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Ellen Berge provides counsel on regulatory compliance, government investigations, contract negotiations, and general business matters. Ellen focuses on advertising, marketing practices, payment processing, and merchant services. Her clients include major brand advertisers and direct-response retailers, and lead generators, telemarketers, media agencies, software providers, and others who serve them. On the merchant services side, she leads a practice that works with banks, processors, sales agents, payment facilitators, independent software vendors, and fintech and financial services businesses. Ellen also serves as the firm's managing partner of Professional Development and Recruiting.

The laws and regulations surrounding subscription-based offers continue to change on a regular basis. Federal and state regulators and private plaintiffs continue to lodge challenges against companies selling products and services on a recurring basis. Moreover, new cases and law enforcement activity offer evolving interpretations on how to comply. Given the substantial developments, companies offering products or services on an automatically renewing basis should take heed.

The primary federal regulator of autorenewal programs, the Federal Trade Commission (FTC), remains as active as ever in enforcing the Restore Online Shoppers’ Confidence Act (ROSCA), the federal statute governing online negative option programs. The FTC has filed multiple new lawsuits against companies selling products and services on a negative option basis and continues to litigate cases that it has filed.

The district attorneys in the California Automatic Renewal Task Force have also continued to bring actions at a furious pace, demonstrating their clear intention to pick up where the FTC has left off. In fact, the task force recently filed a lawsuit in California state court against Match.com, even though the FTC had already filed a lawsuit against the company. The California district attorneys also announced settlements with Classmates.com, Home Chef, CheckPeople.com, and Care.com, among other companies, and the consent decrees have imposed increasingly stringent requirements on the settling businesses.

Continue Reading Automatic Renewal Programs: Latest Updates

On October 19, 2020, the Federal Trade Commission issued its annual report to Congress regarding the FTC’s efforts to protect senior citizens from fraud and abuse. In the report, the FTC noted that adults over 60 are more likely to report losing money to certain types of alleged scams, including romance scams, imposter scams, and online shopping programs. Moreover, the FTC reports that seniors were more than six times more likely than younger consumers to report that they lost money because of tech support phishing activities, and three times more likely to report losing money because of lottery scams.

In a separate statement, Commissioner Rohit Chopra said the agency’s analysis suggests the need for two key actions. These actions, and Commissioner Chopra’s statement generally, indicate that the FTC is considering how to move forward in the face of the Supreme Court’s potential erosion of its favored enforcement tool—Section 13(b).  His comments also have important implications for payment processors and other financial intermediaries that are facing inquiries from the FTC.

First, he recommended that the agency focus its enforcement actions on “larger, established firms,” rather than “smaller-scale scammers.” As an example, he pointed to the FTC’s settlement with payment processor Fiserv (formerly known as First Data) as a “model[] for the entire agency.” Commissioner Chopra believes that such enforcement actions against larger corporations would be a “better use of resources” and “more likely to lead to effective relief and systemic impact.”
Continue Reading FTC Commissioner Warns Larger Companies and Payment Processors, Seeks Greater Financial Penalties

In the wake of the Supreme Court’s opinion in Liu v. SEC, lower courts are starting to address the breadth of its applicability. On August 31, 2020, the District of Arizona welcomed the Supreme Court’s directives in Liu when denying Electronic Payment Solutions of America Inc.’s (EPS) bid for summary judgment against the FTC. To the extent other courts read Liu as similarly applicable, this could have broad implications for the FTC’s authority to obtain monetary relief.

In FTC v. Electronic Payment Solutions, No. 17-cv-2535-PHX-SMM (D. Ariz. Aug. 31, 2020), the FTC filed suit against EPS for playing a role in facilitating Money Now Funding’s alleged telemarketing scheme, and sought to recover approximately $4.67 million from EPS—the total amount EPS collected from credit card transactions for Money Now Funding minus refunds and chargebacks. EPS moved for summary judgment on the grounds that, in light of Liu, the FTC’s monetary claim should be limited to net profits. EPS argued that the FTC, despite alleging entitlement to several forms of monetary relief, was actually seeking disgorgement under several different names. Accordingly, EPS argued that Liu requires courts to limit disgorgement only to the amount of net profits that will be returned to consumers.

Continue Reading Following the Mone(tary Relief): District Court Limits the FTC’s Authority Post-Liu

Following a warning from earlier this year, the FTC recently filed a complaint against a group of corporate and individual defendants for allegedly misleading and deceiving small business “merchant cash advance” (MCA) customers. Structured properly, an MCA product offers an alternative to standard commercial credit under which the MCA provider purchases the right to receive a fixed amount of the customer’s receivables to be paid based on a percentage of the customer’s daily receipts.

Specifically, the FTC alleged that the defendants misrepresented the amount of financing small business customers would receive relative to their requests, misrepresented the necessity of collateral and personal guarantees, and engaged in unauthorized withdrawals from customers’ bank accounts even after receiving the agreed upon amount of the customers’ receivables. The complaint calls for permanent injunctive relief, rescission or reformation of the MCA contracts, restitution, refund and disgorgement.

The FTC’s enforcement action is just one of its recent efforts to police alleged unfair and deceptive practices targeting small businesses. Given the current economic disruptions caused by COVID-19, we can expect that the FTC will continue to attack both deception and improper debt collection aimed at small businesses.

Continue Reading FTC Follows up on Enforcement Priorities with Complaint Against Merchant Cash Advance Provider

Proud that your products are “Made in the USA”? Before you wave the flag, know that an unqualified Made in USA claim means that your product must be “all or virtually all” made in the United States, and the Federal Trade Commission has bolstered its enforcement authority over deceptive Made in USA claims with a new proposal to allow civil penalties for violations of its Made in the USA standards.

