June 2022

At the request of the Federal Trade Commission, a federal court has temporarily halted a bogus credit repair scheme known as The Credit Game for promoting a series of lies and deceptions. The FTC alleged the scheme’s operators lied to credit reporting agencies regarding information on consumers’ credit reports and pitched consumers a supposed business opportunity that was essentially starting their own bogus credit repair scheme.

“Credit repair schemes cheat those already in financial trouble, and these defendants even tried to redirect COVID-19 tax benefits into their own pockets,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We’re grateful that the court shut this scheme down and disrupted this web of deception.”

In a complaint filed against The Credit Game and its owners, Michael and Valerie Rando, the FTC alleged that the company has illegally charged consumers hundreds and even thousands of dollars for credit repair services of little to no value and told consumers to “invest” their COVID-19 governmental benefits on their unlawful services. In some cases, the company’s “services” included filing false identity theft reports with the FTC and encouraging consumers to take actions that were unlawful. The FTC asked the court to immediately halt the company’s illegal operations, appoint a receiver, and freeze the defendants’ assets. The court issued a temporary restraining order doing so on May 3, 2022.

In addition to the core credit repair scheme, the defendants have also taken advantage of the ongoing pandemic by telling consumers to “invest” pandemic tax benefits into their credit repair schemes. One advertisement used the headline “Free Credit Repair From The Government.”

The defendants are based in Florida and have operated credit repair schemes since at least 2019, first using the name Wholesale Tradelines before changing to The Credit Game in 2020. According to the FTC’s complaint, the defendants claim to have brought in more than $15 million in business through their operations.

In its complaint filed against The Credit Game and the Randos, the FTC alleges the defendants’ deceptive tactics violated the FTC Act, the Credit Repair Organizations Act (CROA), the Business Opportunity Rule, the Telemarketing Sales Rule (TSR), and the Covid Consumer Protection Act (CCPA). This includes:

• Deceptive marketing: The defendants mislead consumers in numerous ways, including lying to consumers about whether their products are legal, whether their products are effective, and whether consumers can get refunds when requested.

• Credit piggybacking: The complaint alleges that the defendants pitch a practice known as credit piggybacking. In a piggybacking scheme, a consumer seeking to raise their credit scores pays to be added as an “authorized user” to a credit card account belonging to someone with higher credit. However, the consumer is an “authorized user” in name only and does not have actual access to the account or line of credit.
• Filing false identity theft reports: As part of their efforts to remove accurate but negative information from consumers’ credit reports, the defendants filed thousands of false identity theft reports on behalf of consumers with the FTC. Knowingly filing a false identity theft report with the FTC is unlawful.
• Bogus business opportunity: In addition to selling the bogus credit repair services, the defendants also pitch consumers on a supposed business opportunity that consists of reselling the defendants’ own unlawful credit repair services. They use outlandish earnings claims as part of the sales pitch, telling one undercover FTC investigator they could make “tens of thousands” of dollars every month.
• Illegal advance fees: The defendants charge consumers for their credit repair services upfront, often thousands of dollars, using high-pressure sales tactics and failing to give consumers required information before they are pressured to buy. Charging advance fees for credit repair services is illegal.

In addition, the FTC’s investigation found that the defendants had purchased a tradeline database from previous FTC defendants William Airy and BMS, Inc., who were sued by the FTC for operating a bogus credit repair scheme in 2020, and that the Randos were aware of the FTC’s investigation into Airy and BMS when they bought the tradeline database.

The Commission vote authorizing the staff to file the complaint and request for temporary restraining order was 4-0. The complaint was filed in the U.S. District Court for the Middle District of Florida.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission has joined the Consumer Financial Protection Bureau in an amicus brief filed with the United States Court of Appeals for the Second Circuit in the case of Sessa v. TransUnion. The brief asks the court to overturn a lower court decision, which held that TransUnion was not liable for failing to investigate a wrongfully reported debt because the inaccuracy was “legal” and not “factual.”

“The lower court’s decision not only disregards the plain language enacted by Congress, but also is a gift to data brokers that already exercise a largely unfettered, invisible power over consumers’ lives,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Consumers can’t vote with their feet when consumer reporting agencies get it wrong. Enforcers and consumers need to be able to hold these companies accountable.”

The lower court held that legal inaccuracies are exempt from the requirement under the Fair Credit Reporting Act that consumer reporting agencies “follow reasonable procedures to assure maximum possible accuracy” of consumer reports. Since this law was enacted, it has allowed enforcers and consumers to hold consumer reporting agencies accountable for the incorrect information they place on consumers’ credit reports. This authority is especially critical in the credit reporting market, where consumers have no options for avoiding credit reporting agencies in order to participate in the economy and there are few incentives to fix sloppy mistakes. This holding, if adopted elsewhere, would make it easier for consumer reporting agencies to escape accountability for sloppy reports that harm consumers.

