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FTC says misleading online endorsements may result in fines
On October 13, the FTC issued a warning to more than 700 companies, including top advertisers, leading retailers, top consumer product companies, and major advertising agencies. The warning stated that the companies may face fines over misleading online endorsements. Citing the “rise of social media,” which has “blurred the line between authentic content and advertising,” the FTC used its Penalty Offense Authority to place companies on notice that they could face significant civil penalties of up to $43,792 per violation should a company “engage[] in conduct that it knows has been found unlawful in a previous FTC administrative order, other than a consent order.” The notice outlines several practices determined by the FTC to be unfair or deceptive in previous administrative cases, such as: “falsely claiming an endorsement by a third party; misrepresenting whether an endorser is an actual, current, or recent user; using an endorsement to make deceptive performance claims; failing to disclose an unexpected material connection with an endorser; and misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.” Additional FTC resources are available to help companies follow the law when advertising products and services.
As previously covered by InfoBytes, earlier this month the FTC sent a similar notice to for-profit higher education institutions under the Penalty Offense Authority, advising against making false promises about their graduates’ job and earnings prospects.
Dems urge FTC to enforce children and teen privacy compliance
On October 8, Senator Ed Markey (D-MA) and Representatives Kathy Castor (D-FL) and Lori Trahan (D-MA) sent a letter to FTC Chair Lina Khan urging the Commission to ensure that technology companies comply with their own policies regarding the protection of children’s and teen’s privacy. Among other things, the three Democratic lawmakers advocate that Khan “use [her] authority under Section 5 of the FTC Act to ensure that technology companies comply with these commitments to users and hold them accountable if they fail to do so." Under Section 5 , companies are prohibited from engaging in unfair or deceptive acts or practices in or affecting interstate commerce. The lawmakers assert that the FTC has a statutory obligation to ensure that technology platforms fulfill their public statements and policies regarding children’s and teen’s privacy. The letter emphasizes that the need to protect children and teens from online privacy threats is very urgent, stating that “[s]ince 2015, American children have spent almost five hours each day watching their screens, and children’s and teens’ daily screen time has increased by 50 percent or more during the coronavirus pandemic.”
Education Dept. creates enforcement office
On October 8, the Department of Education announced the creation of the Office of Enforcement within Federal Student Aid (FSA), which is designed to strengthen oversight of and enforcement against postsecondary schools that participate in the federal student loan, grant, and work-study programs. According to the announcement, the Department named Kristen Donoghue, the former CFPB enforcement director, as the chief enforcement officer. Among other things, the office will work with the Partner Participation and Oversight Office on a risk-based approach to oversight and compliance and will be comprised of the following four existing divisions: (i) Administrative Actions and Appeals Services Group; (ii) Borrower Defense Group; (iii) Investigations Group; and (iv) Resolution and Referral Management Group. The announcement also notes that FSA will coordinate with other state and federal partners as part of FSA’s increased enforcement efforts. Specifically, FSA plans to coordinate “with the Federal Trade Commission, which earlier this week announced a major shift in its enforcement priorities to focus on postsecondary schools that illegally engage in unfair and deceptive acts or practices.” (Covered by InfoBytes here.)
FTC resurrects authority to penalize for-profit education institutions
On October 6, the FTC unanimously resurrected the Penalty Offense Authority under Section 5 of the FTC Act to deter for-profit higher education institutions from engaging in certain unlawful practices. The Commission sent notices to 70 of the nation’s largest for-profit institutions to inform them that the FTC is “cracking down on any false promises they make about their graduates’ job and earnings prospects and other outcomes and will hit violators with significant financial penalties.” The notice outlines several practices previously found to be unfair or deceptive that could lead to civil penalties of up to $43,792 per violation and puts institutions on alert that they could incur significant sanctions should they engage in certain unlawful practices. Commissioner Rohit Chopra, who was recently confirmed as Director of the CFPB, issued a statement commending the initiative, noting that “[u]nder the FTC’s Penalty Offense Authority, the Commission and the Attorney General can seek substantial civil penalties against companies that engage in practices where they had knowledge that the practices were previously determined by a prior Commission order to be illegal.” This is a particularly important tool, Chopra stressed, given 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).
FTC finalizes settlement with movie subscription service
On October 5, the FTC finalized a settlement with the operators of a movie subscription service, resolving allegations that the respondents violated the FTC Act by denying subscribers access to paid-for services and failed to secure subscribers’ personal information. As previously covered by InfoBytes, in June the FTC filed a complaint alleging the respondents, among other things, employed multiple tactics to prevent subscribers from using the advertised services, and failed to disclose all material terms before obtaining consumers’ billing information or obtain consumers’ express informed consent before charging them. The FTC further alleged that the respondents failed to take reasonable measures to protect subscribers’ personal information, including by storing personal data in unencrypted form and failing to restrict who could access the data, which led to a data breach in 2019. In a 4-1 vote, the FTC approved the settlement, which prohibits the respondents from misrepresenting their business and data security practices and requires the establishment of a comprehensive information security program. The respondents must also implement and annually test and monitor safeguards, take steps to address security risks, obtain biennial third-party information security assessments, notify the FTC of any future data breaches, and annually certify that they are complying with the order’s data security requirements. The FTC noted respondents may face monetary penalties of up to $43,792 per violation, per day, should they violate the terms of the order.
FTC gives Congress report on privacy and security
Recently, the FTC released a report to Congress regarding the Commission’s actions in strengthening measures to link data privacy and competition enforcement, among other things. The report responds to the Joint Explanatory Statement accompanying the Consolidated Appropriations Act of 2021, P.L. 116-260, which directed the FTC to “conduct a comprehensive internal assessment measuring the agency’s current efforts related to data privacy and security while separately identifying all resource-based needs of the FTC to improve in these areas.” The report highlights areas that the FTC is focusing on to improve the effectiveness of the Commission’s efforts to protect Americans’ privacy:
- Integrating competition concerns. The FTC intends to “spend more time on the overlap between data privacy and competition.” The report also points out that the FTC has a “structural advantage” compared to other agencies and will look with “privacy and competition lenses at problems that arise in digital markets.”