We previously blogged about recent Made in USA actions and the FTC’s September 2019 Made in USA workshop to evaluate updates to the FTC’s long-standing Made in USA Enforcement Policy. The Enforcement Policy provides that to substantiate an unqualified Made in USA claim, a product must be wholly domestic or all or virtually all made in the United States — meaning that “all significant parts and processing that go into the product are of U.S. origin.” Qualified claims — for example, “Made in USA from imported leather” — may be acceptable if they include clear and conspicuous disclosure of the extent to which the product contains foreign parts, ingredients, components, and/or processing.

Continue Reading Proposed FTC Rule to Allow Civil Penalties for Deceptive “Made in USA” Claims

First Data Merchant Services, LLC (First Data), and its former executive, Chi “Vincent” Ko, will pay $40.2 million to settle Federal Trade Commission (FTC) charges that they ignored obvious warning signs of fraud and processed transactions for an array of scams that caused tens of millions of dollars in harm to consumers.

This action serves as a powerful reminder that the FTC seeks to hold processors and their independent sales organizations (ISOs) financially responsible for facilitating the unlawful conduct of merchants by enabling merchants to access the payments system to allegedly defraud consumers and launder card transactions. Just as noteworthy, the settlement agreed to by First Data may propel new industry standards for processors to formally oversee the merchant onboarding activities of ISOs given responsibility for underwriting merchant accounts.

Continue Reading Latest FTC Payment Processing Case Results in $40 Million Proposed Judgment and ISO Oversight Requirements

Although the coronavirus pandemic has impacted every business over the past few weeks, companies offering negative option and subscription programs face a unique set of issues. On the one hand, the subscription model offers consumers benefits that are difficult to provide outside of this context (such as streaming services, online learning programs, and uninterrupted access). On the other hand, business interruptions — in addition to consumers tightening their budgets — have presented significant hurdles to the subscription model during the current pandemic.

For example, the current shutdown has prevented many companies that offer membership programs from continuing to provide these services to consumers, such as gyms, access passes, and in-person events. As a result, customers have increasingly begun to cancel their memberships to avoid paying for services that companies simply cannot fulfill. Online services are not immune to the fallout, as consumers who are tightening their belts and looking for ways to reduce spending have started cancelling recurring billing services, which they may view as unnecessary in the present circumstances.

Continue Reading Automatic Renewal Programs: Reducing Risks During the COVID-19 Pandemic

This week, a group of financial services stakeholders submitted a joint petition to the Federal Communications Commission (FCC) for an expedited declaratory ruling, clarification, or waiver so that phone calls and text messages placed to consumers using autodialers and prerecorded voice messages about matters related to the COVID-19 pandemic would not be subject to onerous consent requirements under the Telephone Consumer Protection Act (TCPA).

According to the petitioners, class action litigation risks under the TCPA limit banks and other financial services organizations in the communications they send to consumers, and without confirmation by the FCC that certain COVID-19 calls and texts are subject to the “emergency purposes” exception under the TCPA, financial institutions may not be able to effectively distribute messages about fee waivers, payment deferrals, mortgages, loan modifications, low-rate and zero-rate loans, and other accommodations made in light of the COVID-19 crisis.

Continue Reading Financial Services Stakeholders Request TCPA “Emergency Purposes” Exception for COVID-19 Calls

The FTC has issued a Proposed Notice requesting public comment on whether to make changes to its Endorsement Guides (“Guides”) as part of the agency’s periodic retrospective review. This review will serve as a key opportunity for industry participants to shape what happens next by showing what they are seeing in the marketplace when it comes to endorsements and testimonials, consumers’ understanding of them, and the effects of new technology and platforms.

While the FTC’s standard practice is to review its rules and guides every 10 years, this review promises to be anything but standard. This is particularly true considering that FTC Commissioner Chopra weighed in with a separate statement, noting that he hopes that the Commission will consider taking steps beyond the issuance of voluntary guidance, including codifying elements of the existing Endorsement Guides into formal rules that could trigger civil penalties and damages. He also suggested that the FTC develop requirements for technology platforms that facilitate and profit from influencer marketing and specify the requirements that companies must adhere to in their contractual arrangements with influencers. The Guides were first issued in 1980, and the Commission last sought public comment on them in 2007. Since that time, endorsement-related practices (and the media where they appear) have changed dramatically, with new platforms and apps emerging that provide new ways for companies and their endorsers to reach consumers. In an attempt to keep up with the changing times, the FTC issued an FAQ-type of document, Endorsement Guides: What People are Asking, and has modified it multiple times over the years.

Continue Reading FTC Aims to Shake Up Endorsements, Seeks Public Comment on Its Endorsement Guides

With the arrival of 2020, many people have begun their New Year’s resolutions to get healthier and lose weight. Is “diet” soda the secret to weight loss success? Not according to the Ninth Circuit, which held last week that it is not reasonable to believe that drinking “diet” soda will help in efforts to lose weight and affirmed dismissal of a false advertising lawsuit.

In the case, Becerra v. Dr. Pepper/Seven-Up, the plaintiff alleged that the word “diet” in Diet Dr Pepper’s brand name violated various California laws, including the state’s False Advertising Law, because it falsely promised that the product would assist in weight loss or healthy weight management. The plaintiff alleged that this was false because an ingredient in the diet soda, aspartame, causes weight gain.

The district court granted defendant’s motion to dismiss without any discovery. In granting the defendant’s motion to dismiss, the district court held that no reasonable consumer would believe that the word “diet” in a soft drink’s brand name promises weight loss or healthy weight management. And, the district court held, even if a reasonable consumer would believe that, the plaintiff had not sufficiently alleged that any such promise was false or that aspartame consumption causes weight gain.

Continue Reading Ninth Circuit Holds that “Diet” Soda Name Is Not False or Misleading