Federal Trade Commission Returns More Than $9.7 Million To Consumers Harmed by LendingClub’s Deceptive Hidden Fees


The Federal Trade Commission is sending payments totaling more than $9.7 million to 61,990 consumers who were charged hidden fees by LendingClub Corporation.

These payments are the result of a claims process conducted by the FTC in February 2022. It is the second distribution of funds in this matter and brings the total amount refunded to consumers to more than $17.6 million.

Consumers who chose to receive a PayPal payment will have 30 days to accept it. Consumers who chose to receive a check will have 90 days to cash it. Recipients who have questions about their refund should call the refund administrator, Rust Consulting, Inc., at 833-630-1417. The Commission never requires people to pay money or provide account information to get a refund.

The FTC sued LendingClub in April 2018, charging that the company falsely promised loan applicants that they would receive a specific loan amount with “no hidden fees,” when in reality the company deducted hundreds or even thousands of dollars in hidden up-front fees from the loans. The FTC also alleged that LendingClub told consumers they were approved for loans when they were not—which delayed applicants from seeking loans elsewhere—and took money from consumers’ bank accounts without authorization. LendingClub agreed to a settlement in July 2021 that bars them from making misrepresentations to loan applicants and requires that the company clearly and conspicuously disclose the amount of any fees and the total amount of funds that borrowers will receive.

The Commission’s interactive dashboards for refund data provide a state-by-state breakdown of Commission refunds. In 2021, Commission actions led to more than $472 million in refunds to consumers across the country, but the U.S. Supreme Court ruled in 2021 that the Commission lacks authority under Section 13(b) to seek monetary relief in federal court going forward. The Commission has urged Congress to restore the Commission’s ability to get money back for consumers.



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FTC Explores Rules Cracking Down on Commercial Surveillance and Lax Data Security Practices


Note: The FTC will host a virtual news conference at 12 p.m. ET today on the ANPR announcement. It will be webcast at https://kvgo.com/ftc/press-conference-aug-11. Members of the media who wish to participate in today’s news conference must RSVP by 11:30 a.m. ET by sending an email to: OPAPressConference@ftc.gov.

The Federal Trade Commission today announced it is exploring rules to crack down on harmful commercial surveillance and lax data security. Commercial surveillance is the business of collecting, analyzing, and profiting from information about people. Mass surveillance has heightened the risks and stakes of data breaches, deception, manipulation, and other abuses. The FTC’s Advance Notice of Proposed Rulemaking seeks public comment on the harms stemming from commercial surveillance and whether new rules are needed to protect people’s privacy and information.

“Firms now collect personal data on individuals at a massive scale and in a stunning array of contexts,” said FTC Chair Lina M. Khan. “The growing digitization of our economy—coupled with business models that can incentivize endless hoovering up of sensitive user data and a vast expansion of how this data is used—means that potentially unlawful practices may be prevalent. Our goal today is to begin building a robust public record to inform whether the FTC should issue rules to address commercial surveillance and data security practices and what those rules should potentially look like.”

The business of commercial surveillance can incentivize companies to collect vast troves of consumer information, only a small fraction of which consumers proactively share. Companies reportedly surveil consumers while they are connected to the internet – every aspect of their online activity, their family and friend networks, browsing and purchase histories, location and physical movements, and a wide range of other personal details.

Companies use algorithms and automated systems to analyze the information they collect. And they make money by selling information through the massive, opaque market for consumer data, using it to place behavioral ads, or leveraging it to sell more products.  

The FTC is seeking comment on a wide range of concerns about commercial surveillance practices. For example, some companies fail to adequately secure the vast troves of consumer data they collect, putting that information at risk to hackers and data thieves. There is a growing body of evidence that some surveillance-based services may be addictive to children and lead to a wide variety of mental health and social harms.

While very little is known about the automated systems that analyze data companies collect, research suggests that these algorithms are prone to errors, bias, and inaccuracy. As a result, commercial surveillance practices may discriminate against consumers based on legally protected characteristics like race, gender, religion, and age, harming their ability to obtain housing, credit, employment, or other critical needs.

