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CFPB extends comment period for proposed rulemaking on time-barred debt disclosures; CFPB and FTC release 2019 FDCPA report
On March 20, the CFPB announced it was extending the comment period on its Supplemental Notice of Proposed Rulemaking related to time-barred debt disclosures (covered by a Buckley Special Alert) for an additional 30 days. Given the challenges created by Covid-19, the comment period will now end June 5.
The same day, the CFPB and FTC released their annual report to Congress on the administration of the FDCPA, which highlights the 2019 efforts of the agencies. Under a memorandum of understanding, the agencies are provided joint FDCPA enforcement responsibility and may share supervisory and consumer complaint information, as well as collaborate on education efforts. Among other things, the report provides general demographic and economic data about consumer debt and the debt collection industry, and highlights enforcement actions, education efforts, and supervisory findings. The report also notes that the CFPB handled roughly 75,000 complaints filed by consumers about first- and third-party debt collectors in 2019, down from the 81,500 it received in 2018, and engaged in five public enforcement actions arising from alleged FDCPA violations. Judgments resulting from these actions yielded nearly $50 million in consumer redress and $11.2 million in civil money penalties.
With respect to the FTC, the report states that in 2019 the agency obtained approximately $25 million in judgments and permanently banned 23 companies and individuals that engaged in serious and repeated violations of law from working in the debt collection industry. The report also highlights the FTC’s comment letter on the Bureau’s May 2019 Notice of Proposed Rulemaking to implement the FDCPA and to address other debt collection issues, in which the agency stated that it “has long advocated for amendments and clarifications to existing laws to account for changes in the debt collection marketplace and consumer technology” (covered by InfoBytes here).
FTC obtains default judgment in student debt relief operation
On March 10, the FTC announced that it obtained default judgments of over $10.7 million against three defendants in a student loan debt relief operation that the FTC alleged violated the FTC Act and the Telemarketing Act. The defendants were alleged to have deceptively marketed services to reduce or eliminate student loan debt and to have tricked borrowers into paying illegal upfront fees for these services. In its order granting the default judgment, in addition to the monetary penalties, the court permanently enjoined the defendants from (i) participating in telemarketing; (ii) selling secured and unsecured debt relief products and services; and (iii) making misrepresentations related to financial products and services.
FTC files “piggybacking” charges against credit repair operation
On March 9, the FTC filed a complaint against a Colorado-based credit repair company and its owner for allegedly making false representations to consumers regarding their ability to improve credit scores and increase access to mortgages, personal loans, and other credit products in violation of the Credit Repair Organizations Act, the FTC Act, and the Telemarketing Sales Rule. In its complaint, the FTC alleged that the defendants charged consumers illegal, upfront fees ranging from $325 to $4,000 per tradeline with the deceptive promise that they could “piggyback” on a stranger’s good credit, thereby artificially inflating their own credit score in the process. As the FTC explained, “piggybacking” occurs when a consumer pays to be registered as an “additional authorized user” on a credit card held by an unrelated account holder with positive payment histories. The FTC alleged that the defendants’ practices did not, in fact, significantly improve consumers’ credit scores as promised, and that while the defendants claimed on their website that their piggybacking services were legal, the FTC “has never determined that credit piggybacking is legal” and the practice does not fall within the protections of the Equal Credit Opportunity Act. Under the terms of the proposed settlement, the defendants will be banned from selling access to another consumer’s credit as an authorized user and from collecting advance fees for credit repair services. The defendants will also be required to pay a $6.6 million monetary judgment, which be partially suspended due to the defendants’ inability to pay.
