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FTC charges healthcare company with fraud
On August 8, the FTC announced it has taken action against a healthcare company, two subsidiaries, and the former CEO and former vice president of sales (collectively, “defendants”) for allegedly misleading consumers about their health insurance plans and using deceptive lead generation websites. According to the complaint, the defendants, along with their third-party partners, allegedly engaged in deceptive sales practices in violation of the FTC Act, the Telemarketing Sales Rule, and the Restore Online Shoppers Confidence Act (ROSCA). These practices included allegedly (i) lying to consumers about the nature of their healthcare plans; (ii) bundling and charging junk fees for unwanted products that were typically not clearly disclosed (consumers were often charged for these additional products after they cancelled their core healthcare plans); and (iii) making it difficult for consumers to cancel their plans. The FTC further alleged that the company (which sells association memberships and other healthcare-related products to consumers, often through telemarketing companies and lead generators), as well as the former CEO and former vice president of sales, were aware of the agents’ misconduct but allegedly “took steps to disguise and further the deception” instead of stopping the deceptive practices.
The FTC stated that the company and two of its subsidiaries have agreed to a proposed court order, which requires the payment of $100 million in consumer redress. The proposed order also requires the company to contact current customers and allow them to cancel their enrollment. The company is also required to send refunds to consumers who cancel right after their order is entered. Additionally, the proposed order prohibits the company from misleading consumers about their products, requires the disclosure of total costs and limitations prior to purchase, and requires consumers to provide express informed consent before they are billed. The company must also provide a simple and easy-to-use cancellation method and closely monitor other companies that sell its products.
The FTC also filed separate proposed court orders against the individual defendants (see here and here), which impose similar prohibitions and permanently bans them from playing any role in the sale or marketing of any healthcare-related product or service. The proposed orders also prohibit the former CEO from engaging in deceptive or abusive telemarketing practices, and bans the former vice president of sales from participating in any telemarketing whatsoever in the future.
FTC fines company $62 million for FTC Act violations
On August 1, the FTC announced a consent order against an online home buying firm for allegedly making misleading claims. According to the complaint, the company allegedly advertised to potential sellers using misleading and deceptive information. The complaint also alleged that the company violated provisions of the FTC Act by, among other things, misrepresenting: (i) market value prices when making offers to buy homes by including downward adjustments to such values; (ii) the manner in which it made money on transactions; (iii) that consumers likely would have paid the same amount in repair costs whether they sold their home through the company or in traditional sale; and (iv) that consumers paid less in costs. The firm issued a statement regarding the FTC settlement stating that, among other things, it “strongly disagree[s] with the FTC’s allegations,” and that the FTC’s allegations “are related to activity that occurred between 2017 and 2019 and target marketing messages the company modified years ago.” The statement also noted that the settlement will allow the firm to “focus on helping consumers buy, sell and move with simplicity, certainty and speed.”
According to the consent order, the company is required to pay the FTC $62 million, which is expected to be used for consumer redress. The company is also prohibited from making deceptive, false, and unsubstantiated claims to consumers about how much money they will receive or the costs they will have to pay to use its service. Additionally, the company is required to have “competent and reliable evidence” to support any representations made about the costs, savings, or financial benefits associated with using its service, and any claims about the costs associated with traditional home sales.
FTC, NLRB sign MOU to protect workers in gig economy
On July 19, the FTC announced that it is joining with the National Labor Relations Board (NLRB) (collectively, “Parties”) in a memorandum of understanding (MOU) intended to protect workers by promoting competitive U.S. labor markets and putting an end to unfair practices that harm workers in the “gig economy” and other labor markets. The MOU provides ways for the Parties to work together to address key issues, such as labor market concentration, one-sided contract terms, and labor developments in the gig economy. According to the MOU, the Parties recognize that ongoing interagency collaboration regarding “issues of common regulatory interest will help to protect workers against unfair methods of competition, unfair or deceptive acts or practices, and unfair labor practices.” The MOU also provides that the Parties will facilitate: (i) “information sharing and cross-agency consultations on an ad hoc basis for official law enforcement purposes, in a manner consistent with and permitted by the laws and regulations that govern the Parties”; (ii) “cross-agency training to educate each Party about the laws and regulations enforced by the other Party”; and (iii) “coordinated outreach and education as appropriate.” According to the FTC, the MOU “is part of a broader FTC initiative to use the agency’s full authority[.]” The announcement also described the FTC’s recent efforts to root out deceptive and unfair acts and practices aimed at workers, “particularly those in the ‘gig economy’ who often don’t enjoy the full protections of traditional employment relationship.”
NYDFS issues overdraft and NSF fee guidance
On July 12, NYDFS issued guidance in an industry letter to regulated banking institutions, calling into question bank practices that can cause consumers to receive multiple overdraft and non-sufficient funds (NSF) fees from a single transaction. The industry letter identifies three specific types of fee practices as unfair or deceptive:
- Charging overdraft fees for “authorize positive, settle negative” transactions, where consumers are charged an overdraft fee even if they have sufficient money in their account when a bank approves a transaction, but the balance is negative when the payment is settled. Per NYDFS, imposing an overdraft fee in this situation is unfair because, among other things, consumers “have no control over or involvement in” when or how their debit transactions get settled.
