October 2023

As a result of a Federal Trade Commission lawsuit, Jonathan Braun, who controlled small-business funding company RCG Advances, will face a permanent ban from the merchant cash advance and debt collection industries. A federal court issued summary judgment in favor of the FTC in the case along with a permanent injunction against Braun.

“Mr. Braun and his company targeted small business consumers with an egregious array of tactics, from predatory contract terms to violent threats, and the court’s opinion is a significant win on their behalf,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “This case makes clear that the FTC will fight back against those who prey on small businesses.”

The FTC sued Braun in June 2020, along with four other defendants, for his role with RCG Advances, which formerly did business as Richmond Capital Group, charging that he deceived small businesses and other organizations by misrepresenting the terms of merchant cash advances the business provided, and then used unfair collection practices, including sometimes threatening physical violence, to compel consumers to pay.

The suit also alleged that Braun and the other defendants made unauthorized withdrawals from consumers’ accounts and required businesses and their owners to sign confessions of judgment as part of their contracts, which allowed the defendants to go immediately to court and obtain an uncontested judgment in case of an alleged default. The complaint alleges that the defendants unlawfully and unfairly used these confessions of judgment to seize consumers’ personal and business assets in circumstances not expected by consumers or permitted by the defendants’ financing contracts.

The court’s opinion granting summary judgment in favor of the FTC found that Braun engaged in “extensive misconduct” that violated both the FTC Act and the Gramm-Leach-Bliley (GLB) Act, and that Braun was liable for the damages caused by his and the company’s unlawful conduct.

The permanent injunction includes a number of key provisions:

• Ban on merchant cash advance: Braun is permanently banned from any involvement with the merchant cash advance industry, including assisting anyone else in offering those services.
• Ban on debt collection: Braun is permanently banned from the debt collection industry.
• Remove negative credit information: Braun is required to contact credit reporting agencies within 30 days to remove any negative information that was filed on consumer or business credit reports as a result of his actions.
• Prohibition on deceiving consumers and unauthorized charges: Braun is prohibited from deceiving consumers about any product or service, and is also prohibited from charging consumers without their authorization.

The court has scheduled a trial for January 2024 to determine the amount of monetary relief that should be imposed for Braun’s law violations.

The other defendants in the FTC’s case previously settled the FTC’s charges against them, resulting in industry bans and monetary relief totaling more than $2 million.

The number of cigarettes that the largest cigarette companies in the United States sold to wholesalers and retailers nationwide decreased from 190.2 billion in 2021 to 173.5 billion in 2022, according to the Federal Trade Commission’s most recent Cigarette Report. The report also states that in 2022, menthol flavored cigarettes comprised 36 percent of the market among major manufacturers.

The amount spent on cigarette advertising and promotion decreased from $8.06 billion in 2021 to $8.01 billion in 2022. Price discounts paid to cigarette retailers ($5.74 billion) and wholesalers ($1.14 billion) were the two largest expenditure categories in 2022. Combined spending on price discounts accounted for 85.9 percent of industry spending.

According to the Smokeless Tobacco Report, smokeless tobacco sales decreased from 122 million pounds in 2021 to 113.3 million pounds in 2022. The revenue from those sales rose from $4.96 billion in 2021 to $4.98 billion in 2022. Menthol flavored smokeless tobacco products comprised more than half of all sales and fruit flavored smokeless tobacco products comprised 2.6 percent of pounds sold.

Spending on advertising and promotion by the major manufacturers of smokeless tobacco products in the U.S. decreased from $575.5 million in 2021 to $572.7 million in 2022. The two largest spending categories in 2022 were price discounts paid to retailers, which were $360.5 million, and promotional allowances paid to wholesalers, which were $44.7 million.

Smokeless tobacco manufacturers also reported selling $1.06 billion of nicotine lozenges, pucks and pouches not containing tobacco in 2022, more than double the $452.8 million sold in 2020.

The Commission has issued the Cigarette Report periodically since 1967 and the Smokeless Tobacco Report periodically since 1987. The Commission vote to issue both reports was 3-0.

