Federal Trade Commission (FTC)

The federal government shutdown continues and, in the wake of the President Donald Trump’s Oval Office address in support of the border wall, it appears that it could continue for some time. Press reports say approximately 800,000 federal workers are furloughed or working without pay. Consumer-facing companies are asking: What is the impact of the shutdown on their regulatory and litigation docket, as well as anticipated regulatory matters?

At a high level, from a consumer protection point of view, the most notable emerging impacts are on the federal judiciary, the U.S. Department of Justice and the Federal Trade Commission; on the other hand, the banking regulators are fully operational and open for business. Here’s a summary of the state of the judiciary and the federal regulatory agencies under the shutdown.

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Due to the U.S. Government partial shutdown, the Federal Trade Commission announced a temporary suspension of all of its investigations, including those into debt collection activities. As a result, the FTC has stated that its investigators cannot conduct normal fact-finding and attorneys cannot engage in settlement negotiations at this time. In particular, during the government shutdown, the FTC has announced that consumer hotlines will not be staffed; the FTC will not hold events, publish reports, or respond to Freedom of Information Act requests; and all other consumer protection activity would cease.

During this time, nearly all of the agency’s active legal work will be on hold. However, some judges may require certain cases to continue.

Troutman Sanders will continue to monitor and report on developments with the FTC.

This past November, the Department of Veterans Affairs (the “VA”) and the Federal Trade Commission signed an updated Memorandum of Agreement, which pledges ongoing efforts in the oversight and enforcement of laws pertaining to the advertising, sales, and enrollment practices of institutions of higher learning and other establishments that offer training for military education benefits recipients.  A copy of the Memorandum of Agreement can be found here.

The two government agencies agreed to cooperate in the investigation of entities that target military service members through deceptive or unfair advertising or enrollment practices, and potentially coordinate efforts in enforcement actions.  Critically, the revised Memorandum of Agreement highlights the terms under which the VA can refer potential violations to the FTC.

The Memorandum of Agreement suggests that the FTC may make servicemember protections, including the Servicemembers Civil Relief Act (“SCRA”), a key area of its focus and enforcement activity in 2019.  Troutman Sanders will continue to monitor developments involving the FTC and will provide any further updates as they are available.

A Florida federal judge entered a judgment for over $23 million last week against Robert Guice, the alleged operator of a telemarketing scam offering debt relief services to consumers.

The lawsuit, brought by the Federal Trade Commission and the Florida Attorney General, alleged that Guice created Loyal Financial & Credit Services, LLC (“Loyal”), Life Management Services of Orange County, LLC (“LMS”), and multiple shell companies to contact financially distressed consumers by phone and offer various services aimed at reducing credit card debt.  The services included transferring debt to no-interest credit cards and urging consumers to default to allow negotiations with credit card companies.

The government began investigating Guice and the companies in 2016 for multiple violations of Section 5 of the FTC Act (15 U.S.C. § 53(b)), the Florida Deceptive and Unfair Trade Practices Act, or “FDUTPA” (Fla. Sta. §501.201 et. seq.), and the Telemarketing Sales Rule, or “TSR” (16 C.F.R. § 310.1 et. seq.).  The Court initially granted the government’s request for a temporary restraining order, causing all business activities to cease in June 2016.

The government alleged that Loyal, LMS, and the shell companies operated as a common enterprise that was controlled by Guice. Under Guice’s leadership, the enterprise engaged in deceptive business practices, made material misrepresentations and omissions when selling services, and violated numerous provisions of the TSR, including calling consumers on the Do Not Call Registry.

On December 7, the Court entered summary judgment against Guice, the only remaining defendant in the lawsuit. The Court found that Guice, LMS, and Loyal tricked customers into purchasing services by misrepresenting the amount of money they would save, fabricating their affiliations with credit card companies, and failing to disclose the possible impact of their actions on customers’ credit scores, among other deceptive actions.  In determining the monetary damages, the Court relied on the government’s expert accountant who calculated the customers’ net losses to be over $23 million.

On December 4, the Federal Trade Commission announced that it is seeking comment on whether the agency should make changes to rules requiring that financial institutions and creditors take certain steps to detect signs of identity theft that may affect their customers.

In a press release, the FTC stated that as part of its periodic review of its rules and guidelines, it is seeking comment on whether modifications should be made to the Red Flags Rule and the Card Issuers Rule.

The Red Flags Rule requires financial institutions and certain creditors to not only implement a written identity theft prevention program aimed at detecting “red flags” of identity theft in their daily operations, but also take steps to prevent identity theft and mitigate its damage.