The joint brief argues that the lower court’s legal inaccuracy exemption is neither based on any textual language in the law, nor is it workable. The invented defense invites consumer reporting agencies and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate. For any number of obviously inaccurate factual mistakes that might appear on a consumer’s credit report, consumer reporting agencies might be able to manufacture some supposed legal interpretation to insulate itself from liability. The lower court’s unsupported reading could increase the number of inaccurate credit reports and result in inaccurate information about consumers being conveyed to lenders, landlords, employers, and other entities that purchase consumer reports.

The Commission voted 3-0 to file the amicus brief. Commissioner Noah Joshua Phillips did not participate.

The Federal Trade Commission today took action against apparel company Lions Not Sheep Products, LLC, and its owner Sean Whalen for falsely claiming that its imported apparel is Made in USA. According to the FTC’s complaint, the company added phony Made in USA labels to clothing and accessories imported from China and other countries.  The FTC’s proposed order requires Lions Not Sheep and Whalen to stop making bogus Made in USA claims, come clean about foreign production, and pay a monetary judgment.

“Companies that slap phony Made in USA labels on imported goods are cheating their customers and undercutting honest businesses, and we will hold those companies and their executives accountable for their misconduct,” said Sam Levine, Director of the FTC’s Bureau of Consumer Protection. “American consumers have the right to know the truth about where their clothes and accessories are made.”

Utah-based Lions Not Sheep is an apparel company that sells t-shirts, sweatshirts, jackets, and sweaters on their own website as well as through Amazon and Etsy. The company and its owner Whalen heavily marketed it through social media channels, claiming that it would “show people it’s possible to live your life as a LION, Not a sheep.” Their Made in USA claims online and on product labels included “Made in the USA,” “Made in America,” “Are your products USA Made?” “100% AMERICAN MADE,” and “BEST DAMN AMERICAN MADE GEAR ON THE PLANET.” In most cases, the products advertised using these claims consist of wholly imported shirts and hats with limited finishing work performed in the United States.

 The complaint alleges that on Oct. 8, 2020, Whalen published a video of himself to his social media accounts, with the title MADE IN AMERICA! alongside a Chinese flag. In the video, Whalen said he could conceal the fact that his shirts are made in China by ripping out the origin tags and replacing them with tags stating that the merchandise was made in the United States.

According to the complaint, between May 10, 2021 and Oct. 21, 2021, Whalen and Lions Not Sheep removed tags disclosing that the merchandise was made in a foreign country and printed “Made in USA” at the neck of the shirts, as depicted below:

Enforcement Action

The proposed order settling the FTC’s complaints against Whalen and Lions Not Sheep prohibits the conduct alleged in the complaint. The order requires that Whalen and Lions Not Sheep:

• Pay judgment: They must pay a judgment of $211,335.

• Cease making bogus Made in USA claims: They must stop claiming that products are made in the United States unless they can show that the product’s final assembly or processing—and all significant processing—takes place here and that all or virtually all ingredients or components of the product are made and sourced here. Under the terms of the proposed order, Whalen and Lions Not Sheep are prohibited from labeling products as “Made in USA” unless the final assembly or processing, and all significant processing that goes into the products occur in the United States; and unless all or virtually all ingredients or components of the products are made and sourced in the United States. They must also submit compliance reports.

• Come clean about foreign production: Under the order, any qualified Made in USA claims must include a clear and conspicuous disclosure about the extent to which the product contains foreign parts, ingredients or components, or processing. Finally, to claim that a product is assembled in the United States, Whalen and Lions Not Sheep must ensure that it is last substantially transformed in the United States, its principal assembly takes place in the United States, and U.S. assembly operations are substantial.

The FTC’s Enforcement Policy Statement on U.S. Origin Claims provides further guidance on making non-deceptive “Made in USA” claims.

The Commission vote to issue the complaint and accept the consent agreement was 4-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.

NOTE: When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.

Today, Federal Trade Commission Chair Lina M. Khan announced that an open meeting of the Commission will be held virtually on Thursday, May 19, 2022. The open meeting will commence at 1pm ET and will begin with time for members of the public to address the Commission.

The following items will be on the tentative agenda for the May 19 Commission meeting:

Business Before the Commission

• Policy Statement on Education Technology and the Children’s Online Privacy Protection Act: The Commission will vote on a policy statement that announces the agency’s prioritization of the enforcement of COPPA as it applies to the use of education technology. Particularly as the use of education technology has expanded during the COVID-19 pandemic, the statement makes clear that parents and schools must not be required to sign up for surveillance as a condition of access to tools needed to learn.