- Charging “double fees” to consumers for a failed overdraft protection plan transfer, which occurs when a bank goes to transfer money from one deposit account to another deposit account to cover an overdraft transaction, but the first account lacks sufficient funds to cover the overdraft. Per NYDFS, double fees injure consumers “by imposing fees for a transfer that provides no value to the consumer and is not reasonably avoidable by consumers, who have no reason to expect that they will be charged a fee for an overdraft protection transfer that does not in fact protect them against an overdraft.”
- Charging NSF representment fees when a merchant tries several times to process a transaction that is deemed an overdraft and the bank charges a fee for each blocked representment without adequate disclosure. Banks that currently charge multiple NSF fees should “make clear, conspicuous, and regular disclosure to consumers that they may be charged more than one NSF fee for the same attempted debit transaction,” NYDFS stated. Additionally, banks are advised to consider other steps to mitigate the risk that consumers are charged multiple NSF fees, including limiting time periods for when multiple NSF fees may be charged, performing periodic manual reviews to identify instances of multiple NSF Fees, and offering refunds to affected consumers. NYDFS “ultimately expects [i]nstitutions will not charge more than one NSF fee per transaction, regardless of how many times that transaction is presented for payment,” the industry letter said.
NYDFS informed regulated entities that it will evaluate whether they “are engaged in deceptive or unfair practices with respect to overdraft and NSF fees in future Consumer Compliance and Fair Lending examinations.”
CFPB sues payday lender over debt collection practices
On July 12, the CFPB filed a complaint against a Texas-based payday lender (defendant) for allegedly engaging in illegal debt-collection practices and allegedly generating $240 million in reborrowing fees from borrowers who were eligible for free repayment plans in violation of the CFPA. As previously covered by InfoBytes, in 2014, the Bureau ordered the defendant to, among other things, pay $10 million for allegedly using false claims and threats to coerce delinquent payday loan borrowers into taking out an additional payday loan to cover their debt. The Bureau stated that after the CFPB’s 2014 enforcement action, the defendant “used different tactics to make consumers re-borrow.” The complaint alleges that the defendant “engaged in unfair, deceptive, and abusive acts or practices by concealing the option of a free repayment plan to consumers who indicated that they could not repay their short term, high-cost loans originated by the defendant.” The Bureau also alleges that the defendant attempted to collect payments by unfairly making unauthorized electronic withdrawals from over 3,000 consumers’ bank accounts. The Bureau seeks permanent injunctive relief, restitution, disgorgement, damages, civil money penalties, and other relief.
Ex-NFL players no longer part of CFPB, New York suit on high-cost loans
On June 27, the CFPB and New York attorney general filed an amended complaint in the U.S. District Court for the Southern District of New York, removing references to a New Jersey-based finance company’s arrangements with seven former NFL players in an action concerning whether the company and its affiliates (collectively, “defendants”) mischaracterized high-cost loans as assignments of future payment rights. As previously covered by InfoBytes, the agencies filed a lawsuit in 2017 claiming, among other things, that the defendants misled World Trade Center attack first responders and professional football players in selling expensive advances on benefits to which they were entitled and mischaracterized extensions of credit as assignments of future payment rights, thereby misleading their victims into repaying far more than they received. Specifically, the initial filing in 2017 alleges that the defendants (i) used “confusing contracts” to prevent the individuals from understanding the terms and costs of the transactions; (ii) lied to the individuals by telling them the companies could secure their payouts more quickly; (iii) misrepresented how quickly they would receive payments from the companies, and (iv) collected interest at an illegal rate. The amended complaint removes all references to defendants’ arrangements with the ex-NFL players, but maintains claims related to financing deals signed with first responders to the World Trade Center attack.
The court issued an order on June 28 accepting the agencies’ unopposed motion to file the amended complaint to “remove references to NFL player consumers and to remove allegations in Count VIII” related to alleged violations of New York General Obligations Law § 13-101 concerning personal injury claims. No additional details on the reasons for the removals are provided.
The amended complaint follows a March order issued by the district court (covered by InfoBytes here) in which it ruled that the CFPB could proceed with its 2017 enforcement action. In 2020, the U.S. Court of Appeals for the Second Circuit vacated the district court’s 2018 order (covered by InfoBytes here), which had dismissed the case on the grounds that the Bureau’s single-director structure was unconstitutional, and that, as such, the agency lacked authority to bring claims alleging deceptive and abusive conduct by the company. The 2nd Circuit remanded the case to the district court, determining that the U.S. Supreme Court’s ruling in Seila Law LLC v. CFPB (holding that the director’s for-cause removal provision was unconstitutional but severable from the statute establishing the Bureau, as covered by a Buckley Special Alert) superseded the 2018 ruling.
