Financial Services/CFPB

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On July 14, the Federal Trade Commission (FTC) filed a complaint in the U.S. District Court for the District of Arizona against a group of companies and individuals operating under the “Accelerated Debt” brand, alleging they engaged in a sweeping debt relief scam that misled vulnerable consumers, including seniors and veterans, through impersonation, pretexting, and deceptive marketing.

According to the FTC’s complaint, the defendants posed as consumers’ own banks, credit card issuers, and even government agencies, such as the Social Security Administration, to lure them into costly debt relief programs and gain access to their financial accounts. Through direct mail, online ads, and telemarketing calls (both outbound and inbound), the companies allegedly promised to reduce debts by up to 75%. But according to the FTC, these claims were exaggerated, and the program collected millions in illegal advance fees, some as high as $10,000, while leaving consumers in worse financial shape.

The court issued a temporary restraining order, halting the operation, and imposed an asset freeze to preserve funds for potential consumer redress as the case continues.Continue Reading FTC’s Ever-Expanding Remedies Toolkit: GLBA and Impersonation Rule Applied to Debt Relief Scheme

In a development that underscores the Federal Trade Commission’s (FTC) growing scrutiny of the “merchant of record” model, the commission announced a $5 million settlement with UK-based Paddle.com Market Limited (Paddle), which processed payments for multiple businesses that allegedly sold deceptive tech support software subscriptions to U.S. consumers. The Paddle settlement, which follows a series of earlier actions involving merchants of record, suggests that the FTC has expanded its focus from the traditional payments industry to more novel models that support merchant aggregation and related services. The settlement also presents another novel use of the FTC’s authority under the Restore Online Shoppers’ Confidence Act (ROSCA), which has become a favored tool of the FTC in policing sales and recurring billing practices that the commission deems unfair or deceptive.

FTC Allegations and Merchant of Record Concerns

Over the past decade, global e-commerce has grown dramatically, with merchants selling goods and services to consumers around the world. Given the complexity of cross-border sales, many e-commerce merchants have partnered with payments companies that process sales for the merchant as the “merchant of record,” and which may provide other ecommerce services, such as sales fulfillment and tax remittance. Although the merchant of record model has grown in popularity, the concept is not expressly recognized by the card network rules, which generally require merchant aggregators to register as payment facilitators.Continue Reading FTC Targets “Merchant of Record” for Unlawful Payment Processing, TSR, and ROSCA Violations

New York attorney general Leticia James is the latest state-level actor to respond to the Trump administration’s efforts to shrink federal consumer protection agencies. James has championed the FAIR Business Practices Act, a bill introduced in the New York state legislature aimed at expanding the New York consumer protection statutes to include unfair and abusive practices.

According to James, the FAIR Business Practices Act would “close loopholes” in New York’s current consumer protection scheme and enhance the enforcement capabilities of the Office of the Attorney General. If enacted, the bill would enable the attorney general to pursue civil penalties and restitution for violations of the act, such as:Continue Reading New York Seeks to Beef up Consumer Protection Framework

The Federal Trade Commission (FTC) isn’t the only regulator in town when it comes to endorsements and testimonials. The Securities and Exchange Commission (SEC) regulates investment adviser marketing under its “Marketing Rule.” The rule states that an “advertisement may not include any testimonial or endorsement, and an adviser may not provide compensation, directly or indirectly, for a testimonial or endorsement” unless accompanied by clear and prominent disclosures.

According to an SEC cease-and-desist order, Wahed Invest LLC ran afoul of the Marketing Rule when it disseminated advertisements on its public website, social media, and emails containing endorsements from several professional athletes without the required disclosures. In one instance, a soccer player was paid in stock in Wahed’s parent company, worth about $500,000, and MMA athletes were paid around $30,000 monthly for appearing in the advertisements. The endorsements included statements such as:Continue Reading Foul! SEC Faults Investment Adviser for Inadequate Disclosures on Professional Athlete Endorsements

One of the questions that remains uncertain among looming federal and state “junk fee” and “drip pricing” bans in 2024 concerns the impact these rules will have on credit card surcharges. Surcharges are added to sale transactions by some retailers when the buyer uses a credit card to make a purchase. Is this a mandatory fee that must be incorporated in the total price under the new laws? Or does the consumer’s choice to use a credit card to pay make the convenience of paying by credit card an optional service or feature that need not be included in the advertised price?

We may need to wait for further clarification from regulators or a lawsuit to know how junk fee bans impact surcharging, but understanding the possible arguments and pitfalls may help you decide how you will address this question in the short-term. Contact us if you need guidance or advice on these junk fee bans or surcharge rules.Continue Reading Drip Pricing, Surcharging, and the Push for “Total Price” Disclosures

If you’ve been focused on only the high-level statements from the CFPB, you might already expect Rohit Chopra to fashion himself and the agency as “pro-consumer.” Consistent with that approach, the agency just signaled its distaste for, and desire to severely restrict, the common and useful advertising practices of comparison-shopping platforms and lead generation.

