilitating their inbound transfer partners’ violations of the TSR.”  This final action comes after the FTC was granted its initial order for permanent injunction and other relief in November 2023.

    Federal Issues FTC FTC Act Telemarketing TCPA Do Not Call Registry Telemarketing and Consumer Fraud and Abuse Prevention Act

  • FTC hosts tech summit on artificial intelligence; CFPB weighs in

    Agency Rule-Making & Guidance

    On January 25, the FTC hosted a virtual tech summit focused on artificial intelligence (AI). The summit featured speakers from the FTC––including all three commissioners––software engineers, lawyers, technologists, entrepreneurs, journalists, and researchers, among others. First, Commissioner Slaughter spoke on how there are three main acts that led to where we are today in creating guardrails for AI use: first, the emergence of social media; second, industry groups and whistleblowers rang the alarm on data privacy and forced regulators to play catch-up; third, regulators must now urgently grapple with difficult social externalities such as impacts on society and political elections.

    The first panel discussed the various business models at play in the AI space. One journalist spoke on the recent Hollywood writers’ strike, opining that copyright law is a poor legal framework by which to regulate AI, and suggested labor and employment law as a better model. An analyst at a venture capital firm discussed how her firm finds investment opportunities by reviewing which companies use a language-learning model, as opposed to the transformer model, which is more attractive to that firm.

    Before the second panel, Commissioner Bedoya discussed the need for fair and safe AI, and said that in order for the FTC to be successful, it must execute policy with two topics in mind: first, people need to be in control of technology and decision making, not the other way around; and second, competition must be safeguarded so that the most popular technology is the one that works the best, not just the one created by the largest companies.

    During the second panel, a lawyer from the CFPB spoke on how the CFPB is doing “a lot” with regards to AI, and that the CFPB gives AI technology no exceptions in the laws it oversees. The CFPB recently issued releases on how the “black box” model in credit decision making needs to be fair and free from bias. When discussing future AI enforcement actions, the CFPB lawyer said in a “high-level” way that AI enforcement is currently “capacity building”; they are building out their resources to be more intellectually diverse, including having recently created their technologist program. 

    Agency Rule-Making & Guidance FTC Artificial Intelligence CFPB Technology

  • FTC orders companies and individuals to turn over millions

    Federal Issues

    On January 17, the FTC announced two proposed settlements against an independent sales organization and its owners (collectively, “defendants”) for allegedly participating in deceptive and unfair acts and practices. The FTC alleges the defendants violated FTC Act, the Business Opportunity Rule, the Cooling-Off Rule, and the Consumer Review Fairness Act by targeting Spanish-speaking consumers with “false or unfounded earnings claims and other deceptive promises,” relating to business opportunities. According to the complaint, defendants sold business opportunities to Spanish-speaking consumers that used unsubstantiated earnings claims to convince consumers to pay thousands of dollars for its products and services. The complaint also alleged that although defendants’ marketing and sales were conducted largely in Spanish, the company’s purchase agreements that outline the cancellation policy were often provided exclusively in English. Additionally, the complaint alleged that defendants frequently rejected consumers’ refund requests as untimely, and when consumers reported the defendants to law enforcement or the Better Business Bureau, defendants offered partial refunds to those consumers contingent upon their withdrawal of their complaints and agreement to refrain from posting negative reviews about defendants.

    The proposed stipulated order, among other things, would (i) permanently ban the defendants from offering any business coaching on ecommerce or real estate; (ii) require the defendants to support their claims about how much consumers can earn using any product or service that the defendants market or sell; (iii) prohibit the defendants from repeating the unlawful practices that formed the basis for the complaint; (iv) require defendants to pay $29,175,000 and surrender all funds and assets of the receivership entities and those additionally listed; and (v) identify repayment obligations of various financial institutions and require the identified financial institution to remit the balance of each identified account to the Commission. The defendants neither admitted nor denied any of the allegations in the complaint. 

    Federal Issues FTC Enforcement FTC Act Settlement Business Opportunity Rule

  • FTC bans data aggregator company from selling consumer data

    Federal Issues

    On January 18, the FTC issued a complaint against a digital platform and data aggregator (the company) and ordered the company to no longer sell or license precise location data, among other requirements. As previously covered by InfoBytes, the FTC’s order followed a recent FTC decision against a data broker in which the FTC alleged the data broker’s contracts were “insufficient to protect consumers from the substantial injury” caused by location data collection as consumers visited sensitive locations, such as churches, healthcare facilities, and schools.