In the last two decades, the FTC has used its existing authority under the FTC Act to bring hundreds of enforcement actions against companies for privacy and data security violations. These include cases involving the sharing of health-related data with third parties, the collection and sharing of sensitive television viewing data for targeted advertising, and the failure to implement reasonable security measures to protect sensitive personal data such as Social Security numbers.

The FTC’s past work, however, suggests that enforcement of the FTC Act alone may not be enough to protect consumers. The FTC’s ability to deter unlawful conduct is limited because the agency generally lacks authority to seek financial penalties for initial violations of the FTC Act. By contrast, rules that establish clear privacy and data security requirements across the board and provide the Commission the authority to seek financial penalties for first-time violations could incentivize all companies to invest more consistently in compliant practices.

Information about how to submit comments on the FTC’s Advance Notice of Proposed Rulemaking is included in the Federal Register notice. The deadline for submitting comments will be 60 days after the notice is published in the Federal Register in the coming days. Submitted comments will be posted to Regulations.gov.

The public will also have an opportunity to share their input on these topics during a virtual public forum on September 8, 2022.

The Commission voted 3-2 to publish the notice in the Federal Register. Chair Khan, Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro Bedoya issued separate statements. Commissioners Noah Joshua Phillips and Christine S. Wilson voted no and issued dissenting statements.



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FTC Sues Marketer of Personal Protective Equipment and Light Fixtures for Lying About Products Being Made in the USA and Government-Certified


The Federal Trade Commission has referred a complaint to the Department of Justice alleging Adam J. Harmon and two companies he controls falsely told consumers that personal protective equipment they marketed during the pandemic, as well as light fixtures they sold, were made in the United States. The FTC charged Harmon and his two companies, Axis LED Group, LLC and ALG-Health LLC, with violating the COVID-19 Consumer Protection Act, the Made in USA Labeling Rule and the FTC Act. The agency’s proposed order would stop them from making deceptive claims that products were Made in USA – or, that because they were Made in USA, they provided superior protection from COVID-19. The order also would require them to pay a civil penalty for their past deceptive claims.

“ALG and its CEO slapped the Made in USA label on masks that were made overseas, and now they’re paying the price,” said Sam Levine, Director of the FTC’s Bureau of Consumer Protection. “As Americans struggle to obtain safe, authentic personal protective equipment, the Commission will use every tool we have to root out false claims and phony labels.”

With the onset of the COVID-19 pandemic in early 2020, Harmon began operating under the name ALG-Health LLC, and selling personal protective equipment such as masks, gowns, and gloves. According to the complaint, Harmon and ALG made numerous false and misleading claims that their PPE products were all or virtually all made in the United States, even though the products were wholly imported, or incorporated significant imported materials or subcomponents. These claims and other false statements – including that the defendants’ products were U.S.-origin respirators, certified by the National Institute for Occupational Safety (NIOSH) – violated the COVID-19 Consumer Protection Act, the complaint alleges. Specifically, the defendants harmed consumers by:

  • Deceiving consumers about the country of origin of their products. Through social media posts, marketing materials, and labels, the defendants claimed that their lighting and COVID-19 personal protective products were manufactured in the United States. In fact, the defendants’ products were almost entirely imported. The defendants’ conduct violated the FTC Act, the Covid-19 Consumer Protection Act, and the Made in the USA Labeling Rule.
  • Deceiving consumers about the efficacy of their COVID-19 PPE products. The defendants claimed to consumers that their PPE products were superior due their country of origin. These false claims deceived consumers and undermined honest competitors.

