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  • FTC permanently bans debt collectors

    Federal Issues

    On March 15, the FTC announced that defendants in two cases will be permanently banned from the debt collection industry. As previously covered by InfoBytes, the FTC filed complaints against the defendants last year alleging the defendants used deceptive tactics to threaten false legal action through the use of robocalls to collect debts consumers did not owe or the operation did not have the right to collect. The actions were taken as part of the FTC’s “Operation Corrupt Collector”—a nationwide enforcement and outreach effort established by the FTC, CFPB, and more than 50 federal and state law enforcement partners to target illegal debt collection practices (covered by InfoBytes here).

    Under the terms of the settlements (see here, here, and here), in addition to being permanently banned from participating in debt collection and debt brokering activities, the defendants are also prohibited from making misrepresentations to consumers, including (i) whether consumers are legally obligated to pay defendants; (ii) whether defendants are attorneys or affiliated with a law firm; (iii) the terms of any refund policy; and (iv) any material facts concerning products or services. The settlements also include monetary judgments of approximately $16.4 million and $11.2 million, which are both partially suspended due to the defendants’ inability to pay.

    Federal Issues FTC Enforcement Debt Collection Settlement

  • Court dismisses credit repair association’s suit against CFPB, FTC

    Courts

    On March 9, the U.S. District Court for the Southern District of Florida dismissed a credit repair industry association’s challenge against the CFPB and the FTC for exceeding their constitutional authority in promulgating the Telemarketing Sales Rule (TSR). In 2020, the plaintiff filed a lawsuit on behalf of two member companies that were subject to TSR enforcement actions, seeking judgments (i) against the FTC for exceeding “its statutory authority in promulgating the TSR,” (ii) against both agencies on the basis that the TSR, as applied, “is an unconstitutional content-based restriction on protected speech,” and (iii) against both agencies on the basis that the TSR “is underinclusive and not narrowly tailored.” The plaintiff also alleged, among other things, that the Bureau was increasing its application of the TSR by “encouraging consumer reporting agencies not to investigate disputes submitted by credit repair organizations” that are reasonably determined to be “frivolous or irrelevant.” The agencies filed a motion to dismiss the complaint, arguing the court lacked subject-matter jurisdiction under the Administrative Procedures Act’s (APA) six-year statute of limitations and that the plaintiff failed to state a claim.

    In granting the agencies’ motion to dismiss, the court ruled that the lawsuit was filed far beyond the APA’s six-year statute of limitations as the TSR first appeared in the Federal Register in 1995; thus all procedural attacks on the TSR were time barred. The court also ruled that because sending a civil investigative demand or filing a complaint is not considered “a final agency action,” the plaintiff failed to allege a final agency action taken by the agencies against the plaintiff’s members. Further, the court dismissed the plaintiff’s argument regarding the Bureau’s position on investigating frivolous or irrelevant disputes, ruling that the Bureau’s April 2020 Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act (covered by InfoBytes here) is just “a policy statement that has nothing to do with the TSR at issue in this case and is not a final agency action.”

    Courts CFPB FTC Telemarketing Sales Rule

  • FTC, multiple states halt charitable telefunding operation

    Federal Issues

    On March 4, the FTC, together with state attorneys general from 38 states and the District of Columbia, the secretaries of state from Colorado, Georgia, Maryland, North Carolina, and Tennessee, the Florida Department of Agriculture and Consumer Services, and the Utah Division of Consumer Protection (collectively, “plaintiffs”), announced settlements with a telefunding operation whose charitable fundraising calls allegedly collected over $110 million using deceptive solicitations. The plaintiffs’ complaint alleged, among other things, that the defendants engaged in deceptive fundraising by placing more than 1.3 billion prerecorded robocalls to convince consumers to donate to “practically nonexistent charitable programs.” The charitable organizations then paid the defendants typically 80 to 90 percent of every donation, the complaint states, noting that certain defendants knew that almost none of the donations would be spent supporting the charitable programs. The plaintiffs contended that these false or misleading actions violated the FTC Act. Moreover, in many instances, the plaintiffs alleged that the defendants knowingly violated the Telemarketing Sales Rule (TSR) by using soundboard technology to place the telemarketing calls. Using pre-recorded messages in calls to first-time donors is a violation of the TSR, the plaintiffs stated, as is using soundboard technology in calls to prior donors without first disclosing to recipients that they may opt-out of all future calls and providing them with a mechanism to do so.

    Proposed settlements (see here, here, and here) reached with one group of defendants will, among other things, permanently ban them from engaging in any fundraising activities, conducting telemarketing to sell goods or services, or using existing donor information. The defendants will also be required to pay $110,063,848 each, which is either partially or fully suspended due to the defendants’ inability to pay.

    Additionally, proposed settlements reached with the two fundraising company defendants and their senior managers (see here, here, and here) will permanently prohibit them from engaging in any fundraising activities or consulting on behalf of a charitable organization or nonprofit organization claiming to work on behalf of causes similar to those noted in the complaint. These defendants will also be banned from using robocalls connected to telemarketing, engaging in abusive calling practices, or making misrepresentations about a good, service, or contribution. The defendants will further be required to disclose when a donation is not tax deductible. The individual defendants also are required to pay $110,063,843 each, which is partially suspended due to the defendants’ inability to pay, while the two corporate defendants, along with two of the individual defendants, are subject to a partially suspended monetary judgment of $1.6 million.

