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  • District Court denies request to set aside $120.2 million judgment in Belizean real estate scheme

    Courts

    On August 24, the U.S. District Court for the District of Maryland denied a request to set aside a more than $120.2 million judgment against several defaulted defendants involved in an international real estate investment development scheme. As previously covered by InfoBytes, the FTC initiated the action in 2018 against several individuals and corporate entities, along with a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. In 2019, a settlement was reached with the Belizean bank requiring payment of $23 million in equitable relief, and in 2020, the district court ordered the defaulted defendants to pay over $120.2 million in redress and granted the FTC’s request for permanent injunctions (covered by InfoBytes here and here).

    In their motion, the defaulted defendants argued that the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC (which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement”—covered by InfoBytes here) nullified the judgment. The district court disagreed, stating that the AMG Capital decision does not render his judgments in the case void and that “[i]n its Opinion rendered before the Supreme Court reached its decision, the Court considered the effect that a decision in AMG Capital adverse to the FTC might have, reasoning that: ‘this Court’s findings of fact and determinations as to liability—including contempt of court and violations of the Telemarketing Services Rule []—would not be affected by a decision in AMG.’” Moreover, the court pointed out that immediate denial of the motion is also warranted because the defaulted defendants failed to comply with a local rule requiring submission of a memorandum of law in support of their motion. The court asked, “In failing to do so, they have skirted among other fundamental questions: What authority do they, as defaulted defendants, involved as part of a common enterprise with virtually all other [d]efendants, have to upset a final and valid judgment against them after willfully defaulting?”

    Courts FTC Act FTC UDAP Telemarketing Sales Rule Restitution U.S. Supreme Court Enforcement

  • DOJ, FTC comment on Fed’s proposed debit card interchange fees and routing changes

    Federal Issues

    Recently, the DOJ and the FTC submitted comments on the Federal Reserve Board’s notice of proposed rulemaking (NPRM) on debit card interchange fees and routing. As previously covered by InfoBytes, the Fed’s NPRM would require banks to ensure that two unaffiliated payment networks are available on their debit cards for online purchases. Among other things, the proposed amendments to the commentary to Regulation II, which implements Section 920 of the EFTA, (i) “clarify that the requirement that each debit card transaction must be able to be processed on at least two unaffiliated payment card networks applies to card-not-present transactions”; and (ii) clarify requirements imposed “on debit card issuers to ensure that at least two unaffiliated payment card networks have been enabled for debit card transactions.”

    On August, 11, the DOJ’s Antitrust Division filed a comment in support of the NPRM, “commend[ing] the Board for its efforts to promote competition in this important part of the debit card industry by ensuring that smaller debit networks will have a greater ability to compete for merchants’ business.” While offering support for the NPRM, the DOJ asked the Fed to “consider whether the proposal is drafted broadly enough to capture all card-not-present transactions,” adding that “incumbent industry participants may attempt to circumvent the proposed rule.” The DOJ encouraged the Fed to “actively assess additional ways the proposed rule may be enhanced to increase competition for debit payment processing.”

    Also on August 11, the FTC submitted a comment letter urging the Fed to clarify and strengthen the implementation of debit card fee and routing reforms, stressing that the Fed should “prohibit debit card networks from paying incentives to an issuer based on how electronic debit transactions are routed by merchants using that issuer’s debit cards.” According to the FTC, “[e]liminating routing-based incentive programs will make it less likely that issuers will search for ways to circumvent Regulation II, whether by violating the rule (necessitating an enforcement action) or by finding a loophole (necessitating future revisions to Regulation II).”