The primary staffer on the reports is Michael Ostheimer in the FTC’s Bureau of Consumer Protection.

The Federal Trade Commission is sending nearly $100 million in refunds to consumers who lost money as a result of internet phone service provider Vonage imposing junk fees and creating obstacles to those who try to cancel their service. 

According to the FTC’s November 2022 complaint, Vonage used dark patterns to make it difficult for consumers to cancel their service and often continued to illegally charge them even after they spoke to an agent directly and requested cancellation. The company agreed to a settlement with the FTC that required it to pay refunds to consumers harmed by the company’s actions, make its cancellation process simple and transparent, and stop charging consumers without their consent.

The FTC is sending payments to 389,106 consumers. Most consumers will get a check in the mail. Recipients should cash their checks within 90 days, as indicated on the check. Eligible consumers who did not have an address on file will receive a PayPal payment, which should be redeemed within 30 days. Consumers who have questions about their payment should contact the refund administrator, Epiq, at 1-877-525-4728 or visit the FTC website to view frequently asked questions about the refund process. The Commission never requires people to pay money or provide account information to get a refund.

The Commission’s interactive dashboards for refund data provide a state-by-state breakdown of refunds in FTC cases. In 2022, Commission actions led to more than $392 million in refunds to consumers across the country.

The Federal Trade Commission has approved an amendment to the Safeguards Rule that would require non-banking institutions to report certain data breaches and other security events to the agency.

The FTC’s Safeguards Rule requires non-banking financial institutions, such as mortgage brokers, motor vehicle dealers, and payday lenders, to develop, implement, and maintain a comprehensive security program to keep their customers’ information safe. In October 2021, the FTC announced it had finalized changes to the Safeguards Rule to strengthen the data security safeguards that financial institutions are required to put in place to protect their customers’ financial information. The FTC also sought comment on a proposed supplemental amendment to the Safeguards Rule that would require financial institutions to report certain data breaches and other security events to the Commission.

“Companies that are trusted with sensitive financial information need to be transparent if that information has been compromised,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The addition of this disclosure requirement to the Safeguards Rule should provide companies with additional incentive to safeguard consumers’ data.”   

The amendment announced today requires financial institutions to notify the FTC as soon as possible, and no later than 30 days after discovery, of a security breach involving the information of at least 500 consumers. Such an event requires notification if unencrypted customer information has been acquired without the authorization of the individual to which the information pertains. The notice to the FTC must include certain information about the event, such as the number of consumers affected or potentially affected.

The breach notification requirement becomes effective 180 days after publication of the rule in the Federal Register.

The Commission voted 3-0 to publish the notice amending the Safeguards Rule in the Federal Register.

The lead staffers on this matter are David Lincicum and Mark Eichorn in the FTC’s Bureau of Consumer Protection.

The Federal Trade Commission will require background report providers TruthFinder and Instant Checkmate to pay $5.8 million to settle charges that they deceived consumers about whether consumers had criminal records and that the companies violated the Fair Credit Reporting Act (FCRA) by operating as consumer reporting agencies while, among other things, failing to ensure the maximum possible accuracy of their consumer reports.

“Companies that compile personal information and sell background reports are on notice: Don’t make false claims about the contents of your reports,” said Samuel Levine, Director of the Bureau of Consumer Protection. “And, if you market your reports to be used to screen tenants or employees, you are a consumer reporting agency and you must follow the requirements of the FCRA.”

California-based Instant Checkmate and TruthFinder market people-search services, allowing users to search unlimited background reports on individuals, and charge monthly subscription fees to view the full reports. In 2014, Instant Checkmate agreed to settle FTC charges that the company previously violated the FCRA by failing to take reasonable steps to make sure that its background reports were accurate and that its users had a permissible reason to have them.

In a complaint, the FTC says Instant Checkmate and TruthFinder made millions from their monthly subscriptions using push notifications and marketing emails that claimed that the subject of a background report had a criminal or arrest record, when the record was merely a traffic ticket. All the while, the companies touted the accuracy of their reports in online ads and other promotional materials, claiming that their reports contain “the MOST ACCURATE information available to the public.” The FTC says, however, that all the information used in their background reports is obtained from third parties that expressly disclaim that the information is accurate and that Truth Finder and Instant Checkmate take no steps to verify the accuracy of the information.

