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  • FTC, DOJ sue telemarketers of fake debt relief services

    Federal Issues

    On February 16, the DOJ filed a complaint on behalf of the FTC against several corporate and individual defendants for alleged violations of the FTC Act and the Telemarketing Sales Rule (TSR) in connection with debt relief telemarketing campaigns that delivered millions of unwanted robocalls to consumers. (See also FTC press release here.) According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants are interconnected platform providers, lead generators, telemarketers, and debt relief service sellers. Alleged violations include: (i) making misrepresentations about their debt relief services; (ii) initiating telemarketing calls to numbers on the FTC’s Do Not Call Registry, as well as calls in which telemarketers failed to disclose the identity of the seller and services being offered; (iii) initiating illegal robocalls without first obtaining consent; (iv) failing to make oral disclosures required by the TSR, including clearly and truthfully identifying the seller of the debt relief services; (v) misrepresenting material aspects of their debt relief services; and (vi) requesting and receiving payments from customers before renegotiating or otherwise altering the terms of those customers’ debts. The complaint seeks permanent injunctive relief, civil penalties, and monetary damages. Two of the defendants (a debt relief lead generator and its owner) have agreed to a stipulated order that, if approved, would prohibit them from further violations and impose a monetary judgment of $3.38 million, partially suspended to $7,500 to go towards consumer redress due to their inability to pay.

    Federal Issues FTC DOJ Enforcement Robocalls Debt Relief Consumer Finance FTC Act Telemarketing Sales Rule Telemarketing

  • District Court allows FTC suit against owners of credit repair operation to proceed

    Federal Issues

    On February 13, the U.S. District Court for the Eastern District of Michigan denied a motion to dismiss filed by certain defendants in a credit repair scheme. As previously covered by InfoBytes, last May the FTC sued a credit repair operation that allegedly targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. At the time, the court granted a temporary restraining order against the operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. The temporary restraining order was eventually vacated, and the defendants at issue (two individuals and two companies that allegedly marketed credit repair services to consumers, charged consumers prohibited advance fees in order to use their services without providing required disclosures, and promoted an illegal pyramid scheme) moved to dismiss themselves from the case and to preclude the FTC from obtaining permanent injunctive and monetary relief.

    In denying the defendants’ motion to dismiss, the court held, among other things, that “controlling shareholders of closely-held corporations are presumed to have the authority to control corporate acts.” The court pointed to the FTC’s allegations that the individual defendants at issue were owners, officers, directors, or managers, were authorized signatories on bank accounts, and had “formulated, directed, controlled, had the authority to control, or participated in the acts and practices set forth in the complaint.” The court further held that the FTC’s allegations raised a plausible inference that the individual defendants have the authority to control the businesses and demonstrated that they possessed, “at the most basic level, ‘an awareness of a high probability of deceptiveness and intentionally avoided learning of the truth.’”

    The court also disagreed with the defendants’ argument that the permanent injunction is not applicable to them because they have since resigned their controlling positions of the related businesses, finding that “[t]his development, if true, does not insulate them from a permanent injunction.” The court found that “the complaint contains plausible allegations of present and ongoing deceptive practices that would authorize the [c]ourt to award a permanent injunction ‘after proper proof.’” In addition, the court said it may award monetary relief because the FTC brought claims under both sections 13(b) and 19 of the FTC Act and “section 19(b) contemplates the ‘refund of money,’ the ‘return of property,’ or the ‘payment of damages’ to remedy consumer injuries[.]” 

    Federal Issues Courts FTC Enforcement Credit Repair Consumer Finance FTC Act Credit Repair Organizations Act UDAP Deceptive Telemarketing Sales Rule

  • FTC proposes to permanently ban credit repair operation

    Federal Issues

    On December 15, the FTC announced proposed court orders to permanently ban a group of companies and their owners (collectively, “defendants”) from offering or providing credit repair services. In May the FTC filed a complaint against the defendants for allegedly violating the FTC Act, the Credit Repair Organizations Act, and the TSR, among other statutes, by making deceptive misrepresentations about their credit repair services and charging illegal advance fees (covered by InfoBytes here). At the time, the U.S. District Court for the Middle District of Florida granted a temporary restraining order against the defendants. The proposed court orders (see here and here) were agreed to by the defendants, and contain several requirements: (i) a permanent ban against the defendants from operating or assisting any credit repair service of any kind; (ii) a prohibition against making unsubstantiated claims “about the benefits, performance, or efficacy of any good or service without sufficient supporting evidence”; and (iii) the release of numerous possessions that will be liquidated by a court-appointed receiver and used by the FTC to provide refunds to impacted consumers. The proposed court orders also include a total monetary judgment of more than $18.8 million, which is partially suspended due to the defendants’ inability to pay.