    Federal Issues DOJ FTC Federal Reserve Debit Cards Fees Bank Regulatory

  • FTC sues company for violating FTC Act

    Federal Issues

    On August 11, the FTC filed an administrative complaint against a Georgia-based technology company and its CEO (collectively, “defendants”) for allegedly charging small business customers hundreds of millions of dollars in mystery fees associated with fuel cards. The FTC’s administrative complaint alleges that the defendants violated the FTC Act by falsely promising companies that they would save money, be protected from unauthorized charges, and have no set-up, transaction, or membership fees with the fuel cards. However, according to the defendant’s records, companies generally have not achieved the advertised fuel savings through utilization of the cards. In addition, the complaint alleges that the defendants, among other things: (i) falsely represented that the company’s fuel cards contained fraud controls to prevent unauthorized purchases; (ii) “billed consumers for fees, interest, and finance charges, and programs for which consumers have not provided express, informed consent”; and (iii) charged fees for set-up, transactions, or membership after claiming that they did not.

    In December 2019, the FTC filed suit in federal court against the defendants, alleging that they charged hundreds of millions of dollars in hidden and undisclosed fees to customers after falsely claiming customers would save on fuel costs. However, in April, the Supreme Court ruled that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement” (covered by InfoBytes here). According to the FTC, “[i]n an effort to ensure that the agency’s case against the fuel card marketer is still able to recover money lost by consumers, the FTC has filed a new administrative complaint which alleges that [the defendants] violated section 5 of the FTC Act.”

    Federal Issues Enforcement FTC FTC Act Fees

  • FTC obtains $450,000 settlement with auto dealer over fraudulent consumer financial documents

    Federal Issues

    On July 29, the FTC announced a proposed settlement with the owner and manager of a group of auto dealers with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the individual defendant advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes, in 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act (CLA) for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.” A settlement was reached with the auto dealer defendants last September (covered by InfoBytes here), which required, among other things, that the auto dealer defendants cease all business operations and pay a monetary judgment of over $7 million.

    If approved by the court, the proposed order would result in a $450,000 payment to the FTC, and would prohibit the individual defendant, who neither admits nor denies the allegations, from (i) misrepresenting information in any documents associated with a consumer’s purchase, financing, or leasing of a motor vehicle; (ii) misrepresenting the costs or any other material facts related to vehicle financing; or (iii) falsifying loan information. The individual defendant would also be required to provide consumers a reasonable opportunity and sufficient time to review documents associated with the vehicle financing, and is prohibited from violating the TILA and CLA.

    Federal Issues FTC Enforcement Auto Finance Consumer Finance FTC Act Consumer Leasing Act TILA

  • Commissioners discuss importance of restoring FTC’s authority

    Federal Issues

    On July 28, the House Committee on Energy and Commerce’s Subcommittee on Consumer Protection and Commerce held a hearing titled “Transforming the FTC: Legislation to Modernize Consumer Protection” to discuss, among other things, the importance of restoring the Commission’s ability to secure monetary relief from companies and individuals that violate the law. Testifying before the subcommittee were FTC Chair Lina M. Khan and Commissioners Noah Joshua Phillips, Rohit Chopra, Rebecca Kelly Slaughter, and Christine S. Wilson. Khan and the Commissioners discussed pending federal legislation intended to modify the FTC’s authority and addressed severe resource constraints affecting the FTC’s attempts to address the increasing number of global mergers and acquisitions, as well as the large number of consumer complaints related to Covid-19 pandemic-related marketplace abuses. They noted that despite these challenges, “thanks in part to the civil penalty authority provided by this Subcommittee in the COVID-19 Consumer Protection Act,” (covered by InfoBytes here) “the Commission has successfully halted dozens of COVID-related scams.”

    Khan and the Commissioners also discussed the importance of restoring the FTC’s ability to secure monetary relief from those that violate the law, which was limited following the U.S. Supreme Court’s recent decision in AMG Capital Management v. FTC (covered by InfoBytes here). “[P]ending cases today involve $2 billion in potential relief to victims, which is not available after AMG,” the testimony provided. “Unless the agency has clear authority to obtain monetary relief, this decision will continue to impede our ability to provide refunds to Americans harmed by deceptive, unfair, or anticompetitive conduct.” Moreover, a recent decision issued by U.S. Court of Appeals for the Third Circuit “held that the language in Section 13(b) of the FTC Act describing a company that ‘is engaged in, or is about to engage in’ illegal conduct means the FTC can initiate enforcement actions only when a violation is either ongoing or ‘impending’ at the time the suit is filed.” This decision, the FTC claimed, “limits the Commission’s ability to hold accountable entities who engaged in illegal conduct that occurred entirely in the past. 