FTC reaches settlements with affiliate marketers
On March 5, the FTC announced settlements with four groups of affiliate marketers that, among other things, allegedly violated the FTC Act by using deceptive marketing tactics and earnings claims to persuade consumers to pay thousands of dollars each for business coaching and investment “mentoring” services. The FTC alleged in the first complaint that certain defendants sold membership packages for an online business coaching scheme, and then, when the business coaching scheme went out of business, created their own branded programs and systems that claimed consumers would be able to start their own online marketing businesses and earn substantial income. The defendants also allegedly encouraged consumers to open multiple credit lines to finance the purchases of these programs. The FTC claimed that the defendants “used straw signers and shell companies and provided banks and payment processors with ‘dummy’ websites to evade scrutiny by bank underwriters and obtain multiple merchant accounts to process credit card payments from consumers.” According to the FTC’s second complaint, the other defendants made deceptive earnings claims in order to recruit consumers into the now-defunct business coaching scheme and earned millions of dollars as a reward. In both complaints, the FTC claimed that most consumers who purchased the products suffered large losses and mounting debts.
Under the terms of the settlements, each of the defendants is permanently banned from selling or marketing any business coaching programs or money-making methods, and must pay judgments of (i) $3.35 million to be paid in full for potential consumer redress (order here); and (ii) monetary judgments totaling $38.1 million, which will be partially suspended due to the defendants’ inability to pay (orders here, here, and here).
FTC paper discusses small business financing issues
On February 26, the FTC released a staff perspective paper covering topics discussed during the Commission’s “Strictly Business” forum on small business financing held in 2019, as well as an online tool for small businesses to submit lending- or financing-related complaints. As previously covered by InfoBytes, the forum heard from members of the small business marketplace who discussed the recent uptick in online loans and alternative financing products, and analyzed the potential for unfair and deceptive marketing, sales, and collection practices in the industry. The staff paper provides an overview of key issues discussed during the forum, as well as enforcement information, recent small business financing marketplace trends, potential benefits and risks of newer online financing products, and consumer protection issues associated with merchant cash advances. Among other things, the staff paper emphasized that “small business finance providers should avoid the sorts of practices that the Commission has alleged to be deceptive” in its enforcement actions involving either small business consumers or individual consumers, such as actions charging lenders with making “misleading claims regarding fees, consumer savings, payment amounts, and interest rates” in connection with personal loans. The staff paper also stressed that finance providers should understand that using marketing intermediaries, such as brokers and lead generators, “does not immunize them from liability under the FTC Act,” and that finance providers “should take steps to ensure that their marketers do not engage in deceptive or other unlawful conduct.” Small business consumers, the staff paper noted, would also likely benefit from more uniform and easily understood financing disclosures in order to compare costs and product features in the small business marketplace.
FTC report highlights 2019 privacy and data security work
On February 25, the FTC released its annual report highlighting the agency’s privacy and data security work in 2019. Among other items, the report highlights consumer-related enforcement activities in 2018, including:
- A $5 billion penalty—the largest consumer privacy penalty to date—against a global social media company to resolve allegations that the company violated its 2012 FTC privacy order and mishandled users’ personal information. (Covered by InfoBytes here.)
- A $170 million penalty against a global online search engine and its video-sharing subsidiary to resolve alleged violations of the Children’s Online Privacy Protection Act (COPPA). (Covered by InfoBytes here.)
- A proposed settlement in the FTC’s first case against developers of “stalking” apps that monitor consumers’ mobile devices and allegedly compromise consumer privacy in violation of the FTC’s Act prohibition against unfair and deceptive practices and COPPA.
- A global settlement of up to $700 million issued in conjunction with the CFPB, 48 states, the District of Columbia and Puerto Rico, to resolve federal and state investigations into a 2017 data breach that reportedly compromised sensitive information for approximately 147 million consumers. (Covered by InfoBytes here.)
The report also discusses the FTC’s enforcement of the EU-U.S. Privacy Shield framework, provides links to FTC congressional testimony on privacy and data security, and offers a list of relevant rulemaking, including rules currently under review. In addition, the report highlights recent privacy-related events, including (i) an FTC hearing examining consumer privacy as part of its Hearings on Competition and Consumer Protection in the 21st Century; (ii) the fourth annual PrivacyCon event, which hosted research presentations on consumer privacy and security issues (covered by InfoBytes here); (iii) a workshop examining possible updates to COPPA; and (iv) a public workshop that examined issues affecting consumer reporting accuracy.