Enforcement Action

The proposed order settling the FTC’s complaint against Harmon, Axis LED Group, LLC, and ALG-Health LLC prohibits the conduct alleged in the complaint. Harmon and his companies must:

  • Stop making deceptive U.S.-origin labeling and advertising claims. Harmon and his companies are prohibited from claiming that products are made in the United States unless they can (1) show that the product’s final assembly or processing – and all significant processing – takes place in the United States, and that all or virtually all ingredients or components of the product are made and sourced in the United States, or (2) clearly and prominently qualify origin claims to disclose imported content or processing.
  • Provide substantiation. The defendants must substantiate all Made in USA and COVID-19-related claims, and refrain from making misleading claims for any products or services they provide.
  • Pay civil penalties. The defendants must pay a $157.683.37 civil penalty, which is due immediately. The defendants are also subject to a $2.8 million redress judgment, which is suspended due to their inability to pay. Should the FTC discover that the defendants have misstated the value of any assets or failed to disclose them, the agency will seek to have the suspension lifted and the full judgment due immediately.

Protecting consumers and honest businesses from deceptive Made in USA claims is a key priority for the Federal Trade Commission. Over the last year, the agency has brought three other cases in this area, Resident Home, Lions Not Sheep, and Lithionics Battery, LLC. Last August, the Commission voted to finalize the Made in USA Labeling Rule, which enables the Commission to seek civil penalties from companies that make false claims. This is the Commission’s second action this year to enforce the rule.

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 authorize the staff to refer the complaint to the DOJ and to approve the proposed consent decree was 5-0. Commissioners Noah Joshua Phillips and Christine S. Wilson issued a joint concurring statement. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in U.S. District Court for the Northern District of Ohio.

NOTE: The Commission authorizes the filing of 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. Consent decrees have the force of law when approved and signed by the District Court judge.



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FTC Action Against Benefytt Results in $100 Million in Refunds for Consumers Tricked into Sham Health Plans and Charged Exorbitant Junk Fees


The Federal Trade Commission is taking action against healthcare company Benefytt Technologies, two subsidiaries, former CEO Gavin Southwell, and former vice president of sales Amy Brady, for lying to consumers about their sham health insurance plans and using deceptive lead generation websites to lure them in. According to the FTC complaint, Benefytt also illegally charged people exorbitant junk fees for unwanted add-on products without their permission. The proposed court orders require Benefytt to pay $100 million in refunds and prohibit the company from lying about their products or charging illegal junk fees. Southwell and Brady will be permanently banned from selling or marketing any healthcare-related product, and Brady will also be banned from telemarketing.

“Benefytt pocketed millions selling sham insurance to seniors and other consumers looking for health coverage,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The company is being ordered to pay $100 million, and we’re holding its executives accountable for this fraud.”

Benefytt Technologies, based in Tampa, Florida, sells association memberships and other healthcare-related products to consumers, often through a network of telemarketing companies and lead generators. Southwell was Benefytt’s President and CEO from 2016 to 2021. Brady served as a vice president of sales for more than a decade, before also leaving in 2021.

The FTC’s complaint alleges that the defendants and their third-party partners operated a series of deceptive websites like “Obamacareplans.com” that targeted consumers who were searching for comprehensive health insurance plans qualified under the Affordable Care Act. Qualified plans must provide certain benefits like preventive care, cover people with pre-existing conditions without charging more for the plan, and cap consumers’ out-of-pocket medical costs. When consumers navigated the websites, they were often led to a sales agent who would pitch them Benefytt’s unqualified, sham plans. Even though they were led to believe they were buying comprehensive health insurance, people often were charged hundreds of dollars per month for Benefytt products and services that left them unprotected in a medical catastrophe.

The FTC’s complaint alleges that Benefytt’s deceptive sales process violated the FTC Act, the Telemarketing Sales Rule (TSR) and the Restore Online Shoppers Confidence Act (ROSCA), harming consumers in multiple ways:

