Financial Services/CFPB

A lawsuit filed by the CFPB last week against a national credit reporting agency provides some insight into the types of website features and designs that regulators like the Consumer Financial Protection Bureau and Federal Trade Commission will target. As we covered previously, digital dark patterns—or website design, features, and interfaces used to allegedly deceive, steer, and manipulate users—are a priority for both rulemaking and enforcement actions by the FTC. Although the focus has been on website features that “trick or trap” consumers into subscriptions, the potential for broad and arbitrary application of this concept is worrisome. What is the line between a website that is acceptably optimized for conversion and one that is illegally steering users to make purchases?

In the highly detailed complaint, the CFPB alleged, among other things, that the net impression of various advertising messages, combined with the design of the webpage where users landed when clicking on the ads, obscured the nature of the offer (a month-to-month subscription of a credit-monitoring service and credit score), the status of a user’s enrollment in the service, and the purpose of collecting a user’s payment information.

More specifically, the complaint described how call-to-action buttons, email subject lines, font color and size, text placement, and website flow were employed to confuse consumers who were seeking information about or copies of their annual free credit report and steer them instead into unwittingly purchasing a subscription for credit monitoring.

Continue Reading Latest CFPB Lawsuit Sheds Light on Digital Dark Patterns

In a bulletin published last week, the Consumer Financial Protection Bureau (CFPB) warned banks and other financial companies against impeding honest reviews of consumer financial products and services. Although it does not cite a specific study for financial products and services, the CFPB’s bulletin describes how online reviews impact other industries across the economy.

We have been covering the Federal Trade Commission’s (FTC) efforts to combat what it sees as rampant customer review fraud, and now the CFPB is preemptively addressing its growing concern with how online reviews will play into customers’ decision-making when they are choosing from among several financial providers.

At first glance, the CFPB’s foray into the deceptive use of online reviews might appear to come out of left field, but it reflects a more general theme of following the FTC’s playbook and scrutinizing financial service providers more holistically, including their marketing practices. The bulletin itself cites to several recent FTC settlements in this area as persuasive precedent for application of the CFPB’s UDAAP authority.

Continue Reading The CFPB Warns Companies Against Impeding or Manipulating Honest Customer Reviews

In its much-anticipated cryptocurrency executive order issued earlier this month, the Biden administration called for a coordinated interagency approach to the regulation of digital assets and to the study of their potential risks.

A significant part of this effort focuses on the nation’s primary consumer protection agencies, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).

Historically, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN) have played the primary roles in regulating digital assets, with the FTC and CFPB largely taking a wait-and-see approach. But this has left open a regulatory gap for crypto activities that do not involve a security or a commodity derivative.

Continue Reading Biden Tasks Consumer Protection Agencies with Stepping Up Cryptocurrency Oversight

A class action lawsuit filed against Kim Kardashian, Floyd Mayweather, and former professional basketball player Paul Pierce earlier this month underscores the need for celebrity endorsers to take care when they approach any endorsement activity in the cryptocurrency space.

The lawsuit alleges that the celebrities collaborated with Ethereum Max, a company offering ERC-20 cryptocurrency tokens (EMAX Tokens), and its executives to engage in a “pump-and-dump” scheme promoting investments in the company’s tokens. The complaint alleges that the three celebrity influencers misleadingly promoted EMAX Tokens to potential investors, touting the ability of investors to make significant returns due to the favorable “tokenomics” of the EMAX Tokens, when in fact the tokens were practically worthless. The class action alleges violations of California’s Unfair Competition Law, California’s Consumers Legal Remedies Act, aiding and abetting, and unjust enrichment/restitution.

According to the complaint, EthereumMax’s entire business model relies on marketing and promotional activities, and the celebrity promoters received EMAX Tokens and/or other compensation in return for promoting the tokens. (EthereumMax “has no connection” to Ether, the second-largest cryptocurrency, the lawsuit said, adding that its branding appears to be an effort to mislead investors into believing the token is part of the Ethereum network.) The promotional activities at issue included, among other things, making social media posts, wearing EMAX-branded shirts, and promoting the cryptocurrency at a conference.

Continue Reading “Are You Guys Into Crypto????”: Celebrities Promoting Cryptocurrencies Become Class Action Targets

Game developers and platform providers are increasingly integrating non-fungible tokens (NFTs), virtual currencies, and digital marketplaces into their games and platforms, creating seamless, novel, and interactive experiences. While the industry has moved ahead quickly, federal and state regulators are taking a much closer look at how these technologies fit within existing legal frameworks.

In a recent webinar, partner Ellen Berge and associate Chris Boone of Venable’s Advertising Law and Payments groups explored the latest regulatory developments and addressed how to spot and avoid compliance and regulatory risks associated with NFTs, virtual currencies, and other platform-based monetization mechanics. We received insightful questions from members of the audience, which our lawyers answer below.

Continue Reading You Asked, We Answered: NFTs and Virtual Currency in Games: Compliance Issues and Legal Risks

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

On November 30, 2020, the Federal Trade Commission (FTC) announced that it had taken action against a debt collection company, Midwest Recovery Systems (“Midwest”), alleging that an alleged “debt parking” scheme caused more than $24 million in harm to consumers. While the complaint and settlement themselves are not that remarkable, the dissent filed by Commissioner Chopra is. Commissioner Chopra challenges the FTC’s approach to debt collection, suggesting the FTC refer such cases to the Consumer Financial Protection Bureau (CFPB) and that the FTC focus on other things. We have written previously about Commissioner Chopra’s other ideas for reshaping FTC approaches and priorities, and if Commissioner Chopra were to become the next Chair under President-elect Biden, things could get interesting at the agency.

First, a few words about the case. Also known as “passive debt collection,” debt parking is the practice of placing fake or questionable debts onto consumers’ credit reports to coerce them to pay. The “parked” bogus debt is often not discovered by a consumer until his or her credit report is accessed in connection with buying a car or home, opening a credit card, or seeking employment. Thus, although the debts may not be valid, consumers often feel pressured to pay them off—hence the millions of dollars allegedly hauled in by Midwest.

Continue Reading FTC Commissioner Encourages Partnership with CFPB and “Systemic” Change Following FTC Action against Debt Collection Scheme

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

The FTC continues policing business-to-business deception and its focus on small-business financing. On June 10, 2020, the FTC filed a Complaint in the Southern District of New York against two New York-based companies and several of their owners and officers for allegedly violating the FTC Act in connection with their business financing activities.

According to the Complaint, the defendants targeted small businesses, medical offices, non-profit organizations, and religious organizations. Since 2015, defendants allegedly deceived these consumers by misrepresenting terms of the merchant cash advances (MCAs) defendants provided, and subsequently used unfair collection practices to compel these entities to pay.

Continue Reading New York-Based Business Financing Companies Allegedly Deceive and Threaten Business Consumers