• Request for Public Comment on Amendments to the Guides Concerning the Use of Endorsements and Testimonials in Advertising: FTC staff will provide a presentation and the Commission will vote on a request for public comment on proposed amendments to the Endorsement Guides. These proposed revisions will address fake reviews and the suppression of negative reviews, among other things, and also update the guidance generally to reflect current advertising realities concerning endorsements.

At the start of the meeting, Chair Khan will offer brief remarks and will then invite members of the public to share feedback on the Commission’s work generally and bring relevant matters to the Commission’s attention. Members of the public must sign up for an opportunity to address the Commission virtually at the May 19 event.

Each commenter will be given two minutes to share their comments. Those who cannot participate during the event may submit written comments or a link to a prerecorded video through a webform. Speaker registration and comment submission will be available through Tuesday, May 17, 2022 at 8 pm ET.

The FTC’s public meeting agendas will be posted on the Commission’s website at least seven days prior to the Commission’s next monthly meeting. A link to the event will be available in advance of the meeting via FTC.gov. The event will be recorded, and the webcast and any related comments will be available on the Commission’s website after the meeting. The Commission retains discretion to make public comments available following the event on ftc.gov. Due to challenges related to the ongoing COVID-19 public health crisis, open meetings will be held virtually until further notice.

Today, the Federal Trade Commission announced it is seeking public comments on proposed updates to the Energy Labeling Rule which will allow consumers to more accurately compare the estimated annual energy consumption appliances before they buy them.

The FTC’s Energy Labeling Rule, issued in 1979 under the Energy Policy and Conservation Act, requires that manufacturers attach labels to major home appliances and other consumer products that help consumers compare the energy usage and costs of competing models. The rule also prohibits retailers from removing or altering these labels.

It also requires Lighting Facts labels or other disclosures for many household appliances. These labels help consumers anticipate their energy costs and avoid costly surprises after a product has already been purchased.

The rule requires the Commission to revise the comparability ranges and associated energy costs every five years for certain EnergyGuide labels. The FTC’s notice of proposed rulemaking seeks comments on scheduled updates to the comparability ranges that were last revised in 2017. These updates focus on three disclosures for most covered products: 1) estimated annual operating cost, 2) a “comparability range” showing the highest and lowest energy consumption or efficiencies for all similar models, and 3) the product’s energy consumption or energy efficiency rating. Details on the specific EnergyGuide label changes can be found in the Federal Register notice.

The Commission vote approving publication of the notice in the Federal Register was 3-1, with Commissioner Christine S. Wilson voting no and issuing a separate dissenting statement.

Once it has been published in the Federal Register, consumers can submit comments electronically. Consumers also may submit comments in writing by following the instructions in the “Supplementary Information” section of the notice.

The Federal Trade Commission has taken action against R360 LLC and its owner, Steven Doumar, for deceiving people seeking help for addiction about the evaluation and selection criteria for the treatment centers in their network. The case is the FTC’s first under the Opioid Addiction Recovery Fraud Prevention Act of 2018.

The agency has secured a $3.8 million civil penalty judgment against the defendants and an order prohibiting them from continuing to make the same kinds of misrepresentations.

“Our order stops R360 and its owner from deceiving people about addiction treatment,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We’ll continue to use the authority Congress gave us to go after companies that prey on those suffering from addictions.”

The Opioid Addiction Recovery Fraud Prevention Act of 2018 authorizes the Commission to seek civil penalties for unfair or deceptive acts or practices with respect to any substance use disorder treatment service or product. “Substance use disorder treatment services” are services that purport to provide treatment, referrals to treatment, or recovery housing for people with substance use disorders.

According to the FTC’s complaint, Ft. Lauderdale, Fla.-based R360 LLC began promoting its client treatment centers in 2017 to consumers suffering from substance use disorders using television ads for its “R360 Network,” a supposed nationwide network of addiction treatment and recovery specialists. Consumers who called seeking help were routed automatically to a treatment center that was a member of the network.

The FTC alleges that R360 misrepresented to these consumers that it would connect them with treatment centers that met their individualized needs and were selected through a rigorous evaluation process conducted by an expert in substance use disorders and addiction treatment. In reality, Doumar was responsible for assessing the quality of the treatment centers and deciding which would join the network, and he had no educational or professional experience that qualified him to make these decisions. The complaint states he only did a cursory review of potential members and conducted no research to verify the information that treatment center representatives provided to him.