  • Lying about the nature of the plans: The FTC alleges that the defendants frequently tricked consumers into buying an inferior healthcare plan. Consumers who spoke on the phone with a Benefytt agent were often met by high-pressure sales tactics. Agents often claimed the plans they were pitching were equivalent to qualified plans, when in fact they were not even comprehensive health insurance at all. Benefytt’s sales agents also told consumers that Benefytt’s products would cover things like pre-existing conditions or prescription drugs when they did not.
  • Bundling and charging junk fees for unwanted products without consent: The FTC alleges that Benefytt regularly bundled with the deceptively sold healthcare plan multiple unwanted products, such as life or accident insurance plans, telemedicine access, and fitness programs. The separate cost of these bundled products typically was not disclosed clearly, so that consumers were often unaware they were purchasing any additional products. At times, Benefytt continued to charge consumers for these additional products even after consumers canceled their core healthcare plan.
  • Making it hard to cancel: The FTC alleges that after deceiving consumers into purchasing inferior plans and charging them junk fees, Benefytt made things worse by making it hard for consumers to cancel their plans, even going so far as to transfer consumers who were calling to cancel back to the sales agents who deceived them in the first place.

The complaint alleges that Benefytt, Southwell, and Brady were aware of their agents’ misconduct, but continued to profit from it. Indeed, rather than acting to stop the conduct, Benefytt and its officers instead took steps to disguise and further the deception. For example, the complaint details how the defendants assisted and facilitated the fraud of one of Benefytt’s historically largest distributors, Simple Health Plans. Despite knowing of widespread compliance problems with the sales practices of Simple Health, Benefytt did not terminate its large distributor until the FTC sued Simple Health in October 2018.

Enforcement Actions

Benefytt and two of its subsidiaries have agreed to a propose court order that would require them to:

  • Pay $100 million for consumer redress: Benefytt will be required to pay $100 million to the FTC, which will be used to provide refunds to consumers harmed by the defendants’ practices.
  • Inform current customers and allow them to cancel: Benefytt must contact customers who are currently paying for Benefytt’s plans, inform them of the FTC’s complaint against the company, and allow them to cancel their enrollment. Benefytt also must provide refunds for payments made after the order is entered directly to customers who cancel right away.
  • Sell all products without misleading consumers: Benefytt will be prohibited from misleading consumers about the features of their products, including whether they are compliant with the ACA, and must disclose important facts like total costs and limitations before any purchase. They will also be required to get consumers’ express informed consent before billing them for anything, clearly communicate with consumers about what they are being charged for, and provide a simple and easy-to-use cancellation method.
  • Closely monitor other companies who sell their products: Benefytt will be required to closely monitor all companies selling their products to ensure they are not using deceptive or misleading tactics to entice consumers to buy Benefytt products.

Separate proposed court orders for Southwell and Brady include similar prohibitions on misrepresentations, and would also permanently prohibit them from playing any role in the sale or marketing of any healthcare-related product or service. Southwell’s order further prohibits him from engaging in deceptive or abusive telemarketing practices, and Brady’s order prohibits her from participating in any telemarketing whatsoever in the future.

The proposed court orders would resolve the FTC’s claims against all five defendants.

The Commission vote to file the complaint and proposed final orders was 5-0. The complaint and proposed final orders were 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. Stipulated final orders have the force of law when approved and signed by the District Court judge.



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Federal Trade Commission Returns More Than $1 Million To Consumers Harmed by Global Asset Financial Services’ Phantom Debt Collection Scheme


The Federal Trade Commission is sending payments totaling more than $1 million to 1,966 consumers who were harmed by a debt collection scheme that conned consumers into paying debts they did not owe. The defendants used several names including GAFS Group, Global Mediation Group, and Mediation Services.

Consumers will be recovering all the money they lost to the scammers, averaging $516 for each payment. Consumers will receive either a PayPal payment or a check in the mail. Recipients should redeem PayPal payments within 30 days or cash checks within 90 days. Approximately 200 additional consumers will receive claim forms. To get a payment, they must complete and return the form within 45 days to confirm the amount they paid the defendants.

Consumers who have questions about their refund or claim form should call the refund administrator, Analytics, at 866-948-2713. The Commission never requires people to pay money or provide account information to get a refund.