    Federal Issues FTC Enforcement FTC Act Robocalls Telemarketing Sales Rule State Issues

  • FTC settles with income scam operation targeting Latina consumers

    Federal Issues

    On March 2, the FTC announced a settlement with a company and its owners (collectively, “defendants”) that used Spanish-language ads targeting Latina consumers with false promises of large profits reselling luxury products. The action—a part of the FTC’s “Operation Income Illusion” sweep (covered by InfoBytes here)—alleged the defendants violated the FTC Act by making false or unsubstantiated earnings claims when marketing work-at-home opportunities. The FTC also claimed the defendants violated the Telemarketing Sales Rule by, among other things, misrepresenting material aspects of the investment opportunities and routinely using threats or intimidation “to coerce consumers to pay Defendants, including but not limited to threatening consumers with damage to consumers’ credit history, false legal actions, and reports to federal government authorities.” The proposed settlement imposes a $7 million judgment, which is partially suspended due to the defendants’ inability to pay. The defendants are also permanently banned from (i) selling any goods or service that is represented as a means for consumers to make money working from home or elsewhere; (ii) making any deceptive claims about the risk, liquidity, earnings potential, or profitability of any goods or services, and making such claims through telemarketing; and (iii) using threats or intimidation to coerce consumers to pay for goods or services.

    Federal Issues FTC Enforcement Consumer Protection Telemarketing Sales Rule FTC Act UDAP Deceptive

  • FTC adds two defendants to real estate investment scheme suit

    Federal Issues

    On February 25, the FTC and the Utah Division of Consumer Protection announced the addition of two additional defendants in an action taken against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. As previously covered by InfoBytes, the FTC and the Utah Division of Consumer Protection claimed that the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law by marketing real estate events with false claims and using celebrity endorsements. The defendants allegedly promised consumers they would (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “a minimum of three times” the price of the workshop within six months. In October 2019, the U.S. District Court for the District of Utah granted a temporary restraining order against the defendants, prohibiting the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.

    Federal Issues FTC Enforcement Courts State Regulators FTC Act UDAP Marketing Deceptive State Issues

  • FTC settles with payday lender

    Federal Issues

    On February 11, the FTC announced a settlement with the owners and operators of a payday lending enterprise (collectively, “defendants”) for allegedly deceptively overcharging consumers and withdrawing money from consumers’ accounts without permission. The FTC filed a complaint against the defendants last year claiming, among other things, that the defendants violated the FTC Act, the Telemarketing Sales Rule, TILA/Regulation Z, and EFTA/Regulation E, by advertising loans with fixed payback terms and promising consumers that their loans would be repaid after a pre-determined number of payments. However, the FTC claimed that in many cases the payback terms defaulted to debiting the financial fee only, and the U.S. District Court for the District of Nevada granted a temporary restraining order against the defendants (covered by InfoBytes here). Under the terms of the stipulated final order, the FTC ordered that any consumer debt for loans issued and assigned to the defendants are “deemed paid in full to the extent that such [e]xisting [d]ebt exceeds the amount financed plus one finance charge. . . .” The defendants are also (i) permanently banned from the payday lending industry, including making loans or extending credit of any kind; (ii) prohibited from making any misrepresentations related to the collection of any debt; (iii) prohibited from making unauthorized electronic fund transfers from consumers’ bank accounts; and (iv) permanently banned from creating, or causing to be created, any remotely created payment orders. A $114 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.

    Federal Issues FTC Enforcement Payday Lending FTC Act Deceptive UDAP

  • FTC settles with credit card laundering defendants

    Federal Issues

    On February 10, the FTC announced settlements with several defendants that allegedly violated the FTC Act and the Telemarketing sales Rule by assisting an operation responsible for laundering millions of dollars in credit card charges through fraudulent merchant accounts. As previously covered by InfoBytes, the defendants engaged in a credit card laundering scheme with the operation to process credit card charges through merchant accounts set up by the operation under fictitious company names instead of processing charges through a single merchant account under the operation’s name. According to the FTC’s complaint, the defendants purportedly (i) underwrote and approved the operation’s fictitious companies; (ii) set up merchant accounts with its acquirer for the fictitious companies; (iii) used sales agents to market processing services to merchants; (iv) processed nearly $6 million through credit card networks; and (v) transferred sales revenue from the transactions to companies controlled by the defendants. 

    The settlements (see here, here, and here) permanently ban three of the defendants from payment processing and telemarketing or acting as independent sales organizations or sales agents in the payment processing industry. A previously issued settlement against a fourth defendant banned him from payment processing or acting as an independent sales organization or sales agent in the payment processing industry. Monetary judgments totaling more than $10.7 million collectively have been suspended due to the defendants’ inability to pay.