    Federal Issues Courts FTC Enforcement Credit Repair FTC Act Telemarketing Sales Rule Credit Repair Organizations Act UDAP Deceptive Consumer Finance

  • 4th Circuit says AMG Capital does not alter FTC’s $120.2 million judgment

    Courts

    On November 1, the U.S. Court of Appeals for the Fourth Circuit predominantly upheld a district court’s final judgment in an FTC action involving a Belizean real estate 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 (TSR) 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). Later, in 2021, the district court denied a request to set aside the $120.2 million default judgment, disagreeing with the defendants’ argument 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 stated that the AMG Capital decision does not render 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.’” (Covered by InfoBytes here.)

    On appeal, the 4th Circuit determined that the defendants advanced “a mixed bag of factual and legal challenges” to various contempt orders, equitable monetary judgments, permanent injunctions, and default judgments, finding that there was no abuse of discretion by the district court. While the appellate court reversed the $120.2 million judgment after finding it to be invalid under the Supreme Court’s decision in AMG Capital, it noted that because the defendants violated the FTC Act and the TSR they cannot escape the judgment. “The findings made by the district court show that [the defendant’s] Belizean business venture was dishonest to the core,” the 4th Circuit wrote. “The district court correctly surmised that this sort of deception lies at the heart of what the FTC is empowered to seek out and stop.” According to the appellate court, while “the FTC may seek injunctive relief under Section 13, the Supreme Court held in AMG Capital that it does not authorize the FTC to seek, or a court to award, ‘equitable monetary relief such as restitution or disgorgement.’” However, the defendant “latches onto this last point, claiming that the judgment in the [] case must be thrown out under AMG Capital. ... Vacating that judgment does not help [him], however, because he already has a $120.2 million judgment against him for contempt of the telemarketing injunction, and the FTC has conceded that it is not seeking $240.4 million against [him].” Essentially, AMG Capital “does not undercut the injunctive relief entered under Section 13(b), and the $120.2 million order can be upheld under the contempt judgment, so AMG does not in fact change the bottom line,” the 4th Circuit concluded.

    Courts Appellate Fourth Circuit FTC Enforcement FTC Act U.S. Supreme Court Telemarketing Sales Rule

  • Pennsylvania sues lead generator for facilitating telemarketers’ robocalls

    State Issues

    On November 3, the Pennsylvania attorney general announced a lawsuit against a New York-based lead generation company that connects advertisers to potential new customers through the consumers’ personal data for allegedly causing hundreds of thousands of robocalls to be placed to consumers in the Commonwealth. The defendant, along with several of its subsidiaries, allegedly collected personal information, including phone numbers and personal information of consumers on Pennsylvania’s Do Not Call List, that was then sold to telemarketing companies. According to the complaint, the defendants allegedly engaged in deceptive and misleading business practices in connection with their lead-generation practices, by obtaining consumers’ information through various promotional opportunities without clearly disclosing that by providing their contact information, consumers were consenting to receiving telemarketing calls from hundreds of potential sellers. The complaint alleges that from 2018 to 2021, over 4.2 million Pennsylvania consumers registered their information on one of the defendants’ websites. “Under the [Telemarketing Sales Rule (TSR)], a consumer’s express agreement to accept calls delivering a prerecorded message may not be obtained by a lead generator, who is not a seller or a telemarketer. The express agreement must be obtained directly by the seller or telemarketer from the consumer,” the complaint said. Moreover, even if the defendants were not directly making the telemarketing calls themselves, assisting and facilitating the calls is itself a violation of the rules, the complaint noted.

    The defendants are charged with violating several federal and state telemarketing laws, including the TSR, and Pennsylvania’s Telemarketer Registration Act (TRA) and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. The AG’s office seeks a declaration permanently enjoining the defendants from violating the telemarketing and consumer protection laws, along with civil penalties of $1,000 per violation and $3,000 per violation involving a victim age 60 or older. The suit also seeks disgorgement, costs, and a permanent bar on selling consumer data collected in violation of the TSR and TRA.

