The Federal Trade Commission testified before the House Committee on Oversight and Reform Subcommittee on National Security today about the aggressive action the agency is taking to crack down on fraud and related threats against servicemembers and the broader military community.
Testifying on behalf of the Commission, the Associate Director of the FTC’s Division of Financial Practices, Malini Mithal, said fraud against members of the military harms individual members and their families, and undermines military readiness and troop morale. Putting a stop to such nefarious practices is an essential component of the agency’s consumer protection mission, the testimony states. In 2021, the FTC’s Consumer Sentinel consumer complaint database received over 200,000 complaints from military consumers, with reported monetary harm of over $267 million.
According to the testimony, the FTC has responded with enforcement actions combating illegal practices that target military members, including:
- Illegal auto sales and financing practices. Young servicemembers are an attractive target for unscrupulous auto dealers, and representatives from the Armed Forces have repeatedly expressed concern about unscrupulous and predatory auto sales practices, including “payment packing” (slipping unwanted add-ons into a purchase agreement), bait-and-switch tactics, and extra junk fees.In June the FTC proposed a rule to ban junk fees and bait-and-switch advertising tactics and eliminate the tricks and traps that make it hard or impossible to comparison shop or leave consumers saddled with thousands of dollars in unwanted charges.
- Phony promises of earnings or investment opportunities. Some companies try to lure military consumers into fraudulent schemes with military-specific discounts or offers. Earlier this year the FTC took action against a fast-food chain BurgerIM that allegedly targeted veterans with false promises while withholding information required by the FTC’s Franchise Rule. According to the complaint, the chain touted veteran-specific discount programs to lure people into paying tens of thousands of dollars in franchise fees. Although BurgerIM pocketed tens of millions of dollars in such fees, the complaint alleges that the majority of those who paid were never able to open restaurants. In a separate case, in April the FTC sent out $23 million in refunds arising out of its action against a company called MOBE Ltd. that allegedly deceived people, with false claims, including through military-specific pitches, that its “proven” 21-step system would enable them to start their own online business and earn substantial income quickly and easily. In reality, the FTC alleged, the system required selling the same memberships to others in the hopes of earning commissions, with many victims experiencing crippling losses or mounting debts.
- Deceptive claims and recruiting tactics regarding for-profit schools. Some for-profit schools have used deceptive and predatory recruitment methods in marketing themselves to veterans. For-profit schools have also used third party marketers in deceptive campaigns, going as far as to buy leads from marketers who impersonated the military to lure people into enrolling in their schools. Earlier this year the FTC secured $1.2 million in refunds and debt cancellation for students who allegedly were deceived by a for-profit medical school in the Caribbean called the Saint James School of Medicine and its Illinois-based operators. The agency charged that the school deceptively marketed the school’s medical license exam test pass rate and residency matches to lure veterans and other prospective students.
- Sham charities that exploit the public’s desire to help veterans. Some scammers exploit the goodwill people have toward the Armed Forces to take advantage of the general public by promoting bogus charities with names like “Help the Vets” and “Veterans of America,” or “American Veterans Foundation” and “Saving Our Soldiers.”
The testimony also notes that challenges remain in protecting consumers from fraud and abuse. Returning money to defrauded consumers has been a cornerstone of the FTC’s enforcement work, including over $403 million in redress to harmed consumers during fiscal year 2021. However, the Supreme Court in AMG Capital Mgmt., LLC v. FTC held that the FTC does not have the ability to obtain monetary relief under Section 13(b) of the FTC Act. Federal legislation restoring the FTC’s ability to provide redress to wronged consumers, including servicemembers and veterans, is critical. In addition, a recent court ruling and ongoing lawsuits may affect the Commission’s ability to continue using its administrative process to obtain refunds for harmed consumers – underscoring the pressing need for a 13(b) fix.
In addition to the Commission’s law enforcement actions, education and outreach is a critical part of the agency’s consumer protection and fraud prevention work, and one area of outreach focus is identity theft, the testimony states. An FTC analysis suggests that active duty servicemembers experience disproportionate instances of theft from their financial accounts compared to the general population. The FTC has done extensive outreach to veterans and also coordinates closely with the Department of Veterans Affairs (VA) to develop and disseminate information about avoiding scams and recovering from ID theft.
The Commission vote to approve the testimony was 5-0.