Using its bully pulpit (and not notice and comment regulation or waiting for explicit legal authority), the CFPB released a Consumer Financial Protection Circular, stating that operators of digital comparison-shopping tools (“Operators”) and lead generators can violate the Consumer Financial Protection Act’s (CFPA) prohibition on abusive acts or practices if they steer consumers to certain products or services—or certain providers—based on compensation received by the lead generator or Operator. This might feel like standard consumer protection-speak, except that equating compensation models to abusive conduct means that the CFPB has performance advertising in its crosshairs.

In its press release announcing the circular, the CFPB explains, “[T]he guidance discusses how regulators and law enforcement agencies can evaluate operators of comparison-shopping tools that accept payments from financial firms to manipulate results or suppress options that may better fit the consumer’s stated preferences.” In the same release, the CFPB also announced that it would be “developing a consumer-facing tool that, once finished, will bring more transparency to credit card comparison-shopping.”Continue Reading Why the CFPB’s Preferencing and Steering Practices Circular Should Scare Lead Generators and Consumer Financial Services Providers

If your business offers a loyalty program in conjunction with a gift card, you likely already know that Section 520-e of New York’s General Business Law took effect December 10, 2023. This new law gives consumers a set grace period to use their credit card reward points when certain changes (e.g., modification, cancellation, closure, or termination) are made to a “reward, loyalty, or other incentive program.”

Specifically, under the new law, “[i]f any credit card account or rewards program is modified, cancelled, closed or terminated,” the issuer must provide notice to the card holder as soon as possible, but no later than 45 days of the action. Then, unless the customer has engaged in fraud or misuse of the account, starting with the date on which the notice is sent, the holder shall have 90 days to redeem, exchange, or otherwise use any accumulated credit card points, subject to the availability of rewards.

The new provision defines “modification,” as one that has the effect of “eliminating points, reducing the value of points, affecting the ability of a holder to accumulate points, limiting or reducing rewards availability, limiting a holder’s use of points or the credit card account, otherwise diminishing the value of the rewards program or the credit card account to the holder or changing the obligations of the holder with respect to the rewards program or credit card account.”Continue Reading Reminder: New York’s Credit Card Reward and Loyalty Program Law Is Now in Effect

On October 3, the Supreme Court heard oral argument in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited, where the Court is reviewing the Fifth Circuit’s opinion that struck down the Payday Lending Rule because the Fifth Circuit found that the Consumer Financial Protection Bureau’s (the “Bureau”) funding structure is unconstitutional. While the Fifth Circuit decision was limited to the Payday Lending Rule, a ruling upholding the Fifth Circuit’s decision would have severe ramifications for the Bureau and could potentially lead to the demise of the agency without congressional action.

As a refresher, the Fifth Circuit held that the Bureau’s “unique” funding structure violates Article I of the Constitution—vesting Congress with appropriation power—because the agency is not funded through congressional appropriations. Rather, the Bureau receives its funding from the Federal Reserve, which is funded through bank assessments. In short, the Fifth Circuit found that Congress had abdicated its “power of the purse” and had run afoul of the nondelegation doctrine where it has no involvement in the CFPB’s ongoing funding.Continue Reading C[FPB] You Later? Agency’s Future Hangs in the Balance After Oral Argument

Marketers and lead generators have new guidance in the form of enforcement orders on what the Federal Trade Commission (FTC) appears to consider required practice when obtaining consumer consent prior to the sale, transfer, or disclosure of consumer information that will be used in marketing.

The upshot is that the FTC provided several affirmative requirements…

With the end of the Supreme Court’s term in June, most eyes have been on the release of the last remaining merits decisions. In the midst of issuing the final opinions of the term, the Court also granted certiorari on a number of cases, one of which—Securities and Exchange Commission v. Jarkesy—might have implications for the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).

In Jarkesy, the SEC sued talk radio host George Jarkesy and his two hedge funds (collectively, “the Jarkesy Parties”) through an administrative action before an SEC administrative law judge (ALJ). After an evidentiary hearing, the ALJ determined that the Jarkesy Parties committed securities fraud, and the Commission affirmed the ALJ’s decision, imposing a civil penalty, disgorgement of ill-gotten gains, and enjoining Jarkesy from various securities industry activities. The Jarkesy Parties proceeded to appeal the Commission’s decision to the U.S. Court of Appeals for the Fifth Circuit. The Jarkesy Parties appealed on several constitutional grounds previously raised and denied during the ALJ and Commission proceedings:Continue Reading Supreme Court Case Watch: Securities and Exchange Commission v. Jarkesy and Its Impact on Independent Agencies