FTC, New York settle with debt collection schemer
On February 25, the FTC and the New York attorney general announced a settlement with an individual defendant who controlled a New York-based debt collection operation for allegedly violating the FTC Act, the FDCPA, and New York state law by using false or deceptive tactics to collect money from consumers. As previously covered by InfoBytes, the FTC and the New York AG filed a complaint against the operation in 2018, alleging that operation employees threatened consumers with arrest or lawsuits and sometimes falsely posed as law enforcement officials or attorneys. In addition, the FTC and New York AG claimed employees allegedly increased pressure on consumers by telling them they owed more than indicated in the operation’s records, using forms that showed both the actual balance owed by the consumer as well as a higher balance the collectors claimed the consumers owed—a practice known as “overbiffing.” Under the terms of the settlement, the defendant—who neither admitted nor denied the allegations—is permanently banned from participating in debt collection activities and “is prohibited from misleading consumers about any financial-related products” or services. The settlement also imposed a $1.7 million judgment, of which all but $30,000 is suspended due to the defendant’s inability to pay.
FTC gives annual ECOA summary to CFPB
On February 21, 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. The summary discusses, among other things, the following FTC research and policy development initiatives:
- The FTC continued its series of Hearings on Competition and Consumer Protection in the 21st Century. Session 12 of these hearings specifically focused on consumer privacy and “the use of big data in automated decision making and how . . . ECOA should inform the use of data collected from consumers.” Session 14 included a roundtable of state attorneys general and senior staff who addressed consumer protection issues related to “the impact of big data and algorithms on equal access to credit.”
- The FTC held a forum with a variety of business leaders, enforcement attorneys, and policymakers to discuss ECOA’s applicability to small business financing.
- The FTC held a consumer reporting workshop to discuss ECOA as well as (i) consumer report furnisher practices; (ii) making credit decisions based on fairness; and (iii) avoiding the use of a prohibited basis in extending credit.
- 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 federal banking regulatory agencies.
The summary also highlights FTC business and consumer education efforts on fair lending issues, as well as blog posts discussing the online marketplace for small business financing.
FTC seeks injunction against online investment training academy for deceptive claims
On February 12, the FTC filed a complaint in the U.S. District Court for the Central District of California against a California-based investment training operation alleging use of deceptive claims to sell costly “training programs” targeting older consumers. According to the complaint, the operation allegedly violated the FTC Act and the Consumer Review Fairness Act by using false or unfounded claims to market programs that purportedly teach consumers investment strategies designed to generate substantial income from trading in the financial markets “without the need to possess or deploy significant amounts of investable capital.” The FTC also alleges that the operation’s instructors claim to be successful traders who have amassed substantial wealth using the strategies, but are actually salespeople working on commission. However, the FTC asserts, among other things, that the operation fails to track customers’ trading results and that its earnings claims are false or unsubstantiated. Moreover, the FTC alleges the operation requires that dissatisfied customers requesting refunds sign agreements barring them from posting negative comments about the operation or its personnel, and specifically prohibits customers from reporting potential violations to law enforcement agencies. Among other things, the FTC seeks injunctive relief against the operation, as well as “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
FTC settles deceptive ranking charges with lead generator
On February 3, the FTC announced a settlement with operators of a lead generator website (respondents) that compares and ranks consumer financial products such as student loans, personal loans, and credit cards. According to the FTC’s complaint, the respondents violated the FTC Act by allegedly making false representations to consumers that their rankings were objective, honest, accurate, and unbiased, when in fact, the defendants allegedly offered higher rankings to companies that paid for placement. In addition, the complaint alleges that certain highly ranked companies dropped placement spots after refusing to pay for their positions. The complaint further contends that the respondents allegedly claimed that customer reviews were impartial, but in reality most reviews were written by company employees or their family friends, or others associated with the company, or by fabricated consumers. Without admitting or denying the allegations, the respondents have agreed to pay $350,000 under the terms of the proposed settlement, and are prohibited from making future misrepresentations connected with the “advertising, promotion, offering for sale, or sale of any product or service.”