    State Issues State Attorney General Pennsylvania Telemarketing Robocalls Lead Generation Do Not Call Registry Telemarketing Sales Rule Enforcement

  • FTC, DFPI shut down operation offering mortgage relief

    Federal Issues

    On September 19, the FTC and the California Department of Financial Protection (DFPI) announced a lawsuit against several companies and owners for allegedly operating an illegal mortgage relief operation. (See also DFPI’s announcement here.) The filing marks the agencies’ first joint action, which alleges the defendants’ conduct violated the California Consumer Financial Protection Law, the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarketing Sales Rule, and the Covid-19 Consumer Protection Act. The agencies claimed that the defendants preyed on distressed consumers with false promises of mortgage assistance relief. According to the complaint, the defendants made misleading claims during telemarketing calls to consumers, including those with numbers on the National Do Not Call Registry, as well as through text messages and in online ads. In certain cases, defendants represented they were affiliated with government agencies or were part of a Covid-19 pandemic assistance program. Among other things, defendants falsely claimed they were able to lower consumers’ interest rates or payments, and instructed consumers not to pay their mortgages, leading to late fees and significantly lower credit score. Defendants also allegedly told consumers not to communicate directly with their lenders, which caused consumers to miss default notices and face foreclosure. Additionally, defendants charged consumers illegal up-front fees ranging from $500 to $2,900 a month, and told consumers they were negotiating loan modifications that in most cases never happened.

    The U.S. District Court for the Central District of California granted a restraining order temporarily shutting down the defendants’ operations. In freezing the defendants’ assets and ordering them to submit financial statements, the court noted that the agencies established a likelihood of success in showing that the defendants “have falsely, deceptively, and illegally marketed, advertised, and sold mortgage relief assistance services.”

    Federal Issues FTC DFPI State Issues California Mortgages Consumer Finance Mortgage Relief Enforcement California Consumer Financial Protection Law FTC Act MARS Rule Regulation O Telemarketing Sales Rule Covid-19 Consumer Protection Act Covid-19 UDAP

  • FTC sues national retailer for allegedly facilitating money transfer fraud

    Federal Issues

    On June 28, the FTC filed a complaint against a national retailer for allegedly allowing its money-transfer services to facilitate fraud. The complaint alleges the retailer knew about the role money transfer services play in scams but failed to properly secure the services offered at its stores, thus allowing money to be sent to “domestic and international fraud rings.” According to the FTC, at least 226,679 complaints totaling more than $197 million were received by several money transfer services companies about fraud-induced money transfers that were sent from or received at one of the retailer’s stores between January 1, 2013 and December 31, 2018. An investigation by the FTC purportedly revealed that the retailer’s practices allegedly harmed consumers by, among other things, (i) allowing the payout of suspicious money transfers, which allowed scammers to retrieve fraud proceeds at one of the retailer’s stores; (ii) failing to have in place a written anti-fraud policy or consumer protection program until November 2014; (iii) allowing cash pickups for large payments, often through the use of fake IDs; (iv) failing to display or provide materials warning consumers about potential frauds; (v) failing to effectively train or retrain employees; and (vi) allowing money transfers to be used for telemarketing purchases, which are prohibited under the Telemarketing Sales Rule (TSR) due to the high risk of fraud.

    According to the complaint, the retailer “is well aware that telemarketing and other mass marketing frauds, such as ‘grandparent’ scams, lottery scams, and government agent impersonator scams, induce people to use [the retailer’s] money transfer services to send money to domestic and international fraud rings. Nevertheless, [the retailer] has continued processing fraud-induced money transfers at its stores—funding telemarketing and other scams—without adopting policies and practices that effectively detect and prevent these transfers.”

    The complaint seeks a permanent injunction, monetary relief, civil penalties, restitution, and other relief for each violation of the FTC Act and the TSR. The FTC also requests the “rescission or reformation of contracts, the refund of money, the return of property, the payment of damages, public notification, or other relief necessary to redress injury to consumers damages.”

    The retailer issued a press release following the FTC’s announcement, stating that it considers the agency’s claims to be “misguided and legally flawed,” and that the civil lawsuit “was approved by the FTC by the narrowest of margins after Chair Lina Khan refused [the retailer] the due process of hearing directly from the company.” The retailer noted that the FTC’s decision comes after DOJ declined to pursue the case in court. Among other thing, the retailer contended that because it maintains robust anti-fraud measures there is no need for injunctive relief requiring the retailer to change its practices. The retailer pointed to the U.S. Supreme Court’s ruling in AMG Capital Management LLC v. FTC, which limited the FTC’s ability to obtain monetary relief in federal court (covered by InfoBytes here), to argue that the FTC “pivoted their focus in this case after AMG to a distorted interpretation of the TSR to effectively try and hold [the retailer] strictly liable for money transfers that third-party criminals reportedly persuaded some consumers to send.” The retailer added that “[s]witching their main legal theory to the TSR is an obvious attempt to get around the Supreme Court’s ruling in AMG.”