The proposed order settling the FTC’s charges prohibits R360 and Doumar from misrepresenting any material fact about substance use disorder treatment products or services. This includes claims: that consumers will be directed to a treatment center based on their individualized needs; that a product or service has been endorsed or evaluated by an expert; and about the nature of any criteria used to evaluate products or services. The order also imposes a $3.8 million civil penalty against the defendants, which is suspended based on their inability to pay.

The Commission vote approving the complaint and proposed order was 4-0, with Chair Lina M. Khan and Commissioner Christine S. Wilson issuing separate statements. The complaint and order were filed in the U.S. District Court for the Southern District of Florida.

In testimony before the House Subcommittee on Financial Services and General Government, Federal Trade Commission Chair Lina M. Khan highlighted the agency’s broad consumer protection and competition mandate and pointed to the need for increased funding and staffing to meet growing law enforcement needs in today’s modern markets.

“The FTC is at the front lines of many of the most pressing issues Americans face today— from corporate mergers that can enable firms to hike prices and slash wages, to massive data breaches that can expose Americans’ most sensitive and personal information,” said Chair Lina M. Khan. “I continue to be impressed by the tenacity and creativity of our staff in the face of an ever-increasing workload, opposing parties with endless resources, and legal challenges to our authority. We are keen to fully deliver on our mission—but without the additional funding, it will continue to be a challenge.”

Khan’s testimony noted that the agency is responsible for enforcing 82 different statutes across the full breadth of American commerce. While recent budget increases have been helpful, she noted, the agency’s staffing level is still one-third smaller than it was four decades ago.

In her testimony, the Chair also detailed how the FTC has worked tirelessly to meet the enormous demand of enforcing the laws against unlawful mergers amid a historic surge. While the agency has moved aggressively to maximize the impact of its budget, the testimony noted that it remains extremely challenging to fully resource the FTC’s competition mission.

The volume of merger filings —filings the FTC is required to review under the Clayton Act— has significantly outpaced and overwhelmed the agency’s ability to investigate them. For example, the number of merger filings has increased to more than 3,500 in 2021 alone. Khan noted that the agency does not have sufficient resources to meet its obligations to conduct its investigations of those mergers in a timely manner, especially as transactions have grown in complexity over the decades.

Khan pointed to numerous enforcement actions in both the competition and consumer protection space that have yielded important benefits for consumers and the market. She noted that additional resources would ensure that the agency will continue to enforce laws that protect consumers from unfairness and deception across the economy, from keeping a close eye on oil and gas markets to protecting consumers’ privacy online to fighting ongoing fraud related to the COVID-19 pandemic.

The Federal Trade Commission, through its refund administrator, is mailing 690,000 checks totaling more than $152 million to consumers who lost money to a massive payday lending fraud scheme operated by AMG Services, Inc. and the company’s owner, Scott Tucker. This is the second distribution of refunds in this matter, bringing the total amount returned to consumers to more than $535 million. 

The refunds are the result of a criminal case that the Department of Justice filed and from settlements with other defendants that were entered before the Supreme Court overturned the monetary judgment the FTC had obtained in its civil case against Tucker in April 2021.

Consumers who receive checks should cash them by August 17, 2022. Checks can be verified online at www.ftc.gov/AMG. Recipients who have questions about their refund should contact the refund administrator, Rust Consulting, at 866-730-8147 or by email at admin@AMGServicesRefund.com. The Commission never requires people to pay money or provide account information to get a refund.

The FTC sued AMG Services in 2012, alleging that the company and its operators falsely claimed they would charge borrowers the loan amount plus a one-time finance fee. Instead, the defendants made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee with each withdrawal. As a result, consumers paid far more for the loans than they had originally agreed to pay.

In 2017, the United States Attorney’s Office for the Southern District of New York obtained criminal convictions against Tucker and his attorney, Timothy Muir. In 2018, they obtained a sentence of more than 16 years in prison for Tucker, and a penalty of $528 million against U.S. Bancorp for violations of the Bank Secrecy Act, including failing to timely report suspicious banking activities of Tucker.

The FTC and U.S. Attorney’s Office also obtained settlements in January 2015, November 2015, February 2016, and June 2018 with three Native American tribes involved in Tucker’s operation.

In vacating the Commission’s judgment against Tucker, the Supreme Court ruled that the Commission lacks authority under Section 13(b) to seek monetary relief in federal court. The Commission has urged Congress to restore the Commission’s ability to get money back for consumers under Section 13(b).

The Commission’s interactive dashboards for refund data provide a state-by-state breakdown of refunds in FTC cases. In 2020, Commission actions led to more than $483 million in refunds to consumers across the country.