Similarly, the Card Issuers Rule requires debit or credit card issuers to implement policies and procedures to validate a change of address request if, within a short period of time after receiving the request, the issuer receives a request for an additional or replacement card for the same account.  The Card Issuers Rule prevents a card issuer from issuing another card until it has notified the cardholder about the request or otherwise assessed the validity of the address change.

In the Press Release, the FTC noted that identity theft was one of the largest areas of consumer complaints in 2017 and 2018.

Some of the questions on which the FTC seeks comment include the following:

  • What are the costs and the benefits of the Rules to consumers?
  • What significant costs, if any, have the Rules imposed on businesses, including small businesses?
  • Are there any types of creditors that are not currently covered by the Red Flags Rule but should be, because they offer or maintain accounts that could be at risk of identity theft?

Any changes in the Rules may have far-reaching implications by imposing additional regulations on financial institutions and creditors.  Already, the definition of “creditor” under the Red Flags Rule is defined broadly to include third-party debt collectors.

The request for comments, along with instructions on how to submit comments, will be published in the Federal Register shortly.  The deadline for submitting comments is February 11, 2019.

Last month, Troutman Sanders reported on the proposed TRACED Act which would instruct the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.  FCC Chairman Ajit Pai tweeted his approval for the bill, but the FCC is not waiting on Congress to fight robocalls.  On November 21, it released its final report and order on creating a reassigned numbers database.

According to the FCC’s press release, the final draft of the report and order would create a comprehensive database to enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number, thereby helping to protect consumers with reassigned numbers from receiving unwanted robocalls.

More specifically, this proposal changes the existing federal regulatory scheme by:

  • Establishing a single, comprehensive reassigned numbers database that will enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number;
  • Establishing a minimum aging period of 45 days before permanently disconnected telephone numbers can be reassigned;
  • Requiring that voice providers that receive North American Numbering Plan numbers and the Toll Free Numbering Administrator report on a monthly basis information regarding permanently disconnected numbers; and
  • Selecting an independent third-party administrator, using a competitive bidding process, to manage the reassigned numbers database.

Pai announced the items tentatively included on the agenda for the December Open Commission Meeting scheduled for Wednesday, December 12. Considering that robocalls are the number one basis of complaints filed with the FCC and the speed in which the issue has been addressed, it will come as no surprise if the proposal is passed at the meeting.

Troutman Sanders will continue to monitor this and related FCC’s rulemaking decisions.

In an ominous sign, Americans’ total debt hit another record high, rising to $13.5 trillion in the last quarter, as student loan delinquencies jumped, according to Reuters. Specifically, flows of student debt into serious delinquency of 90 or more days rose to 9.1 percent in the third quarter from 8.6 percent in the previous quarter, reported the Federal Reserve Bank of New York, propelling the biggest jump in the overall U.S. delinquency rate in seven years.  

Total household debt, driven by $9.1 trillion in mortgages, now stands $837 billion higher than its previous peak in 2008, just as the Great Recession took hold and induced massive deleveraging across the United States. In fact, indebtedness has risen steadily for more than four years and sits more than 21% above its 2013 low point, and the $219 billion rise in total debt in the quarter that ended on September 30 amounts to the biggest jump since 2016. 

“The new charts in our report help to better understand how the debt and repayment landscape have shifted in the years following the Great Recession,” Donghoon Lee, research officer at the New York Fed, announced in a press release published on November 16. “Older borrowers now hold a larger share of total outstanding debt balances, while the shares held by younger borrowers have contracted and shifted toward auto loans and student loans.”

On November 16, Sen. John Thune (R-S.D.), the current chairman of the Senate Commerce Committee, and Ed Markey (D-Mass.), a member of the committee and the author of the Telephone Consumer Protection Act, unveiled the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (“TRACED Act”). Among other things, this bill would require carriers to eventually implement “an appropriate and effective call authentication framework” and instructs the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.

According to its proponents, an “ever increasing number … of robocall scams” prompted this bill. Indeed, one report touted by Markey estimated the number of spam calls will grow from 29% of all phone calls this year to 45% of all calls next year.

In its current form, the TRACED Act gives regulators more time to find scammers, increases civil forfeiture penalties for those caught, promotes call authentication and blocking adoption, and brings relevant federal agencies and state attorneys general together to address impediments to criminal prosecution of robocallers who intentionally flout laws.