The companies also deceived customers by providing “Remove” and “Flag as Inaccurate” buttons that did not work as advertised, according to the complaint. The “Remove” button removed the disputed information only from the report as displayed to that customer; however, the same item of information remained visible to other customers who searched for the same person. In addition, the FTC also says that, when a customer flagged an item in the background report as inaccurate, the companies never took any steps to investigate items flagged by consumers as inaccurate, to modify the reports, or to flag to other customers that the information had been disputed.

Despite disclaimers on their websites, according to the complaint, TruthFinder and Instant Checkmate have operated as consumer reporting agencies (CRAs) because they have assembled and evaluated information on consumers into background reports and have marketed and sold those reports for employment and tenant screening purposes. And, as CRAs, they were required to comply with the FCRA. For example, the complaint charges that the companies used search engine advertising keywords that relate to employment and tenant screening, such as “best background check for landlords” and “pre-employment screening.” The FTC noted that Instant Checkmate was already under an FTC order for engaging in similar conduct, which implicated it as a CRA, and therefore was aware that it was required to comply with the FCRA.

The FTC says that, in addition to failing to ensure the accuracy of their reports, the companies violated the FCRA by providing background reports to people who did not have a permissible purpose to obtain them and failing to implement reasonable procedures to limit who could obtain their background reports. The FTC also says the companies failed to investigate and respond to consumer complaints about inaccuracies in their reports, as required by the FCRA.

TruthFinder and Instant Checkmate tried to increase the number of positive user reviews, and decrease the prominence of negative user reviews, by offering customers one free premium background report in exchange for posting a review of their products on the review site HighYa, which warns that such practices violate the site’s terms and conditions, according to the FTC. TruthFinder and Instant Checkmate, however, failed to advise customers to disclose that they were being compensated for their review.

Under the proposed order, which must be approved by a federal judge before it can go into effect, TruthFinder and Instant Checkmate and their affiliated companies will be required to pay a $5.8 million penalty. Other provisions of the order:

• require the companies to establish and implement a comprehensive monitoring program to regularly review, assess, and determine the extent to which each of the companies are operating in whole or in part as a CRA and to ensure that they are complying with the requirements of the FCRA;
• permanently prohibit them from failing to comply with the FCRA when they are operating as a CRAs;
• permanently prohibit them from misrepresenting the accuracy of their reports or making similar misrepresentations as outlined in the complaint; and
• require them to mandate that endorsers disclose any material connections and to monitor any endorsers who have a material connection to the company to ensure they are disclosing such connections.

The Commission voted 3-0 to refer the complaint and stipulated order to the Department of Justice for filing, as is required by statute. The Department of Justice returned the matter to the FTC for filing. The FTC filed the complaint and proposed stipulated order in the U.S. District Court for the Southern District of California.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the named defendant is violating or is about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated orders have the force of law when approved and signed by the District Court judge.

The lead staff attorneys on this matter are Katherine McCarron and Robin Wetherill from the FTC’s Bureau of Consumer Protection.

Online shoe retailer Hey Dude, Inc. (Hey Dude) agreed to settle Federal Trade Commission charges that the company misled consumers by suppressing negative reviews, including more than 80 percent of reviews that failed to provide four or more stars out of a possible five. The FTC also contends the company violated the Commission’s Mail, Internet, or Telephone Order Merchandise Rule in several ways between 2020 and 2022 and will pay $1.95 million to the FTC.

“As this case makes clear, when retailers publish consumer reviews online, they cannot suppress negative reviews to paint a deceptive picture of the consumer experience. And when retailers don’t ship merchandise on time, they must give buyers the option to cancel their orders and promptly get their money back,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We will continue to hold online retailers accountable for violations of the FTC Act and other laws we enforce.”