    Federal Issues FTC Consumer Protection Enforcement

  • FTC settles over illegal telemarketing practices

    Federal Issues

    On July 16, the FTC announced a $1.6 million settlement with a New Jersey-based septic tank cleaning company, its officers, and an individual connected to the officers (collectively, “defendants”) for allegedly making illegal robocalls to consumers, including tens of millions of calls to numbers listed on the FTC’s Do Not Call Registry. The complaint, which was filed on behalf of the FTC by the DOJ in July, alleged that the defendants violated the FTC Act and the Telemarketing Sales Rule, among other things, by engaging in illegal telemarketing practices, including the use of prerecorded messages. The defendants allegedly falsely told consumers they were calling from an unnamed “environmental company” to provide consumers with “free info” regarding their septic tank cleaning products. In addition, the defendants allegedly sent letters to customers “threatening to direct their purportedly delinquent accounts to a collection agency or legal department even though [the company] never intended to send customer accounts to either a collections agency or legal department.” Under the terms of the stipulated final order, the defendants are, among other things: (i) permanently banned from engaging in telemarketing; (ii) prohibited from making misrepresentations to consumers regarding referrals to attorneys or collection agencies or material facts concerning goods or services; (iii) prohibited from billing or attempting to collect payments from any consumers connected to the sale of their septic tank cleaning products; and (vi) required to notify all customers with unpaid balances that their balances have been cancelled. A $10.2 million monetary judgment will be partially suspended after the officers pay approximately $1.6 million and the individual pays $15,000 to the U.S. Treasury.

    Federal Issues FTC Enforcement DOJ FTC Act Telemarketing Sales Rule

  • FTC settles with financial services company

    Federal Issues

    On July 14, the FTC announced an $18 million settlement with a financial services company (defendant) over allegations that it deceived consumers. The FTC originally filed a complaint in 2018 claiming, among other things, that the defendant violated the FTC Act, the Privacy of Consumer Financial Information Rule, and the Gramm-Leach-Bliley Act, by falsely advertising loans with “no hidden fees” and misleading consumers with respect to whether their loan applications had been approved. The complaint also alleged that the defendant withdrew double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or paid off their loan, leading to overdraft fees and preventing borrowers from making other payments. Under the terms of the stipulated final order, the defendant is permanently barred from (i) misrepresenting fee amounts, the status of an application, and other material facts concerning any extension of credit; and (ii) making any representation about a specific loan amount prior to accepting a loan application, without clear and conspicuous disclosure of the dollar amount of any prepaid, up-front, or origination fee or the total amount of funds that would be disbursed to the consumer.

    Federal Issues FTC Enforcement Loans Consumer Finance Deceptive UDAP FTC Act Gramm-Leach-Bliley Privacy of Consumer Financial Information Rule

  • FTC settles with payment processors in student loan debt relief scam

    Federal Issues

    On July 12, the FTC announced a settlement with two Florida-based payment processing companies and their CEO (collectively, “defendants”) accused of participating in a student loan debt relief scam. As previously covered by InfoBytes, in 2018, the FTC alleged the student loan debt relief operation violated the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, falsely claiming borrowers had pre-qualified for federal loan assistance programs that would reduce their monthly debt payments or result in total loan forgiveness and accepting monthly payments that were not applied towards student loans. A settlement was reached last December (covered by InfoBytes here). According to the FTC’s most recent complaint, the defendants allegedly “applied for and obtained merchant accounts for the [scam] by knowingly and repeatedly providing false information to payment processors about the [operation’s] three companies.” The defendants’ payment processing applications, the FTC contended, concealed the fraudulent activity, denied that the operation was offering consumers prohibited debt relief services, and repeatedly ignored warnings and direct evidence that the operation was defrauding consumers.