Industry groups urge CFPB to rescind UDAAP anti-discrimination policy
On June 28, industry groups and the U.S Chamber of Commerce (collectively, “groups”) released a White Paper, Unfairness and Discrimination: Examining the CFPB’s Conflation of Distinct Statutory Concepts, urging the CFPB to rescind the recently released unfair, deceptive and abusive acts or practices (UDAAP) examination manual. As previously covered by a Buckley Special Alert, in March, the CFPB announced significant revisions to its UDAAP exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. The White Paper, among other things, explained the groups’ position that the Bureau’s UDAAP authority cannot be used to extend the fair lending laws beyond the limits of existing statutory law. The White Paper stated that the Bureau “conflated” concepts of “unfairness” and “discrimination” “by announcing, via a UDAAP exam manual ‘update,’ that it would examine financial institutions for alleged discriminatory conduct that it deemed to be ‘unfair’ under its UDAAP authority.” The groups stated that the agency has “taken the law into its own hand” arguing that “the Bureau did not follow Administrative Procedure Act requirements for notice-and-comment rulemaking.” The groups said the change in the examination manual is “contrary to law and subject to legal challenge” as well as legislative repeal under the Congressional Review Act. Additionally, the groups argued that the Bureau’s interpretation exceeds the agency’s statutory authority, and that the Bureau’s “action should be held unlawful and set aside.” The groups further stated that “[c]hanges that alter the legal duties of so many are the proper province of Congress, not of independent regulatory agencies, and the CFPB cannot ignore the requirements of the Administrative Procedures Act and Congressional Review Act. The CFPB may well wish to fill gaps it perceives in federal antidiscrimination law. But Congress has simply not authorized the CFPB to fill those gaps.”
In a letter sent to CFPB Director Rohit Chopra, the groups conveyed that Congress did not intend for the Bureau to “fill gaps” between the clearly articulated boundaries of antidiscrimination statutes with its UDAAP authority. The groups urged Director Chopra to rescind the exam manual update and stated that “[s]hould [he] believe additional authority is necessary to address alleged discriminatory conduct, we stand ready to work with Congress and the CFPB to explore that possibility and to ensure the just administration of the law.
FTC, Florida file complaint against grant funding operation
On June 27, the FTC and the Florida attorney general filed a complaint against a Florida-based grant funding company and its owner (collectively, “defendants”) alleging that the defendants violated the Consumer Protection Act, the FTC Act, and the Florida Deceptive Unfair Trade Practices Act. According to the complaint, the defendants deceptively marketed grant writing and consulting services to minority-owned small businesses by, among other things, (i) promising grant funding that did not exist and/or was never awarded; (ii) misleading customers about the status of grant awards; and (iii) failing to honor a “money-back guarantee” and suppressing customer complaints. The complaint also alleged that the owner relied on funds that she acquired through the federal Paycheck Protection Program Covid-19 stimulus program to start the company. The U.S. District Court for the Middle District of Florida issued a restraining order with asset freeze, appointment of a temporary receiver, and other equitable relief order against the defendants, which also prohibits them from engaging in grant funding business activities.
FTC finalizes action against e-commerce platform for data breach cover up
On June 24, the FTC announced a final decision and order against two limited liability companies (respondents) accused of allegedly failing to secure consumers’ sensitive personal data and covering up a major breach. As previously covered by InfoBytes, the respondents—former and current owners of an online customized merchandise platform—allegedly violated the FTC Act by, among other things, misrepresenting that they implemented reasonable measures to protect customers’ personal information against unauthorized access and misrepresenting that appropriate steps were taken to secure consumer account information following security breaches. The complaint further alleged that respondents failed to apply readily available protections against well-known threats or adequately respond to security incidents, which resulted in the respondents’ network being breached multiple times. Under the terms of the final settlement, one of the respondents is required to pay $500,000 to victims of the data breaches. The other respondent is required to provide notice to consumers impacted by a 2019 data breach. Among other things, the order prohibits respondents from misrepresenting their privacy and security measures and requires that respondents implement comprehensive information security programs that are assessed by an independent third party.
FTC bans MCA providers, returns $2.7 million to consumers
On June 6, the FTC obtained a stipulated court order permanently banning a company and owner from participating in the merchant cash advance and debt collection industries. As previously covered by InfoBytes, last June the FTC filed an amended complaint against two New York-based small-business financing companies and a related entity and individuals (including the settling defendants), claiming the defendants engaged in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, deceiving consumers about personal guarantees, forcing consumers and businesses to sign confessions of judgment, providing less funding than promised due to undisclosed fees, and making unauthorized withdrawals from consumers’ accounts. Under the terms of the stipulated order, the settling defendants are required to pay a more than $2.7 million monetary judgment to go towards refunds for harmed consumers and must vacate any judgments against former customers and release any liens against their customers’ property. The announcement notes that the settling defendants are also “prohibited from misleading consumers about any key facts about any good or service, including any fees, the total cost of the product, and other facts that reflect their deceptions in this case.”
Earlier in January, a stipulated order was entered against two other defendants (covered by InfoBytes here), which permanently banned them from participating in the merchant cash advance and debt collection industries and required the payment of a $675,000 monetary judgment.