The FTC sued GAFS Group in February 2019 for falsely claiming to be attorneys or affiliated with attorneys, pressuring consumers into making payments on debts they did not owe. The defendants threatened to take legal action against consumers if they did not pay these phantom debts. In December 2019, the defendants agreed to a settlement that permanently banned them from debt collection, debt brokering activities, misleading consumers, and from misrepresenting to consumers whether they are attorneys.

The Commission’s interactive dashboards for refund data provide a state-by-state breakdown of refunds in FTC cases. In 2021, Commission actions led to more than $472 million in refunds to consumers across the country, but the U.S. Supreme Court ruled in 2021 that the Commission lacks authority under Section 13(b) to seek monetary relief in federal court. Fortunately, this case resolved before the Supreme Court’s actions. But because of that ruling, the Commission no longer has its strongest tool to return money to consumers, and it will become harder to provide refunds to consumers harmed by deceptive and unfair conduct going forward. The Commission has urged Congress to restore the Commission’s ability to get money back for consumers.



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Federal Trade Commission Scores Two Victories in Separate Actions Against Companies Who Failed to Deliver COVID Personal Protection Equipment During Early Days of the Pandemic


The Federal Trade Commission won victories in two lawsuits against companies, that failed to deliver on orders of personal protective equipment in the early stages of the COVID-19 pandemic. In separate actions against QYK Brands (doing business as Glowyy and through related companies) and American Screening, LLC, the Commission alleged that both companies deceived consumers about the availability of PPE gear at the onset of the COVID-19 pandemic. Commission staff won both actions on summary judgment, holding these companies accountable for their misconduct in the early days of the pandemic and putting more than $17.6 million back into consumers’ pockets.

Both California-based Glowyy and Louisiana-based American Screening marketed and sold personal protective equipment in the early days of the COVID-19 pandemic, including masks, face shields, hand sanitizer, and gowns. American Screening marketed its products in bulk and, in addition to advertising to individual consumers, targeted local governments, hospitals and nursing homes for sales, while the Glowyy defendants marketed their products to individual consumers. Both companies made false promises about the availability of PPE, resulting in consumers who waited weeks or even months for their orders to be fulfilled, if at all. In addition, the Glowyy defendants misled consumers by marketing a supposed protein powder that they claimed could prevent COVID-19.

In its order granting summary judgment in favor of the Commission in Glowyy, the court found that the Glowyy defendants began advertising hand sanitizer and other Personal Protective Equipment (PPE) products online in March 2020 saying they were in stock and would ship the same day they were ordered, but defendants repeatedly failed to make good on those promises. The court also found the defendants not only failed to actually ship the product for weeks or months, but they failed to offer refunds to consumers or allow them to consent to the delay as required by the Mail Order Rule.

In the American Screening matter, the court’s summary judgment order found that at the start of the COVID-19 pandemic, American Screening’s website claimed that items would be shipped “within 24-48 hours” and that products were “in stock” and available to ship. However, American Screening did not have a reasonable basis for its shipping claims, failed to ship many orders within the promised time period, and did not follow the Mail Order Rule’s requirements for delayed shipments.

Since the earliest days of the pandemic, the FTC has acted to protect consumers from unscrupulous actors who have sought to use the pandemic as a tool to scam consumers, governments, and businesses. The FTC brought cases against the Glowyy defendants and American Screening in federal court in August of 2020 using its authority under the FTC Act and the Mail, Internet and Telephone Order Rule. In recent cases, the Commission has used its authority under the COVID-19 Consumer Protection Act, passed in 2021, to target scammers preying on pandemic fears.

Enforcement Actions

In Glowyy, the court has already entered a permanent injunction following the Commission’s summary judgment win. The injunction requires Glowyy to:

  • Stop selling products that purport to treat COVID-19. The order prohibits the Glowyy defendants from selling or marketing any good or service that claims to prevent, treat, or protect against COVID-19 or any other infection or disease.
  • Stop misleading consumers about the timing of product deliveries. The order requires the company ship products in a timely manner, offer a refund if they are unable to do so, among other things. The company must create and maintain records demonstrating its compliance with these requirements
  • Stop making unsubstantiated health claims. The order prohibits Glowyy from making unsubstantiated health claims about any dietary supplement, food or drug.
  • Provide refunds to consumers. Glowyy must surrender $3.08 million to the FTC to be used for providing to refunds to consumers.