    In this case, the company obtained large amounts of personal data on consumers’ demographic data, movements, and purchasing history and retained that information for five years. The company had applications and third-party apps that have been downloaded over 390 million times, leading to about 100 million unique devices sending location data each year to the company. Like the previous FTC order, this FTC order alleged the company collected sensitive information on where consumers live, work, and worship; where their children went to school; where they received medical treatment; and if they attended rallies or demonstrations. The FTC alleged that the company cross-references consumers’ data location histories with points of interest to advertisers, including offering a push notification about a product when a consumer is located near a store that sells that product.

    The FTC alleged the company failed to notify users that consumers’ location data is used for targeted advertising. Additionally, the FTC alleged the company retains consumer data “longer than reasonably necessary” which the FTC argues could lead to future consumer injury. According to the FTC, these allegations constitute deceptive or unfair practices as prohibited by Section 5(a) of the FTC Act. Under the order, the company must not materially misrepresent how the company collects or uses consumers’ location data, the company must not sell or license location data, and the company must implement a sensitive location data program as proscribed by the order. The company must also delete all historical location data for all consumers which does not affirmatively consent to the continued retention of such data. The company neither admits nor denies any of these allegations.

    Federal Issues FTC FTC Act Consumer Data Data Aggregator Enforcement

  • FTC acts against fintech app for misrepresentations made about cash advances

    Federal Issues

    On January 2, the FTC issued a complaint and stipulated order against a personal finance mobile application that offers its users short-term cash advances through “floats.” According to the complaint, the defendant misrepresented its claims to induce users into enrolling in a subscription plan. Specifically, the defendant advertised that its users could instantly receive a cash advance larger than available, claimed cash advance limits would increase over time, and promised to make cash available “instantly” for no extra fee.

    According to the complaint, employees have admitted that the defendant company “lie[s]” to users. Users allegedly received misleading advertisements that stated how cash advances or “floats” constitute “free money” when there is actually a $1.99 subscription fee listed in tiny font. Additionally, the defendant advertised that users would receive “money in minutes” for “free” with “no hidden fees” despite having to pay a hidden $4 fee to receive their money instantly. The FTC alleges from user responses that many of them would have not enrolled in this program had they known they would be advanced less than promised. Further, the FTC alleges the defendant discriminates against consumers by categorically refusing to provide cash advances to consumers who receive public assistance benefits or derive income from gig work––even after they pay subscription fees.

    Under this order, the FTC found the defendant violated the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), as well as ECOA and its implementing rule, Regulation B. The stipulated order, which names the company’s cofounders in addition to the company itself, prohibits the company from further misrepresentations, requires implementation of a fair lending program, requires a simple cancellation mechanism, and provides for a monetary judgment of $3 million.

    Federal Issues FTC Enforcement ROSCA FTC Act ECOA Regulation B

  • FTC, Connecticut file complaint against auto dealer for deceptive and unfair practices

    Federal Issues

    On January 4, the FTC and the State of Connecticut issued a joint complaint against an auto dealer and its owner for alleged violations of the FTC Act and the Connecticut Unfair Trade Practices Act. According to the complaint, the dealership allegedly imposed additional fees, including certification fees, add-on charges, and government charges, without consumers’ explicit consent. The FTC alleged that the dealership made misrepresentations regarding advertised prices, charging consumers additional fees when they would attempt to purchase vehicle, and charged customers for certification fees for vehicles that had been advertised as “certified.” The complaint also alleged that the dealership would charge consumers for add-ons, such as GAP insurance, service contracts, maintenance contracts, and total loss protection with or without express consent, and at times after the consumer specifically declined the add-on. The complaint further alleged that the dealership often stated in advertisements that a vehicle was certified but did not report the sale of that vehicle or pay the certification fee to the manufacturer, so consumers did not receive the actual benefits. The complaint seeks consumer redress, disgorgement of ill-gotten money, civil penalties, and a permanent injunction.

    Federal Issues State Issues FTC Connecticut Deceptive Enforcement FTC Act

  • FTC settles with lead generator for deceiving consumers

    Agency Rule-Making & Guidance

    On January 2, the FTC filed a complaint against a California-based lead generator (the “Company”), alleging that the Company operated as a “consent farm” that deceived consumers into providing their consent to be contacted for telemarketing purposes, then selling those consents to telemarketers, sellers, or intermediaries. Relying on the Company’s purported consent from consumers, those parties then inundated consumers with telemarketing calls. These calls included robocalls and calls made to telephone numbers on the National Do Not Call Registry. Since 2019, the defendants are alleged to have operated over 50 websites focused on lead generation.

    The FTC charged the Company with violating the FTC Act for misrepresenting the collection of consumers’ personal information, and for violating the Telemarketing Sales Rule for assisting and facilitating telemarketers in breaking the Rule.

