Yesterday, the Federal Trade Commission (FTC) moved to dismiss its long-running enforcement action against Electronic Payment Solutions (EPS) pending in the District of Arizona after the Commission voted 4-0 to approve a final settlement with EPS and certain of its owners. The case against EPS, a third-party payment processor, is just the most recent example

“Free” must mean free?

Last week, the attorneys general for all 50 states and the District of Columbia announced a settlement with Intuit, Inc., the owner of TurboTax, which will require the company to hand over $141 million to consumers as restitution for allegedly tricking consumers into paying for tax-filing services when they qualified for free tax-filing services.

Recently, we wrote about the Federal Trade Commission’s legal action against Intuit for its advertisements regarding “free” tax-filing services. In that action, the FTC sought to definitively resolve that very question. As part of last week’s settlement agreement, Intuit will cease its advertising campaign promoting its “free, free, free” services in addition to paying the hefty restitution sum. The state settlement essentially ended the FTC action as well.

While the states’ investigation overlapped with the FTC’s action concerning Intuit’s alleged bait-and-switch advertising (i.e., representing the service is “free” but later requiring an upgrade to a paid version), their investigation also had another focus: “dark patterns,” which refers to a digital design feature that is intended to subtly influence a consumer’s online decisions.

Continue Reading Intuit Will Pay $141 Million in State Attorneys General Settlement Over Deceptive TurboTax Advertising

At the peak of tax-filing season, when millions of consumers are still considering their method of filing, the Federal Trade Commission has set its sights on Intuit, Inc., one of the largest online tax-filing services.

On March 28, 2022, the FTC filed an administrative complaint against Intuit, alleging that the company’s marketing of TurboTax as a free tax-filing service misleads consumers because the free service applies only to some, while many end up getting hit with charges at the time of filing.

In a press release, Samuel Levine, director of the Bureau of Consumer Protection at the FTC, stated that Intuit’s advertising is a “bait-and-switch” tactic that a court should immediately halt to protect tax-paying consumers. The FTC simultaneously filed a complaint for a temporary restraining order and preliminary injunction against Intuit in federal court in the Northern District of California, seeking to immediately enjoin it from advertising its tax-filing product and service, TurboTax, as free.

Continue Reading “Free” Must Mean Free? FTC Seeks to Enjoin Intuit from Advertising TurboTax as a “Free” Service

A few weeks ago, we wrote an article discussing two enforcement actions by the Federal Trade Commission in the Central and Southern Districts of California that highlighted the risks to payment processors and financial institutions for their relationships with companies engaged in allegedly unlawful “negative option” marketing.

In both FTC v. Triangle Media Corporation et al. (the “Triangle Action”) and FTC v. Apex Capital Group, LLC (the “Apex Action”), the FTC accused the defendants of engaging in an alleged scheme to offer fake “free trials” of personal care products and dietary supplements to obtain consumers’ credit and debit card information.

Also, in both cases, the court granted the FTC’s request and recommendation that a Receiver be assigned to oversee, manage, and preserve the assets of both sets of defendants. That Receiver then sued Wells Fargo—the bank used by the defendants in both the Triangle and Apex Actions—alleging that Wells Fargo engaged in illicit activity, including, but not limited to, aiding and abetting fraud, conspiracy to commit fraud, breach of fiduciary duty, negligent supervision, and violating the California Unfair Competition Law (UCL). Last week the court denied most of Wells Fargo’s motion to dismiss, allowing the claims against the bank to proceed.

Continue Reading Update: Judge Allows Most of Receiver’s Claims Against Wells Fargo for Involvement with Negative Option Marketers to Proceed

Last month, love was not all lost for the owner of Tinder and OKCupid when a Texas federal district court in FTC v. Match Group, Inc. granted in part the online dating service provider’s motion to dismiss. Specifically, the court agreed with Match that the FTC could not seek equitable monetary relief under Section 13(b) of the FTC Act and barred two claims based on Match’s immunity under the Communications Decency Act (CDA).

To set the scene, here is a recap of the legal landscape. In recent history, the FTC under Section 13(b) brought “proper cases” directly in federal courts without needing to conduct administrative proceedings. The agency also pursued permanent injunctions and equitable monetary relief.

In the past few years, courts have become increasingly less enamored with the FTC’s interpretation of its authority under Section 13(b). The first blow was FTC v. Shire Viropharma, Inc., in which the Third Circuit concluded that under Section 13(b), the FTC cannot base claims on “long-past conduct” alone, but must affirmatively plead facts that a defendant “is violating” or “is about to violate” the law, i.e., that there is “existing or impending conduct.”

Continue Reading FTC v. Match Group, Inc.: Court Gets Cold Feet on the Standard Set Forth in Shire

We frequently post about negative option marketing in this blog, but our focus has been the FTC’s enforcement actions against businesses that utilize this marketing strategy. We haven’t written as much about a different risk: payment processors and financial institutions caught in the crosshairs of a court-appointed receiver for their relationships with companies engaged in allegedly unlawful “negative option” marketing. Recently, two FTC enforcement actions in the Central and Southern Districts of California highlight these risks.

In Federal Trade Commission v. Triangle Media Corporation et al. (the “Triangle Action”), the FTC sued Triangle for engaging in an alleged scheme to offer fake “free trials” of personal care products and dietary supplements to obtain consumers’ credit and debit card information.

