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FTC settles with income scam operation targeting Latina consumers
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.
FTC adds two defendants to real estate investment scheme suit
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.
FTC settles with payday lender
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.
FTC settles with credit card laundering defendants
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.
Court holds Arizona car dealerships violated TILA and CLA
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.
FTC provides annual ECOA summary to CFPB
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.
FTC finalizes settlement with video conferencing company
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.”
FTC settles with training companies that charged consumers to obtain credit cards
On January 29, the FTC announced a settlement with two Nevada companies and two individuals (collectively, “defendants”), resolving allegations that the defendants violated the FTC Act, the Telemarketing Sales Rule, the Credit Repair Organizations Act, and the Consumer Review Fairness Act by charging consumers thousands of dollars to apply for numerous personal credit cards in order to pay for real estate investment training programs offered by other companies. According to the complaint, the training companies (many of which, the FTC claims, have been the subject of FTC enforcement actions for operating deceptive training schemes) pitch the defendants’ funding services to individuals who want to participate in the training companies’ programs and coaching about starting businesses or becoming real estate investors. However, the FTC claims that, in reality, the defendants are not lenders and do not actually provide any form of financing themselves. Rather, the defendants charge $3,000 or more to apply for multiple credit cards with total credit lines of at least $50,000 on behalf of the individuals—a practice known as “credit card stacking.” In addition, the FTC claims that the defendants inflated individuals’ annual incomes on credit card applications and told individuals they could anticipate earning around $100,000 if they used the training companies’ program, which individuals often purchased using credit cards they obtained from the defendants. Because most individuals did not earn the expected money, they incurred substantial credit card debt and experienced significant credit score declines.
The proposed settlement imposes a $2.1 million monetary judgment against the defendants, and permanently bans the defendants from, among other things, selling consumer credit services, misrepresenting the financial status of any consumer to a financial institution, engaging in business connected with the offer or sale of a credit repair service, and applying for or obtaining credit cards for consumers in exchange for a fee.
Court permanently bans companies and officer from payment processing
On January 22, the U.S. District Court for the District of Arizona entered judgments (available here and here) prohibiting two companies and one officer from engaging in payment processing services, credit card laundering, and telemarketing as a result of their involvement in a credit card laundering scheme. As previously covered by InfoBytes, in July 2017, the FTC filed a complaint against 12 defendants, comprised of an independent sales organization (ISO), sales agents, payment processors, and identified principals, for allegedly violating the FTC Act and the Telemarketing Sales Rule by laundering credit card transactions on behalf of a “telemarketing scam” operation through fictitious merchant accounts. 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. In addition to the permanent injunctions, the court entered into an over $4.6 million suspended judgment against the companies and an over $460,000 suspended judgment against the officer. However, the judgments can be lifted should the court find that the officer failed to disclose material assets or the accurate value of material assets.
Biden names Slaughter acting FTC Chair
On January 21, President Biden designated FTC Commissioner Rebecca Kelly Slaughter as acting Chair of the agency. According to the FTC’s announcement, Slaughter—who has served as a Commissioner since May 2018—is known for advocating for greater resources for the FTC and promoting equity and inclusion efforts. Slaughter has also championed for aggressive use of FTC’s authorities, and “has also been particularly outspoken about combatting systemic racism, growing threats to competition, and the broad abuse of consumers’ data.”