    Under the terms of the settlement order, the defendants are permanently banned from payment processing or acting as an independent sales organization or sales agency. The defendants are also prohibited from assisting and facilitating any unfair and deceptive trade practice, including to obtain payment processing services. In addition, the order imposes a $28.6 million judgment against the defendants, which is partially suspended following the payment of $20,493, due to the defendants’ inability to pay the full amount.

    Federal Issues FTC Enforcement Payment Processors Student Lending Debt Relief Consumer Finance UDAP FTC Act Telemarketing Sales Rule

  • Biden orders federal agencies to evaluate banking, consumer protections

    Federal Issues

    On July 9, President Biden issued a broad Executive Order (E.O.) that includes provisions related to the financial services industry.

    • CFPB. The E.O. encourages the CFPB director to issue rules under Section 1033 of Dodd-Frank “to facilitate the portability of consumer financial transaction data so consumers can more easily switch financial institutions and use new, innovative financial products.” As previously covered by InfoBytes, last October, the Bureau issued an advanced notice of proposed rulemaking on Section 1033, seeking comments on questions related to consumers’ access to their financial records. The E.O. also instructs the Bureau to enforce Section 1031 of Dodd-Frank, which prohibits unfair, deceptive, or abusive acts or practices in consumer financial products or services, “to ensure that actors engaged in unlawful activities do not distort the proper functioning of the competitive process or obtain an unfair advantage over competitors who follow the law.”
    • Treasury Department. The E.O. calls on Treasury to submit a report within 270 days on the effects on competition of large technology and other non-bank companies’ entry into the financial services space.
    • FTC. The E.O. tasks the FTC with establishing rules to address concerns about “unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy.” The FTC already commenced that process on July 1, when it approved changes to its Rules of Practice to amend and simplify the agency’s procedures for initiating rulemaking proceedings. According to Commissioner Rebecca Kelly Slaughter, “[s]treamlined procedures for Section 18 rulemaking means that the Commission will have the ability to issue timely rules on issues ranging from data abuses to dark patterns to other unfair and deceptive practices widespread in our economy.”
    • Bank Mergers. The E.O. encourages the Attorney General, in consultation with the Federal Reserve Board, FDIC, and OCC, to “review current practices and adopt a plan, not later than 180 days after the date of this order, for the revitalization of merger oversight under the Bank Merger Act and the Bank Holding Company Act of 1956.”

    Federal Issues Biden CFPB FTC Dodd-Frank UDAAP Privacy/Cyber Risk & Data Security Consumer Finance Department of Treasury Federal Reserve FDIC OCC Agency Rule-Making & Guidance Bank Regulatory

  • FTC settles with program operators

    Federal Issues

    On July 2, the FTC announced a settlement with operators of a Florida-based recruitment program (defendants) for allegedly promising that participants could receive large amounts of money from selling memberships to other participants. The FTC filed a complaint in 2020 as part of an initiative called “Operation Income Illusion,” which encompasses more than 50 enforcement actions against alleged scams targeting consumers with false promises of income and financial independence (covered by InfoBytes here). According to the complaint, the defendants allegedly violated the FTC Act, among other things, by selling expensive memberships to programs by promoting earnings between $500 and $12,500 per sale. Under the terms of the stipulated final order, the defendants are prohibited from: (i) “creating, advertising, marketing, promoting, offering for sale, or selling” any business or investment opportunity or misrepresenting the amount of money someone can earn from any type of business; (ii) assisting others in such activity; and (iii) owning any financial interest in a business entity that engages in such activity. A $3.6 million monetary judgment is ordered against the company and its owners, in addition to a $217,426 monetary judgment against the company’s promoter. Due to the defendants’ inability to pay the full amount, the judgments will be partially suspended once all four defendants’ turn over various assets. A default judgment was entered in March against two additional defendants who promoted the scheme that included similar requirements, in addition to a $600,000 and $171,500 monetary judgment.

    Federal Issues FTC Enforcement FTC Act

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