The Federal Trade Commission is considering changes to tighten its guidelines for advertisers against posting fake positive reviews or manipulating reviews by suppressing bad ones—and warns social media platforms about inadequate disclosure tools. The FTC is seeking public comment on the proposed updates to its Endorsement Guides, which reflect the new ways that advertisers now reach consumers to promote products and services, including through social media.

“We’re updating the guides to crack down on fake reviews and other forms of misleading marketing, and we’re warning marketers on stealth advertising that targets kids.” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Whether it’s fake reviews or influencers who hide that they were paid to post, this kind of deception results in people paying more money for bad products and services, and it hurts honest competitors.”

The Endorsement Guides, first enacted in 1980 and amended in 2009, provide guidance to businesses and others to ensure that advertising using endorsements or testimonials is truthful. Advertisers who lie to consumers via endorsements or testimonials may violate the FTC Act. The guides, among other things, state that advertisers need to be upfront with consumers and clearly disclose unexpected material connections between endorsers and a seller of an advertised product. In February 2020, the FTC sought comment on whether changes should be made to the guides. The proposed changes reflect the extent to which advertisers have turned increasingly to the use of social media and product reviews to market their products.

In a notice, along with the proposed revisions to the guides, the FTC has:

• Warned social media platforms that some of their tools for endorsers are inadequate and may open them up to liability;
• Clarified that fake reviews are covered under the guides and added a new principle that in procuring, suppressing, boosting, organizing, or editing consumer reviews, advertisers should not distort or misrepresent what consumers think of their products. This would cover review suppression like in the FTC’s recent Fashion Nova case;
• Clarified that tags in social media posts are covered under the guides and modified the definition of “endorsers” to bring virtual influencers—that is, computer-generated fictional characters—under the guides; and
• Added an example addressing the microtargeting of a discrete group of consumers.

In addition, the FTC also has proposed adding a new section highlighting that child-directed advertising is of special concern and that children may react differently than adults to endorsements in advertising or related disclosures. In order to provide further guidance, the FTC plans to hold a public event on October 19, 2022, focusing specifically on children’s capacity at different ages and developmental stages to recognize and understand advertising content and distinguish it from other content and the need for and effectiveness of disclosures to children.

The Commission voted 5-0 at an open meeting to submit the notice detailing the proposed changes to the guides to the Federal Register. Instructions for filing comments appear in the notice. Comments must be received within 60 days of publication and will be posted on Regulations.gov. Chair Lina M. Khan as well as Commissioners Rebecca Kelly Slaughter, Christine S. Wilson and Alvaro Bedoya issued separate statements.

The Federal Trade Commission announced today that it will crack down on education technology companies if they illegally surveil children when they go online to learn. In a new policy statement adopted today, the Commission made it clear that it is against the law for companies to force parents and schools to surrender their children’s privacy rights in order to do schoolwork online or attend class remotely. Under the Children’s Online Privacy Protection Act, companies cannot deny children access to educational technologies when their parents or school refuse to sign up for commercial surveillance.  

“Students must be able to do their schoolwork without surveillance by companies looking to harvest their data to pad their bottom line,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Parents should not have to choose between their children’s privacy and their participation in the digital classroom. The FTC will be closely monitoring this market to ensure that parents are not being forced to surrender to surveillance for their kids’ technology to turn on.”

The policy statement underscores that, even as companies across the economy become more aggressive in harvesting and monetizing individuals’ data, ed tech providers cannot do the same:  Ed tech providers must comply fully with all provisions of the COPPA Rule. Today’s policy statement makes clear that the Commission will vigilantly enforce the law to ensure that companies covered under COPPA are complying with all of the rule’s provisions, including:

• Prohibitions Against Mandatory Collection: Companies cannot require children to provide more information than is reasonably needed for participation in an activity.

• Use Prohibitions: Ed tech providers that collect personal information from a child with the school’s authorization are prohibited from using the information for any other commercial purpose including marketing or advertising.  

• Retention Limitations: Ed tech providers are prohibited from retaining children’s personal information for longer than is necessary to fulfill the purpose for which it was collected and therefore cannot keep such data just because they might want to use it in the future.

• Security Requirements: Ed tech providers must have procedures to maintain the confidentiality, security, and integrity of children’s personal information.

The policy statement notes that companies that fail to follow the COPPA Rule could face potential civil penalties and new requirements and limitations on their business practices aimed at stopping unlawful conduct.

The Commission voted 5-0 at an open meeting to adopt the policy statement. Chair Lina M. Khan as well as Commissioners Rebecca Kelly Slaughter, Christine Wilson and Alvaro Bedoya issued statements on the matter.