    Federal Issues FTC Enforcement FTC Act Telemarketing Sales Rule Money Service / Money Transmitters Fraud

  • FTC proposes TSR amendments to extend robocall protections

    Agency Rule-Making & Guidance

    On April 28, the FTC proposed rulemakings to extend protections for small businesses against telemarketing business-to-business schemes and strengthen safeguards to protect consumers from other telemarking scams. Both the notice of proposed rulemaking (NPR) and advance notice of proposed rulemaking (ANPRM) stem from the FTC’s regulatory review of the Telemarketing Sales Rule (TSR) and address public comments received as part of the review.

    The NPR proposes to amend TSR recordkeeping requirements to require telemarketers to retain seven new categories of information related to their telemarketing activities, including records concerning each unique prerecorded message, records sufficient to show the established business relationship between a seller and a consumer, records of the service providers used by a telemarketer to deliver outbound calls, and records of the FTC’s Do Not Call Registry that were used to ensure compliance with this rule. Additionally, the NPR seeks comments on whether the FTC should amend the TSR to prohibit material misrepresentations and false or misleading statements in business-to-business telemarketing transactions to prevent harm caused by deceptive telemarketing, and proposes adding a definition of “previous donor” related to charitable donation solicitations.

    The ANPRM seeks comments on a range of issues related to whether calls related to tech-support scams should be covered by the TSR, whether telemarketers should be required to provide consumers with a simple click-to-cancel process when they sign up for subscription plans, and whether the TSR should stop treating telemarketing calls made to businesses differently from those made to consumers. According to the FTC, robocalls made to businesses are generally exempt from certain TSR provisions.

    Comments on both proposed rulemakings are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues FTC Small Business Telemarketing Telemarketing Sales Rule Robocalls

  • CFPB enters proposed final judgment in TSR and CFPA violation suit

    Federal Issues

    On April 29, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California resolving allegations that a student loan debt relief business and a general debt-settlement company, along with their owner and CEO (collectively, “defendants”), engaged in wrongful fee-charging practices and deceptive telemarketing. As previously covered by InfoBytes, the CFPB filed a complaint against the defendants for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by charging illegal advance fees and using deceptive tactics to induce consumers to sign up for services. According to the complaint, from 2015 to the present, the defendants allegedly charged consumers upfront fees for the debt-relief company to file paperwork with the Department of Education to obtain loan consolidation, loan forgiveness, or income-driven repayment plans. Some consumers paid the upfront fee using a third-party financing company and paid an APR between 17 and 22 percent. The CFPB also alleged that the defendants required some consumers to pay the fee in installments into a trust plan, which carried a $6 monthly banking fee paid to the administrator of the trust accounts. The Bureau alleged that the defendants failed to provide the proper disclosures under the TSR. Moreover, the complaint asserted that from 2019 to the present, the defendants violated the CFPA by representing to consumers that they were turned down for a loan in order to pitch the company’s settlement services. Under the terms of the proposed settlement, the student loan debt relief business and the general debt-settlement company are permanently banned from engaging in debt relief services, and the CEO is banned for five years.

    The CEO is also required to pay a civil monetary penalty of $30,000 to the CFPB.

    Federal Issues CFPB Enforcement Student Lending Department of Education Telemarketing Sales Rule CFPA Debt Relief

  • FTC settles with VoIP service provider for TSR violations

    Federal Issues

    On April 26, the FTC announced the filing of a proposed consent order with a Voice over Internet Protocol (VoIP) service provider, a related company, and the company’s owner (collectively, “defendants”) for allegedly “help[ing] scammers blast millions of illegal robocalls.” In the complaint the FTC claims that the defendants violated Section 5(a) of the FTC Act, the Telemarketing Act, and the TSR by continuing to provide VoIP services to customers despite “knowing or consciously avoiding knowing” the customers were: (i) using the services to place calls to numbers on the FTC’s Do Not Call (DNC) Registry; (ii) delivering prerecorded messages; and (iii) displaying spoofed caller ID services to callers involved in scams related to credit card interest rate reduction, tech support, and the Covid-19 pandemic.

    According to the announcement, this is the third such action by the FTC against VoIP service providers during the past two years. Under the terms of the consent order, the defendants are (i) banned from assisting and facilitating abusive telemarketing practices, including the use of VoIP services; (ii) prohibited from further violations of the TSR or assisting others in doing so; (iii) banned from providing services or assigning telephone numbers without employing automated procedures to block calls from unassigned or invalid numbers; and (iv) required to ensure that they do not provide VoIP to suspected telemarketers. The proposed order also provides for a $3 million civil money penalty that is suspended due the company’s inability to pay.

    Federal Issues FTC Enforcement Telemarketing Sales Rule FTC Act VoIP

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