Hey Dude, which was acquired by Crocs, Inc. in February 2022, advertises, markets, and sells shoes to consumers nationwide on the Internet, using its own website and by soliciting orders via social media advertisements. The FTC’s complaint charges that Hey Dude, formerly known as Happy One, LLC, violated the FTC’s Mail Order Rule in several ways, including: 1) failing to issue shipping delay notices when it could not timely fulfill consumers’ orders; 2) failing to cancel consumers’ orders and issue prompt refunds after failing to issue such notices; and 3) issuing consumers gift cards instead of sending prompt refunds of the original payment for merchandise ordered but not shipped, as required by the rule.

Hey Dude violated the FTC Act by suppressing negative consumer reviews of its merchandise, according to the complaint. From January 2020 to June 2022, the company, which uses a third-party online management review interface, chose to have all five-star reviews (the best rating) posted on its website with little scrutiny. In many instances, however, it rejected and did not publish less-favorable reviews.

Before June 2022, the complaint alleges Hey Dude’s written policies and procedures instructed staff to publish certain types of reviews only if they were positive. According to the FTC, Hey Dude started publishing all consumer reviews only after finding out it was under investigation by the Commission.

The proposed court order announced today, if approved by the court, will require Hey Dude to change its conduct going forward. First, the proposed court order will bar Hey Dude from future violations of the Mail Order Rule. Next, it will prohibit the company from making misrepresentations about consumer reviews by requiring it to publish all reviews it receives, including reviews previously withheld from publication, with limited exceptions related to moderation of inappropriate content.

Finally, the proposed order also will require Hey Dude to pay the FTC $1.95 million, which the FTC expects to use to provide refunds to consumers harmed by Hey Dude’s unlawful conduct.

The Commission vote authorizing staff to file the complaint and stipulated final order was 3-0. The FTC filed the complaint and proposed final order in the U.S. District Court for the District of Nevada.

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. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.

The staff attorneys on this matter are Delilah Vinzon and Robert Quigley of the FTC’s Western Region Los Angeles office.

A new Federal Trade Commission staff paper recommends that businesses, social media influencers and others who market or promote products online to children should avoid blurring advertising by clearly separating advertising and entertainment, educational, and other content to help limit potential harms to children. The paper further warns that for younger children in particular, disclosures are unlikely to be effective.

In the document, FTC staff detailed some of the main takeaways from an October 2022 workshop, Protecting Kids from Stealth Advertising in Digital Media, the agency held that examined how blurred advertising online and in digital spaces makes it difficult for children to distinguish between advertising and other content.

“We now live in a world where kids spend many hours a day online, often in immersive environments where advertising and content are deliberately difficult to distinguish,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The serious concerns highlighted through our workshop make clear that the best way to protect children from the harms of blurred advertising is to not blur advertising.”

Participants at the workshop and public comments discussed research showing that many young consumers do not have the skills or cognitive defenses to identify or sufficiently evaluate blurred advertising, potentially leading to deception, as well as physical, psychological, financial, privacy, and other harms. Workshop participants noted that children spend a significant amount of time on gaming platforms, video channels, and social media, where they encounter advertisements that blend into the surrounding content. For example, children may see marketing messages in an influencer’s video on social media, as they travel through a virtual environment, or while playing a mobile game.

Blurred advertising allows marketers to disguise advertising, and younger consumers may not be able to avoid it or evaluate it sufficiently given their focus on the content, the staff paper noted. In addition, children may be more likely to trust such messaging, particularly if it comes from a trusted source such as a social media influencer or an avatar they have befriended in a game. Other potential harms to kids from blurred advertising include promotion of harmful products and services such as tobacco or unhealthy foods; financial harms from advertising prompts that lead to accidental or emotional purchases without parental approval; and increased susceptibility to blurred advertising that is targeted to children based on information collected about them or their interests.

The workshop and comments made clear that there is no single approach that is sufficient to address the likelihood that children will be harmed or deceived from blurred advertising. Moreover, it is unreasonable to place the burden entirely on parents to constantly monitor their children’s online interactions. To the extent that entities engage in blurred advertising in spite of the inherent risks, staff recommends five practices to mitigate potential harm.