According to the FTC, Triangle then applied recurring charges to consumers’ cards without authorization. In a later, unrelated action, the FTC brought charges against Apex Capital Group, LLC for essentially the same activity (the “Apex Action”). In both cases, the courts granted the FTC’s request and recommendation that a receiver be assigned to oversee, manage, and preserve the assets of both sets of defendants. In an interesting turn, the same receiver, Thomas McNamara of McNamara LLP (the “Receiver”), was recommended by the FTC, and accepted by the courts, as the Receiver for Triangle’s and Apex’s assets.

Subsequently, the FTC filed an amended complaint in the Apex Action that accused Apex’s credit card payment processor, Transact Pro, of credit card laundering and chargeback manipulation in violation of Section 5 of the FTC Act. Both Apex and Transact Pro entered into a settlement with the FTC requiring a stipulated judgment ordering the parties to pay monetary relief.

Continue Reading How Negative Option Marketing Can Risk Entangling Third-Party Banks and Payment Processors

As the rest of us prepare for the Super Bowl by buying avocados to make guacamole, installing new big-screen TVs, and donning Ram/Bengal-themed face paint, select corners of corporate America are preparing for the biggest advertising day of the year.

In 2021, companies spent approximately $485 million on ad slots during the big game, and the average cost of a 30-second commercial slot was about $5.6 million. With such high stakes, plus the intensive “Standards and Practices” review employed by the TV networks, one would assume that anything that makes the cut is above reproach. (The review board won’t even let advertisers use “Super Bowl” because it’s trademarked, which is why you often hear “the Big Game” in ads.)

However, the following examples of legal challenges to your favorite Super Bowl commercials demonstrate that the world of advertising law can be tricky to navigate, and companies that advertise simply cannot mitigate their litigation risk to zero.

Continue Reading Defending Against the Blitz: Examining the Legal Issues Surrounding Super Bowl Ads

If you had asked us last week, we would have predicted that the Supreme Court’s momentous AMG Capital Management, LLC v. FTC decision last year, in which the Court struck down the Federal Trade Commission’s nearly 50-year practice of seeking equitable monetary relief under Section 13b of the FTC Act, would be the most significant decision about FTC jurisprudence we would see from the Supreme Court for a while.

However, in a surprising move, the Supreme Court recently granted certiorari in Axon Enterprises Inc. v. FTC to address whether Congress intended to strip federal district courts of jurisdiction to hear challenges to the constitutionality of the FTC’s structure, procedures, and very existence. Importantly, however, the Court declined to directly address the petitioner’s challenge to the constitutionality of the FTC. Still, the Court’s decision could significantly impact how future targets of FTC enforcement investigations and actions will challenge the FTC’s constitutional limits.

Continue Reading Federal Trade Commission Goes to the Supreme Court Again, This Time in a Constitutional Challenge

Earlier today, the United States Supreme Court issued a unanimous opinion in AMG Capital Management v. Federal Trade Commission, holding that Congress, by enacting Section 13(b) of the Federal Trade Commission Act, did not grant the Commission authority to obtain equitable monetary relief when it proceeds in federal district courts under that section.

Specifically, Section 13(b) of the Federal Trade Commission Act gives the Commission authority to bring suit in federal district court against those it believes are “violating” or “about to violate” the FTC Act, in order to “enjoin any such act or practice.” In such cases, Section 13(b) further provides courts with the authority to issue a “permanent injunction.” Since the late 1970s, the FTC has taken the position, accepted by courts, that this grant of authority included the ability to obtain equitable monetary relief. The Supreme Court today said not so.

In reaching its conclusion, the Court first looked to the plain language of 13(b). It recognized that the statute only allows for injunctions. The Court stated, plainly, that “an injunction is not the same as an award of equitable monetary relief.”

Continue Reading Disgorgement [Supremely] Denied: Supreme Court Unanimously Curtails the FTC’s Authority in AMG Capital Management v. FTC

On March 29, 2021, the FTC announced a settlement with Beam Financial Inc. (Beam) and its founder and CEO, Yinan Du, over allegations that the mobile banking app company deceived consumers about their access to funds and interest rates. The settlement included a far-reaching conduct ban. As the non-bank financial services continue to grow, the action and settlement underscore the role the FTC seeks to play in policing that sector.

By way of background, on November 18, 2020, the FTC filed a complaint against Beam, alleging that Beam and Mr. Du falsely promised users of their banking app that they would earn high interest rates on the funds maintained in their Beam accounts and have “24/7 access” to their funds. Beam was not a bank; rather, it promised to place funds at banks and provide consumers access to those funds through the app. The FTC alleged that Beam promised users would receive “the industry’s best possible rate”—at least 0.2% or 1%—when users actually received a much lower rate of 0.04% and stopped earning interest entirely after requesting that Beam return their funds. The FTC’s complaint also alleged that Beam misrepresented that consumers could easily move funds into and out of their accounts and that they would receive their requested funds within three to five business days. According to the FTC, users reported that their emails, texts, and phone calls to the company went unanswered; some users even allegedly waited weeks or months to receive their money, while others never received it. The FTC alleged that this was particularly difficult for consumers experiencing serious financial hardship during the COVID-19 pandemic.

Continue Reading FTC Settlement Leads to a 24/7 Shutdown of a Mobile Banking App