In American Screening, the court agreed with the Commission that both monetary relief in excess of $14 million and injunctive relief are appropriate in this matter. Commission staff will submit a proposed order finalizing that relief in the coming weeks.

The FTC’s case against QYK Brands, doing business as Glowyy; Dr. J’s Natural, LLC; EASII, Inc., Theo Pharmaceuticals, Inc., Rakesh Tammabattula; and Jacqueline Thao Nguyen was filed in the U.S. District Court for the Central District of California, and its case against American Screening, LLC, Ron Kilgarlin Jr., and Shawn Kilgarlin was filed in the U.S. District Court for the Eastern District of Missouri.



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FTC Takes Action to Stop Online Home Buying Firm Opendoor Labs, Inc. from Cheating Potential Sellers with Misleading Claims about its Home-Buying Service


The Federal Trade Commission today took action against online home buying firm Opendoor Labs Inc., for cheating potential home sellers by tricking them into thinking that they could make more money selling their home to Opendoor than on the open market using the traditional sales process. The FTC alleged that Opendoor pitched potential sellers using misleading and deceptive information, and in reality, most people who sold to Opendoor made thousands of dollars less than they would have made selling their homes using the traditional process. Under a proposed administrative order, Opendoor will have to pay $62 million and stop its deceptive tactics.

“Opendoor promised to revolutionize the real estate market but built its business using old-fashioned deception about how much consumers could earn from selling their homes on the platform,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “There is nothing innovative about cheating consumers.”

Opendoor, headquartered in Tempe, Arizona, operates an online real estate business that, among other things, buys homes directly from consumers as an alternative to consumers selling their homes on the open market. Advertised as an “iBuyer,” Opendoor claimed to use cutting-edge technology to save consumers money by providing “market-value” offers and reducing transaction costs compared with the traditional home sales process.

Opendoor’s marketing materials included charts comparing their consumers’ net proceeds from selling to Opendoor versus on the market. Those charts almost always showed that consumers would make thousands of dollars more by selling to Opendoor. In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because the company’s offers have been below market value on average and its costs have been higher than what consumers typically pay when using a traditional realtor.

The agency’s investigation found that Opendoor also violated the law by misrepresenting that:

  • Opendoor used projected market value prices when making offers to buy homes, when in fact those prices included downward adjustments to the market values;
  • Opendoor made money from disclosed fees, when in reality it made money by buying low and selling high;
  • consumers likely would have paid the same amount in repair costs whether they sold their home through Opendoor or in traditional sales; and
  • consumers likely would have paid less in costs by selling to Opendoor than they would pay in traditional sales.

Enforcement Action

Opendoor has agreed to a proposed order that requires the company to:

  • Pay $62 million: The order requires Opendoor to pay the Commission $62 million, which is expected to be used for consumer redress.
  • Stop deceiving potential home sellers: The order prohibits Opendoor from making the deceptive, false, and unsubstantiated claims it made to consumers about how much money they will receive or the costs they will have to pay to use its service.
  • Stop making baseless claims: The order requires Opendoor to have competent and reliable evidence to support any representations made about the costs, savings, or financial benefits associated with using its service, and any claims about the costs associated with traditional home sales.

The Commission vote to accept the consent agreement was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. 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.



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FTC Takes Action to Stop Payment Processor First American from Trapping Small Businesses with Surprise Exit Fees and Zombie Charges


The Federal Trade Commission today took action against payment processing company First American Payment Systems and two of its sales affiliates for trapping small businesses with hidden terms, surprise exit fees, and zombie charges. The FTC alleges that the defendants made false claims about fees and cost savings to lure merchants, many of whom had limited English proficiency. Once merchants were enrolled, the defendants withdrew funds from their accounts without their consent, and made it difficult and expensive for them to cancel the service. Under a proposed federal court order, the defendants will be required to return $4.9 million to harmed businesses, stop their deception, and make it easier for merchants to cancel their services.  