• Do not blur advertising. The best way to prevent harms stemming from blurred advertising is to not blur advertising. There should be a clear separation between kids’ entertainment and educational content and advertising, using formatting techniques and visual and verbal cues to signal to kids that they are about to see an ad.
• Provide prominent just-in-time disclosures. Such disclosures should be provided when the product is introduced and should be provided verbally and in writing and explain the commercial nature and intent of the message. Marketers, however, should not rely on disclosures alone.
• Create icons to flag advertising. Stakeholders should work together to create and use an easy-to-understand and easy-to-see icon to signal to kids that money or free things were provided to the content creator to advertise the product.
• Educate kids, parents, and teachers. All stakeholders should look for ways to educate kids, parents, and educators about how digital advertising works and help kids recognize and evaluate it wherever it appears. Education could also play an important role in helping promote and support the use of an icon to help kids identify ads.
• Platforms should consider policies, tools, and controls to address blurred advertising. Platforms should consider requiring content creators to self-identify content that includes advertising through policies and tools while also offering parental controls that allow parents to limit or block their children from seeing such content.

Importantly, none of these practices alone is necessarily sufficient, and companies that engage in blurred advertising can be held liable under the FTC Act if their conduct is deceptive or unfair to children.

The Commission voted 3-0 at an open Commission meeting to approve the staff perspective and the staff’s recommendations.

The lead FTC staffers on this matter are Michelle Rosenthal, Elizabeth Nach, and Michael Ostheimer from the FTC’s Bureau of Consumer Protection.

The Federal Trade Commission is warning five tax preparation companies that they could face civil penalties if they use or disclose confidential data collected from consumers for the purpose of preparing their taxes for other unrelated purposes, such as advertising, without first obtaining consumers’ consent.

“Consumers trust tax preparers with sensitive information about their finances, marital status, children, and health,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Companies that violate American’s privacy by seeking to monetize personal data without consent can face significant financial consequences.”

The FTC is using its penalty offense authority to remind tax preparation companies of the law and deter them from breaking it. By sending a Notice of Penalty Offenses, the agency is warning recipients they could incur civil penalties of up to $50,120 per violation if they misuse personal data in ways that run counter to the original purpose for which this information was collected. The penalty offense authority allows the agency to seek civil penalties against a company that engages in conduct that it knows is unlawful, and that has been found unlawful in a previous FTC administrative order, other than a consent order.

The notices sent to the tax preparation companies detail the acts and practices that were found to be a violation of the FTC Act in a previous administrative case against Beneficial Corp.  In that case, the FTC found that the company engaged in unfair and deceptive practices in violation of the FTC Act by using information collected for tax preparation services for unrelated loan solicitation purposes and ordered the company to halt such practices.

In the notices sent to the tax preparation companies, the FTC warned that the following practices may be deceptive or unfair under the FTC Act if companies fail to first obtain affirmative express consent from consumers:

• using information collected in a context where an individual reasonably expects that such information will remain confidential for purposes not explicitly requested by the individual;
• using such information to obtain a financial benefit that is separate from the benefit generated from providing the product or service requested by the individual; and
• using such information to advertise, sell, or promote products or services.

The notices further warn that it is unlawful to make false, misleading, or deceptive representations concerning the use or confidentiality of such information. The Commission specifically warned the companies that it considers it an unfair or deceptive practice to use tracking technologies such as pixels, cookies, APIs, or SDKs to amass, analyze, infer, or transfer personal information in the ways outlined above without first obtaining consumers’ express consent.

The Commission vote to authorize the notice and its distribution was 3-0.

The lead staffers on this matter are Michael Sherling and Manmeet Dhindsa from the FTC’s Bureau of Consumer Protection.

The Federal Trade Commission has begun notifying people who may be entitled to compensation stemming from a settlement finalized in March 2023 with Epic Games over allegations that the Fortnite video game maker used dark patterns and other deceptive practices to trick players into making unwanted purchases.

In a complaint first announced in December 2022, the FTC alleged that Epic games deployed a variety of design tricks aimed at getting consumers of all ages to make unintended in-game purchases. The company also made it easy for children to rack up charges without parental consent and locked the accounts of consumers who disputed unauthorized charges with their credit card companies.