More specifically, this act makes the following changes to the existing federal regulatory scheme:

  • Broadens the authority of the FCC to levy civil penalties of up to $10,000 per call for those who intentionally violate telemarketing restrictions.
  • Extends the window for the FCC to catch and take civil enforcement action against intentional violations to three years after a robocall is placed. Under current law, the FCC has only one year to do so. The FCC has told the committee that “even a one-year longer statute of limitations for enforcement” would improve enforcement against willful violators.
  • Brings together the Department of Justice, FCC, Federal Trade Commission, Department of Commerce, Department of State, Department of Homeland Security, the Consumer Financial Protection Bureau, and other relevant federal agencies, as well as state attorneys general and other non-federal entities, to identify and report to Congress on improving deterrence and criminal prosecution at the federal and state level of robocall scams.
  • Requires providers of voice services to adopt call authentication technologies, enabling a telephone carrier to authenticate consumers’ phone numbers prior to initiating any call.
  • Directs the FCC to initiate a rulemaking to help protect subscribers from receiving unwanted calls or texts from callers using unauthenticated numbers.

Announcing the TRACED Act, neither senator minced their words. “The TRACED Act targets robocall scams and other intentional violations of telemarketing laws so that when authorities do catch violators, they can be held accountable,” Thune said in a statement. He continued: “Existing civil penalty rules were designed to impose penalties on lawful telemarketers who make mistakes. This enforcement regime is totally inadequate for scam artists and we need do more to separate enforcement of carelessness and other mistakes from more sinister actors.” Markey added: “As the scourge of spoofed calls and robocalls reaches epidemic levels, the bipartisan TRACED Act will provide every person with a phone much needed relief. It’s a simple formula: call authentication, blocking, and enforcement, and this bill achieves all three.”

Troutman Sanders will continue to monitor this and related legislative proposals.

The Federal Trade Commission proposed a rule requiring consumer reporting agencies to provide free credit monitoring service to active duty military members that would electronically notify these consumers of “material” changes to their file within 24 hours. The deadline to submit comments on the proposed rule is January 7, 2019.

The proposed rule implements the credit monitoring provisions contained in Section 302 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, “Protecting Veterans’ Credit,” which amends the Fair Credit Reporting Act.

The proposed rule specifies that the electronic credit monitoring must electronically notify the consumer within 24 hours of “material additions or modifications” to the consumer’s file. Under the proposed rule, “material additions or modifications” include:

  • New accounts opened in the consumer’s name;
  • Inquiries or requests for a credit report, other than inquiries made for the purpose of making a firm offer of credit or insurance or for the purposed of reviewing an account of the consumer;
  • Changes to a consumer’s name, address, or phone number;
  • Changes to credit account limits; and
  • Negative information.

“Negative information” is defined to include delinquencies, late payments, insolvency, or any form of default.

The proposed rule further requires that notices to consumers include a hyperlink to a summary of rights under the Fair Credit Reporting Act.

Under the proposed rule, consumer reporting agencies may condition providing the free electronic monitoring service on the consumer providing proof of identity, contact information, and proof of active duty status. The proposed rule lists any of the following as adequate proof of active duty military status: a copy of the consumer’s active duty military orders, a certification of active duty status issued by the Department of Defense, a method or service approved by the Department of Defense, or a certification of active duty status approved by the consumer reporting agency.

The proposed rule also contains limitations on the use of the information collected from consumers as a result of requesting this service and limitations on the content and format of the communications sent to those requesting this service.  Further, the consumer reporting agencies cannot ask or require the consumer to agree to terms and conditions in connection with obtaining this service.

We will continue to monitor and report on the ongoing implementation of the Act and the implications for industry stakeholders.

The Federal Trade Commission (FTC) announced in mid-July that it conducted the first compliance sweep of car dealerships since the effective date of its revised Used Car Rule requiring the use of a new Buyer’s Guide sticker. The sweep occurred between April and June 2018 in 20 cities nationwide. The FTC partnered with 12 agencies in seven states to ensure dealers are displaying a revised version of the Buyer’s Guide, which contains warranty and other information for consumers. 

In the sweep, the FTC inspected over 2,300 vehicles at 94 car dealerships in seven states. Inspectors found that approximately 70 percent of vehicles displayed Buyer’s Guides and roughly half of those displayed the appropriate revised Buyer’s Guide. Just 33 dealerships posted the revised Buyer’s Guide on more than half of their vehicles, and only 14 dealerships were compliant in having revised Buyer’s Guides on all their used vehicles for sale. 

To read full article go to Auto Finance Excellence.