“First American lured small businesses in with false promises of low costs and an easy exit, and hit them with surprise fees and illegal charges when they tried to get out,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Today’s order returns millions to merchants, bans unauthorized billings, and makes it easier for customers to cancel.”

Texas-based First American Payment Systems provides payment processing services across the country, which it markets through its affiliates Eliot Management Group and Think Point Financial. They market their services to small- and medium-sized businesses who rely on credit cards, debit cards, and checks as a way to accept payment from their customers. Payment processors generally serve as an intermediary between companies that accept credit and debit cards and the banks that issue the cards or checks.

The FTC’s investigation found that First American relied on deceptive pitches to businesses to convince them to use the company’s services, and when businesses attempted to cancel, the company would often hit them with cancellation fees based on contract terms that were hidden in fine print in their signup system, as well as debit their accounts without authorization.

First American is charged with engaging in a number of harmful practices against merchants:

  • Deceiving businesses about pricing and savings with hidden terms: The defendants pitched businesses with promises of small monthly fees, sometimes as low as zero, but the FTC’s complaint alleges that these claims were often false. The defendants also claimed that the businesses would save a lot of money over the course of a year by switching to defendants’ services but did not take into account the fact that First American periodically raises its prices for existing customers.
  • Imposing surprise fees when small businesses try to cancel: The complaint alleges that defendants’ sales people regularly promise businesses they will be able to cancel services any time or within a trial period without a fee, when the company’s standard written agreement requires businesses to sign on to a three-year term with a $495 cancellation fee. In many instances, the business owners have limited English proficiency, and while the sales are conducted in their native language, the paperwork is only available in English.
  • Using an online enrollment system that obscures key contract terms: The defendants’ online enrollment system for new customers hid a three-year obligation, cancellation requirements and fees, the fact that agreements would automatically renew, and other important information from business owners, the complaint alleges. These important facts often were in densely-packed documents that required business owners to click separate links to find.
  • Hitting small businesses with zombie charges after they withdraw consent accounts: The complaint alleges that First American continued to make withdrawals from businesses’ bank accounts even after the businesses have withdrawn consent. For example, the complaint alleges that at times when a business acts to stop payments to the company from their bank, First American will attempt further withdrawals under different business names to evade stop payment orders.

Enforcement Action

The defendants in this case have agreed to a proposed federal court order that will require them to:

  • Stop misleading consumers: The order will prohibit the defendants from misleading consumers about important contract terms like cancellation fees, while also prohibiting them making any unsubstantiated claims about their products or services, including specific pricing promises.
  • Stop unauthorized bank withdrawals: The defendants will be prohibited from making withdrawals from any of their customers’ bank accounts without authorization, or after the customer has stopped any attempt to debit money from their account or communicated to the defendants that they refuse payment.
  • Make cancellation easier: The defendants will be required to put a cancellation procedure in place that businesses can easily discover and use.
  • Stop charging existing customers early termination fees: For consumers who signed electronic agreements with First American before April 6, 2020, the defendants will be prohibited from collecting any early termination fees or telling these customers that they will owe such fees if they cancel.
  • Provide money to refund consumers: The defendants will be required to turn over $4.9 million to the FTC, which will be used to provide refunds to affected businesses.

Today’s action builds on the Commission’s ongoing work to protect small businesses from unfair, deceptive, and anticompetitive practices. Over the last year the Commission has required the largest small business credit reporting agency to clean up its reporting practices, obtained industry bans against lenders that targeted small businesses with confessions of judgment, enforced a new prohibition on Made in USA labeling fraud, took action to protect fast food franchisees, and proposed new protections for businesses against telemarketing tricks and traps.

The Commission vote authorizing the staff to file the complaint and stipulated final order was 5-0. The FTC filed the complaint and final order/injunction in the U.S. District Court for the Eastern District of Texas.