    Federal Issues FTC Enforcement Credit Cards FTC Act Telemarketing Sales Rule Payment Processors

  • Court holds Arizona car dealerships violated TILA and CLA

    Courts

    On February 5, the U.S. District Court for the District of Arizona granted in part and denied in part summary judgment in favor of the FTC, concluding the owners of a car dealership with locations in Arizona and New Mexico (collectively, “defendants”) failed to include legally required information in violation of TILA and the Consumer Leasing Act (CLA). As previously covered by InfoBytes, in August 2020, the FTC brought charges against the defendants for violations of TILA, the CLA, and FTC Act, on the grounds that the defendants purportedly falsified consumers’ income and down payments on credit applications in order to make the consumers seem more creditworthy, which resulted in consumers “default[ing] at a higher rate than properly qualified buyers.” The FTC asserted that these advertising practices were deceptive in that they concealed the true nature and terms of the financing or leasing offers and thus were in violation of federal law for failing to disclose the required terms.

    Subsequently, the corporate defendants stipulated to a permanent injunction and monetary judgment and the FTC moved for summary judgment against the co-owners. As against the owners, the court granted summary judgment in favor of the FTC on the TILA and CLA claims, concluding that the advertisements were “missing legally required information such as the terms of repayment or the annual percentage rate.” However, the court denied summary judgment as to the FTC Act claims, after the defendants provided declarations from a small sample of consumers admitting to knowing the down payment and income information was misreported. The court determined that based on the declarations, a reasonable jury could infer that “consumers were not likely deceived or misled, only led astray and persuaded to participate in a lie.” However, the court did not grant full relief requested by the FTC. In particular, the court did not grant summary judgment on the FTC Act claims and held it was premature to hold one of the owners individually responsible for the TILA and CLA claims. Provided these findings presented unresolved factual issues, the court found reason to delay the entry of judgment.

    Courts FTC Enforcement TILA CLA FTC Act Auto Finance

  • FTC provides annual ECOA summary to CFPB

    Federal Issues

    On February 3, the FTC announced it recently provided the CFPB with its annual summary of work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B during 2020. The summary discusses, among other things, the following FTC research and policy development initiatives:

    • The FTC submitted a comment letter in response to the CFPB’s request for information on ways to provide additional clarity under ECOA (covered by InfoBytes here). Among other things, the FTC noted that Regulation B explicitly incorporates disparate impact and offered suggestions should the Bureau choose to provide additional detail regarding its approach to disparate impact analysis. The FTC also urged the Bureau to remind entities offering credit to small businesses that ECOA and Regulation B may apply based “on the facts and circumstances involved” and that entities cannot avoid application of these statutes based solely on how they characterize a transaction or the benefits they claim to provide.
    • The FTC hosted the 13th Annual FTC Microeconomics Conference, which focused on the use of machine-learning algorithms when making decisions in areas such as credit access.
    • The FTC’s Military Task Force continued to work on military consumer protection issues, including military consumers’ “rights to various types of notifications as applicants for credit, including for adverse action, and information about the anti-discrimination provisions, in ECOA and Regulation B.”
    • The FTC continued to participate in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and the federal banking regulatory agencies. The Commission also joined the newly formed Interagency Fair Lending Methodologies Working Group with the aforementioned agencies in order “to coordinate and share information on analytical methodologies used in enforcement of and supervision for compliance with fair lending laws, including ECOA.”

    The summary also highlights FTC ECOA enforcement actions, business and consumer education efforts on fair lending issues, as well as blog posts discussing fair lending safeguards and the use of artificial intelligence in automated decision-making.

    Federal Issues FTC Enforcement CFPB ECOA Fair Lending Artificial Intelligence Regulation B

  • FTC finalizes settlement with video conferencing company

    Federal Issues

    On February 1, the FTC finalized a settlement with a video conferencing provider, resolving allegations that the company violated the FTC Act by misleading users about the levels of encryption offered for securing communications during meetings. As previously covered by InfoBytes, in November 2020, the FTC announced a proposed consent order with the video conferencing provider alleging, among other things, that the company failed to implement any measures to protect users’ security, failed to monitor service providers who had access to the network, lacked a systematic process for incident response, and allegedly increased users’ risk of remote video surveillance by strangers, even though the company “touted its level of encryption as a reason for customers and potential customers to use [its] videoconferencing services.” In a 3-2 vote, the FTC finalized the proposed settlement, which (i) prohibits the company misrepresenting its privacy and security practices; (ii) includes a mandated information security program, which requires the company to assess and document security risks, develop ways to manage and safeguard against such risks, and deploy additional methods, including multi-factor authentication, to protect against unauthorized access of the network; and (iii) requires the company to obtain biennial third-party assessments of its security practices.

    Acting Chairwoman Slaughter and Commissioner Chopra issued two dissenting statements, with Slaughter arguing that the final order does not adequately address the company’s privacy failings, nor does it require the company to provide any recourse to affected users, despite “widespread opposition” to the proposed settlement. Chopra argues the FTC “[r]ush[ed] to a final approval of [the] settlement,” and urges the FTC to “think beyond its status quo approach of simply requiring more paperwork, rather than real accountability relying on a thorough investigation.”

    Federal Issues FTC Enforcement Privacy/Cyber Risk & Data Security

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