    On the same day the complaint was filed, the FTC announced a proposed settlement in which the Company was ordered to pay $7 million for its alleged use of deception and dark patterns to trick consumers into providing personal information. Additionally, the proposed stipulated order banned the Company from initiating or helping anyone make telemarketing robocalls, calling phone numbers on the National Do Not Call Registry, and selling consumer information connected with lead generation. The stipulated order must first be approved by the court before it comes into effect. The Company neither admits nor denies any of the allegations

    Agency Rule-Making & Guidance FTC FTC Act Consent Order Fraud Telemarketing Telemarketing Sales Rule

  • FTC sues for-profit university for deceptive and illegal practices

    Agency Rule-Making & Guidance

    On December 27, 2023, the FTC filed a suit in the U.S. District Court of Arizona against a for-profit university for allegedly deceiving students, misrepresenting the university as a nonprofit entity, and committing telemarking abuses. The FTC sued under the FTC Act and Telemarketing Sales Rule (TSR). The complaint alleges that the university in question is a for-profit institution operating as a publicly traded entity, but nonetheless marketed itself as a “nonprofit” university. The complaint further alleges that the university misled students about the cost of its “accelerated” doctoral programs and used abusive telemarketing calls to try to boost enrollment. According to the FTC, the university called those who requested not to be called by the university, as well as consumers on the National Do Not Call Registry. The FTC asserts five claims against the university. The first two counts allege violations of Section 5(a) of the FTC Act for deceptive representations about its non-profit status and for falsely advertising its doctoral programs. The last three counts allege violations of the TSR predicated on deceptive telemarketing acts or practices, contacting those who have requested to not be contacted, and calling people on the National Do Not Call Registry.

    Agency Rule-Making & Guidance FTC FTC Act For-Profit College TSR Telemarketing Telemarketing Sales Rule Do Not Call Registry Fraud

  • FTC temporarily halts business opportunity scheme

    Federal Issues

    On December 19, the FTC announced that the U.S. District Court for the Eastern District of Pennsylvania granted a temporary restraining order against a business opportunity scheme for allegedly engaging in deceptive acts. The court’s order barred the defendants from making misrepresentations about any business or money-making opportunity and froze the defendant’s assets. According to the FTC’s complaint, the business opportunity scheme violated the FTC Act’s prohibition of “unfair or deceptive acts or practices in or affecting commerce” and the Telemarketing Sales Rule by, among other things, (i) making misrepresentations regarding earnings from their products and services; (ii) furnishing “success coaches” with marketing materials to be used for new member recruitment, thus providing the means for the commission of deceptive acts or practices; (iii) making misrepresentations regarding profitability to persuade consumers to pay for membership, digital products, and marketing packages; (iv) making misrepresentations regarding material aspects of an investment opportunity; and (v) facilitating outbound calls that deliver prerecorded messages to encourage consumers to purchase its products, also known as robocalls. Beyond the temporary restraining order and asset freeze, the FTC is seeking a permanent injunction and other equitable relief.

    Federal Issues FTC Enforcement FTC Act Deceptive Pennsylvania Robocalls

  • FTC report details key takeaways from AI and creative fields panel discussion

    Federal Issues

    On December 18, the FTC released a report highlighting key takeaways from its October panel discussion on generative artificial intelligence (AI) and “creative industries.” As previously covered by InfoBytes, the FTC hosted a virtual roundtable to hear directly from creators on how generative AI is affecting their work and livelihood given the FTC’s interest in understanding how AI tools impact competition and business practices. The report presents a summary of insights gathered during the roundtable and explains the FTC’s particular jurisdictional interest in regulating AI. The report explains that the FTC has brought several recent enforcement actions relating to AI and how the use of AI can potentially violate Section 5 of the FTC Act, which “prohibits unfair or deceptive acts or practices and unfair methods of competition.” Additionally, the report mentioned how President Biden’s recent Executive Order on the Safe, Secure and Trustworthy Development and Use of AI (covered by InfoBytes here), encourages the FTC to leverage its existing faculties to protect consumers from harms caused by AI and to ensure competition in the marketplace.  The FTC’s report explains that it is appropriately taking such actions, both through enforcement actions and by gathering information. The Commission additionally stipulated that training generative AI on “protected expression” made by a creator without the creator’s consent or the sale of that generated output could constitute an unfair method of competition or an unfair or deceptive practice. The FTC added that this may be amplified by actions that involve deceiving consumers, improperly using a creator’s reputation, reducing the value of a creator’s work, exposing private information, or otherwise causing substantial injury to consumers. The Commission further warned that “conduct that may be consistent with other bodies of law nevertheless may violate Section 5.”

    Federal Issues FTC Artificial Intelligence Competition Consumer Protection FTC Act Unfair

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