- Advancing remedies. The FTC is providing relief for consumers and deterring unfair or deceptive privacy and security practices though four remedies: (i) notifying harmed consumers; (ii) obtaining monetary remedies for harmed consumers; (iii) obtaining non-monetary remedial relief for consumers; and (iv) prohibiting companies from benefitting from illegal data collection.
- Focusing on digital platforms. The FTC intends to increase its focus on the data practices of dominant digital platforms, which includes focusing on order enforcement.
- Expanding the FTC’s guidance and understanding of the consumer protection and competition implications of algorithms. The FTC intends “to deepen [its] understanding of the consumer protection and competition risks associated with algorithms and to expand upon the guidance that [it has] provided to businesses on using algorithms and AI truthfully, fairly, and equitably.”
Among other things, the report also urges Congress “to clarify Section 13(b) of the FTC Act and shore up the FTC’s ability to enjoin illegal conduct and revive its authority return to consumers money they have lost, which will greatly assist [the FTC’s] efforts to protect consumers.” The report further notes that the FTC will continue to push Congress to enact privacy and data security legislation, enforceable by the FTC.
In a statement released on October 1, FTC Chair Lina Khan stated the agency “should approach data privacy and security protections by considering substantive limits rather than just procedural protections, which tend to create process requirements while sidestepping more fundamental questions about whether certain types of data collection and processing should be permitted in the first place.”
FTC appoints consumer protection and competition directors
On September 28, FTC Chair Lina M. Khan appointed Samuel A.A. Levine as Director of the Bureau of Consumer Protection and Holly Vedova as Director of the Bureau of Competition. Levine—who served as an attorney advisor to Commissioner Rohit Chopra—previously worked for the Illinois attorney general where he prosecuted predatory for-profit colleges and engaged in rulemaking to expand income-driven repayment options for student borrowers. Vedova, who has a background in mergers and antitrust, most served recently as an attorney advisor to Chopra and previously served as counsel to the Director of the Bureau of Competition. “[A]s permanent directors of the FTC’s enforcement bureaus, their mission will be to guide this agency as we work to safeguard fair competition and check unfair or deceptive practices,” Khan stated.
FTC settles with debt collector
On September 27, the FTC announced a settlement with a Georgia-based debt collection company and its owners (collectively, “defendants”) for allegedly engaging in fraudulent debt collection practices. As previously covered by InfoBytes, the FTC filed a complaint against the defendants alleging that they violated the FTC Act and the FDCPA by, among other things: (i) posing as law enforcement officers, prosecutors, attorneys, mediators, investigators, or process servers when calling consumers to collect debts; (ii) using profane language and threatening consumers with arrest or serious legal consequences if debts were not immediately paid; (iii) threatening to garnish wages, suspend Social Security payments, revoke drivers’ licenses, or lower credit scores; (iv) attempting to collect debts that were either never owed or were no longer owed; (v) unlawfully contacting third parties, such as family members or employers; and (vi) adding unauthorized or impermissible charges or fees to consumers’ debts. The U.S. District Court for the Northern District of Georgia granted a temporary restraining order against the defendants in September 2020. Under the terms of the stipulated final order, the FTC ordered that the defendants are banned from the debt collection industry, prohibited from misrepresenting that they are attorneys or affiliated with a law firm or whether a consumer owes any kind of debt, and are prohibited from making misleading claims while selling a product or service. The order also requires the defendants to pay more than $266,000 to the Commission. A $3 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.
Democratic senators ask FTC to reconsider privacy rulemaking
On September 20, nine Democratic Senators sent a letter to FTC Chair Lina M. Khan requesting that the FTC draft new rules that better protect consumers’ personal data and privacy. The Senators argued that ongoing data breaches and privacy violations have “shown the limits of the FTC's general prohibition on unfair and deceptive practices.” Among other things, the Senators urged the agency to consider a rulemaking process that has “strong protections for the data of members of marginalized communities, prohibitions on certain practices (such as the exploitative targeting of children and teens), opt-in consent rules on use of personal data, and global opt-out standards.” The Senators also pointed out that the FTC has substantial expertise in the legal process regarding enforcement and privacy authorities, such as those under the Children’s Online Privacy Protection Act and the Fair Credit Reporting Act. Therefore, a rulemaking initiative led by the FTC would advance congressional efforts in developing federal privacy legislation through “research, public comment record, and dialogue.”
FTC reaches $6.4 million settlement with remaining defendants in robocalling suit
On September 20, the FTC announced a proposed settlement order resolving charges against the remaining participants in a cruise line telemarketing operation allegedly aimed at marketing free cruise packages to consumers. The FTC alleged the defendants participated in unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, placing illegal telemarketing robocalls, calling phone numbers on the FTC’s Do No Call Registry, calling consumers who asked not to be called, and transmitting false caller ID information. Under the proposed order, the defendants are permanently banned from engaging in or making telemarketing robocalls, and are also banned from engaging in abusive telemarketing, calling numbers on the Do Not Call Registry (unless express consent is given or other conditions are met), blocking or misrepresenting caller ID information, and violating the TSR. The order also imposes a $6.4 million civil money penalty against the defendants, which will be partially waived once the two individual defendants who controlled four of the corporations involved in the operation each pay a $50,000 civil money penalty. Two other settlement agreements were reached in 2020 with the other defendants (covered by InfoBytes here).