The money provided as part of the $245 million settlement with Epic Games will go to provide refunds to consumers. The FTC has begun the process of notifying more than 37 million people by email that they may be eligible for compensation, a process that will take one month to complete. Consumers will have until January 17, 2024 to submit a claim.

Information about how to file a claim can be found at www.ftc.gov/Fortnite. Consumers who have questions about the claims process can contact the administrator by phone at 1-833-915-0880 or by email at admin@fortniterefund.com.

The Commission’s interactive dashboards for refund data provide a state-by-state breakdown of refunds in FTC cases. In 2022, Commission actions led to more than $392 million in refunds to consumers across the country.

The Federal Trade Commission has named three senior Amazon executives in an amended complaint in its case against the company for its years-long effort to enroll consumers into its Prime program without their consent while knowingly making it difficult for consumers to cancel their Prime subscriptions.

Named in the amended complaint are Neil Lindsay, who served as senior vice president overseeing Prime and now serves on the company’s overall leadership team; Russell Grandinetti, who also serves as a senior vice president overseeing Prime; and Jamil Ghani, a company vice president who oversees the Prime subscription program.

In addition to naming these individuals, the amended complaint includes significant new details of Amazon’s alleged misconduct that were redacted in the original complaint, including the contents of internal company emails and messages that show the extent to which the company and its management team were aware of the misconduct.

The FTC’s amended complaint charges that Lindsay, Grandinetti, and Ghani were fully aware of the issues surrounding consumers being subscribed to Prime without their consent and then facing significant hurdles when trying to cancel. The executives were informed by other Amazon employees in emails, meetings, and presentations about these issues and encouraged to make changes to stop Amazon from tricking its customers, but the executives chose not to act, according to the complaint.

The complaint alleges that the company and its executives instead slowed, avoided, and even reversed user experience changes that they knew would reduce nonconsensual enrollment because those changes would also negatively affect Amazon’s bottom line. As one draft internal memo stated, Amazon decided “clarifying” the enrollment process was not the “right approach” because it would cause a “shock” to business performance.

Amazon also created an allegedly labyrinthine cancellation process for Prime that the company called “Iliad,” the name of Homer’s epic about the long, arduous Trojan War. While Amazon—under pressure from the FTC—made some changes to its processes just before the agency’s initial complaint was filed, the Iliad cancellation flow was in place for years. The complaint alleges that Amazon and its leadership—including Lindsay, Grandinetti, and Ghani—slowed or rejected user experience changes that would have made Iliad simpler for consumers because those changes would hurt Amazon’s profits.

Newly Unredacted Information

The unredacted complaint’s allegations also revealed:

• Excerpts from an Amazon document that uses the term “misdirection” to refer to the company’s practice of forcing consumers to find a small blue text link to make a purchase without joining Prime, while using a far more prominent button saying “Get FREE Two-Day Shipping” that actually enrolls consumers in Prime.
• Information about tactics used by the company to force consumers into the complex Iliad cancellation flow, such as a company policy that required Amazon customer service employees to direct consumers who called to cancel Prime to the Iliad flow online, even though customer service agents had the ability to process the cancellation.  
• Findings highlighted in a company newsletter that said, “The issue of accidental Prime-sign ups is well documented” and acknowledging that Prime customers “sign[] up accidentally and/or [don’t] see auto-renewal terms.”
• Statements from Amazon employees acknowledging the company’s use of user flows “designed to mislead or trick users to make them do something they don’t want to do, like signing up for a recurring bill.”  Amazon employees began raising this issue for company leaders, who refused to take action, as early as 2016.
• Details about Amazon’s attempts to delay and hinder the FTC’s investigation of these issues, including attempting to apply legal privilege to documents that were not privileged and concealing the existence of other relevant, damaging documents.

The Commission vote authorizing the staff to file the complaint was 3-0. The complaint was filed in the U.S. District Court for the Western District of Washington.

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 staff attorneys on this matter are Evan Mendelson, Olivia Jerjian, and Max Nardini of the FTC’s Bureau of Consumer Protection.