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FTC sues for-profit university for deceptive and illegal practices
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.
FTC temporarily halts business opportunity scheme
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.
FTC report details key takeaways from AI and creative fields panel discussion
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.”
FTC announces settlement of charges against operators of alleged telemarketing training scheme
On December 11, the FTC issued a press release announcing proposed orders against the CEO and other related individuals and businesses of an income telemarketing training scheme. In connection with the settlement, the FTC filed a complaint in the U.S. District Court of the Middle District of Tennessee alleging violations of the FTC Act and the Telemarking and Consumer Fraud and Abuse Prevention Act. The FTC alleged that the defendants, a Tennessee-based group of companies, practiced deceptive and unlawful advertising, marketing, promotion, distribution, and selling of money-making and investment opportunities in offering a sales mentor program. The complaint alleges defendants performed these acts through several business entities via a telemarketing sales training and coaching program and through marketing practices on social media platforms. Since 2019, consumers paid more than $29 million to defendants for access to this sales training program.
The FTC filed two stipulated judgments for “permanent injunction, monetary judgment, and other reliefs.” The orders contain a total monetary judgment of $16.4 million. The stipulated orders also prohibit the defendants from: (i) making misleading earnings claims, so if the defendants make earnings claim in the future, they have to have a reasonable basis for those claims; and (ii) misrepresenting any sales of goods or services, including the description of the good or service, any past performance, any testimonials, any future predictions of profit earnings, among others. The defendants will also be required to turn over a total of $1 million to be used to refund harmed consumers, with one CEO ordered to pay $600,000 and the other defendants ordered to pay $400,000. All defendants neither admit nor deny any of the allegations in the complaint.
FTC to send refunds to service providers implicated in false claims enforcement action
On November 28, the FTC announced it is sending more than $3 million in refunds to businesses from an enforcement action against a Colorado-based digital marketplace company. In 2022, the FTC filed an administrative complaint alleging, among other things, that the defendant made false, misleading, or unsubstantiated claims regarding the quality and source of the leads it was selling to service providers, such as general contractors and small lawn care businesses (covered by InfoBytes here). As a result of its January proposed order, FTC will disperse 110,372 refunds to eligible home service providers, and is sending out 91,273 claims forms to businesses that paid for one of defendant’s services.
FTC approves measures for compulsory process use for AI-related products and services
On November 21, the FTC approved an omnibus resolution in a 3-0 vote, allowing the use of compulsory processes in nonpublic inquiries involving products and services produced or claimed to be produced by artificial intelligence (AI). This resolution aims to streamline the FTC staff's issuance of civil investigative demands (CIDs), in AI-related investigations while maintaining the Commission's authority to decide when CIDs are necessary. This resolution remains valid for 10 years.
FTC orders prison contractor to fix security exposures after data breach
On November 16, the FTC issued a proposed order against an integrated technology services company finding a violation of Section 5(a) of the Federal Trade Commission Act. According to the order, the company offered various products and services to jails, prisons, and detention facilities. These products and services included means of communication between incarcerated and non-incarcerated individuals, and, among other things, allowed non-incarcerated individuals to deposit funds into the accounts of incarcerated individuals. According to the complaint, and due to the nature of its operations, the company collected individuals’ sensitive personally identifiable information, including names, addresses, passport numbers, driver’s license numbers, Social Security numbers, and financial account information, some of which was exposed as a result of a data breach in August 2020 due to a misconfiguration in the company’s cloud storage environment.
In its decision, the FTC ordered the company to, among other things, (i) implement a comprehensive data security program, including “change management” measures and multifactor authentication; (ii) notify users affected by the data breach, who had not yet received notice, and offer credit monitoring and identity protection products; (iii) inform consumers and facilities within 30 days of future data breaches; and (iv) notify the FTC within 10 days of reporting any security incident to local, state, or federal authorities.
FTC publishes letter to CFPB on its law enforcement and public outreach
On November 16, the FTC released its letter of its annual summary of activities in 2022 to the CFPB. The CFPB used the findings in its annual report to Congress on the Fair Debt Collection Practices Act (FDCPA). In the letter, the FTC outlined several of its important procedural law enforcement activities, such as debt collection issues affecting small businesses, redressing consumers harmed by debt collection schemes, halting collection in consumer debt, and combating unauthorized charges to consumers. The second part of the letter outlines how the FTC enables public outreach and cross-agency coordination. For public outreach, the FTC proactively educates consumers about their rights under the FDCPA, and how debt collectors can comply with the law. The FTC also noted that it publishes material in both English and Spanish to broaden its outreach. In addition, the FTC added that it distributes print publications to libraries and businesses and logs more than 50 million views on its website pages. In its efforts to raise awareness about scams targeting the Latino community, the FTC highlighted its series of fotonovelas (graphic novels) in Spanish.
FTC, DOJ convene with G7 on AI policy future
On November 8, the FTC and DOJ met with the G7 Competition Authorities and Policymakers’ Summit on how to better regulate AI while addressing its competitive concerns. The Summit took place in Tokyo, Japan, and both the FTC’s and the DOJ’s Antitrust Division participated with the international group. The G7 issued a statement on how generative AI can pose not only anti-competitive risks, but also risks in “privacy, intellectual property rights, transparency and other concerns.” All policymakers shared concerns on how to best enforce fair competition laws with AI, iterating that “existing competition law applies to [AI]” and that they were “prepared to confront abuses if AI becomes dominated by a few players with market power.” The G7 stated a need to enforce competition laws and “develop policies necessary to ensure that principles of fair competition are applied to digital markets.”
The G7’s report outlines its initiatives to promote and protect competition in digital markets, its commitment to address competition concerns, and its recognition of the need for internal cooperation on digital competition.
FTC, Florida AG settle with “chargeback mitigation” company
On November 7, the FTC and the State of Florida settled with a chargeback company to prevent it from deceiving any consumers who seek to dispute credit card charges. Back in April 2023, the FTC and the State of Florida sued the chargeback company under Section 5 of the FTC Act, 15 U.S.C. § 45, and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Chapter 501, Part II, as previously covered by InfoBytes here. A chargeback is a system for consumers to get their money returned when they have a problem with a purchase. The proposed court order was agreed to by the defendants but, before it can go into effect, the order first must be approved by a federal judge. The final judgment totals $150,000 and prevents the defendants from working with several high-risk clients.