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.



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Federal Trade Commission Finalizes Action Against “Made in USA” Offender Who Ripped “Made in China” Tags Out of Apparel, Replacing Them with “Made in USA” Tags


The Federal Trade Commission has finalized an order against apparel company Lions Not Sheep Products, LLC, and its owner Sean Whalen for falsely claiming that its imported apparel is Made in USA. Lions Not Sheep Products, LLC, and Whalen will pay $211,335.

First announced in May 2022, the FTC’s complaint alleged that the company added phony Made in USA labels to clothing imported from China and other countries. In addition to the monetary judgment, the FTC’s order requires Whalen and Utah-based Lions Not Sheep to:

  • Stop making bogus Made in USA claims, and
  • Come clean about foreign production.

Under the order, Whalen and Lions Not Sheep 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.

Also 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 agency’s Made in USA page features cases, instructive closing letters, and the brochure Complying with the Made in USA Standard, which answers many of the questions companies ask. Threading Your Way Through the Labeling Requirements Under the Textile and Wool Acts provides further information on labeling textile products. The FTC’s Made in USA Labeling Rule went into effect on August 13, 2021. Companies that violate the Rule from that date forward may be subject to civil penalties.

The Commission voted 5-0 to approve the final order in this case.



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FTC Extends its Crackdown on Subscription Scam That Fleeced Consumers and Harassed Them Over the Phone


The Federal Trade Commission today resolved an action against the purveyor of a subscription scam called Publishers Business Services and its officers, Brenda Dantuma Schang, Dries Dantuma, Dirk Dantuma, and Jeffrey Dantuma, obtaining a court order that holds them accountable for the deceptive telemarketing scheme they used to fleece consumers and harass them over the phone. The order also imposes a suspended $14.47 million penalty.

“The FTC shut down this subscription scam years ago, and today we’re obtaining a permanent order holding its ringleaders accountable,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We won’t back down from challenging firms that use tricks, traps, or threats when selling subscriptions or anything else.”

As alleged in the Commission’s 2008 complaint, which was filed as part of an enforcement sweep, The defendants called consumers pretending to conduct a survey. At the end of the survey, they allegedly offered “free” or low-cost magazine subscriptions. Weeks later they sent consumers a bill falsely stating they agreed to pay several hundred dollars for the magazine subscriptions. The defendants made cancelling very difficult and harassed consumers who refused to pay the exorbitant bills, including by threatening to initiate collection actions or threatening to submit derogatory information about them to the major credit bureaus.

Enforcement Action

The proposed order announced today follows a permanent injunction entered against the Publishers Business Services in 2010 that shuttered their operations. That order remains in place today and prohibits them from committing similar wrongdoing in the future. Provisions of the new order include:

  • Monetary judgment. The order imposes a suspended judgment of $14.47 million against the defendants and requires them to give up all claims to money already paid to the Commission in this case; and
  • Potential contempt remedies for any future violations. The defendants are required to monitor their compliance with the proposed order and may face significant contempt remedies if they violate its terms.

The Commission’s original monetary relief in this action was vacated following the Supreme Court’s decision in AMG Capital Management LLC v. FTC, which would have resulted in a monetary windfall to the alleged scammers behind Publishers Business Services. The FTC’s settlement of this matter for a suspended judgment of $14.47 million, after originally having been awarded $24 million at trial, demonstrates the challenges since the Supreme Court’s AMG decision.

The Commission vote approving the stipulated final order was 4-0-1, with Commissioner Alvaro M. Bedoya not participating. The FTC filed the proposed order in the U.S. District Court for the District of Nevada.

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

 

The Federal Trade Commission works to promote competition and protect and educate consumers. Learn more about consumer topics at consumer.ftc.gov, or report fraud, scams, and bad business practices at ReportFraud.ftc.gov. Follow the FTC on social media, read consumer alerts and the business blog, and sign up to get the latest FTC news and alerts.



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