Earlier this month, the FTC approved a settlement with a developer of popular apps for purported violations of the Children’s Online Privacy Protection Act (COPPA).  The Commissioners voted 4-1 to authorize the Department of Justice to file the complaint and the stipulated final order resolving the matter.  Under the stipulated final order, the company was ordered to pay a $4 million civil penalty (although all but $150,000 of it was suspended for inability to pay).  The lone dissent came from Commissioner Noah Phillips who issued a dissenting statement criticizing the “recent push to heighten financial penalties . . . without clear direction other than to maximize the amount in every case.”

Commissioner Phillips made the case, as he has before, that harm should be the starting point when fashioning a penalty.  Steeped in economic theory, he argued that “basing penalties on harm forces defendants to internalize the costs their behavior imposes on others, orienting conduct in a socially beneficial fashion.”  Chairman Simons also issued a statement, contending that starting with harm is “inapposite” when Congress explicitly prohibits practices and directs the agency to impose penalties.


Continue Reading Two Conservative, But Very Different, Approaches to Calculating Civil Penalties: Harm vs. Deterrence

In a case that may have significant implications for the remedies available to the FTC, the Supreme Court issued its opinion yesterday in Liu v. SEC. We’ve written previously about Liu and several cert petitions now pending at the Court. The Court held that the SEC may only obtain disgorgement from defendants as equitable relief under 15 U.S.C. § 78u(d)(5) to the extent the disgorgement is limited to the defendant’s net profits gained from the defendant’s unlawful conduct. This decision is poised to impact the FTC’s authority to obtain disgorgement under Section 13(b) of the FTC ACT, which like Section 78u(d)(5) only provides for “equitable” forms of relief. Indeed, the Court’s decision may have a particularly dramatic impact on parties other than the actual advertiser litigating against the FTC, such as payment processors, whose net profits from alleged unlawful conduct are typically dwarfed by the alleged gross losses to consumer for which the FTC seeks to hold the defendant responsible.

Out of the gate, the Court declined to extend its prior opinion in Kokesh v. SEC to hold that disgorgement is always a penalty, and thus beyond the statute’s authorization for equitable relief. Ultimately, the Court stood by long-standing precedent that a federal agency’s ability to strip wrongdoers of ill-gotten gains constitutes an equitable remedy—provided certain boxes are checked.


Continue Reading Supreme Court Allows for Limited Disgorgement Remedy in SEC Context: What Does that Mean for the FTC?

An increasing number of celebrities and social media personalities are endorsing the use of cannabidiol (CBD) products through social media. Many of these “influencers,” however, fail to take into account and comply with the complex regulatory environment surrounding CBD advertisements, which can have consequences for CBD companies themselves. In the United States, the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA) both limit the use of certain language in CBD endorsements. As these advertisements attempt to reach the broadest possible audience, possible violations are especially noticeable to regulators, who have stepped up their enforcement efforts in this area.

What is CBD?

With the passage of the 2018 U.S. Farm Bill, hemp-based CBD products were removed from the Drug Enforcement Administration’s list of scheduled substances, thereby decriminalizing the possession of such CBD products. The Farm Bill defines hemp as a strain of the Cannabis sativa plant species that does not contain more than 0.3% of the psychoactive component tetrahydrocannabinol (THC). Instead, hemp has significantly higher concentrations of CBD. The legalization of recreational and medicinal marijuana in certain states refers to the cannabis plant containing high levels of THC, which may also contain some CBD. Certain states, such as California, have stringent requirements regarding advertising cannabis products, but these rules do not apply to hemp-based CBD products.


Continue Reading CBD Advertisements: What CBD Companies and Celebrity Influencers Need to Know

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

Financial services advertising and marketing occurs in an increasingly regulated and evolving legal landscape.  This quick hit with attorneys from Venable LLP explored the latest legal trends and developments in financial services advertising and marketing. Topics included:

  • COVID-19 impact on consumer and business lending advertising;
  • lead generation, influencer, and other emerging marketing methods;
  • regulatory outlook

Last week, the FTC put an end to a New York auto dealer’s discriminatory lending practices as the FTC brought its first Equal Credit Opportunity Act (“ECOA”) case in over ten years. Notably, two Commissioners are now calling for new rules to help further fight deception in the auto finance market. According to both Commissioners, this was the FTC’s first case alleging ECOA violations since the passage of the Dodd-Frank Act, which was signed into law July 21, 2010. ECOA prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, or age, or because someone gets public assistance.

On May 21, 2020, the FTC filed a Complaint for Permanent Injunction in the United States District Court for the Southern District of New York against Liberty Chevrolet, Inc. and its general manager, Carlo Fittanto, for allegedly violating the FTC Act, the Truth in Lending Act, and the ECOA. According to the Complaint, Defendants directed employees to charge higher interest rates and inflated fees in credit transactions to African-American and Hispanic customers. In addition, Defendants allegedly inflated costs, changed sales prices, and double-charged consumers for taxes and fees.


Continue Reading Where’s the FTC Headed? FTC Commissioners Call for Rulemaking Amid ECOA Settlement Approval

Despite what the “gurus” say, the FTC takes the position that there is no quick or easy path to success. Whether that is true or not, the FTC has sued several companies that purportedly taught consumers how to start a home-based Internet business—often advertising the potential to earn vast sums of money—and last week the

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

We have written repeatedly about the FTC and various states’ efforts to clamp down on “negative option” offers to consumers (see blog posts here and here). Last week, consistent with a newly found focus on protecting small businesses, the FTC challenged negative option marketing aimed at business entities. The case underscores the FTC’s

The use of country of origin claims in advertising, and in particular “Made in USA” claims, has been around for a long time — many companies want to showcase products that have been made in the United States by marking them with the phrase or using the Stars and Stripes in advertising. Before making claims like “Made in America” or “Built in the USA,” though, sellers must understand the strict federal and state laws and standards for making such claims. In September 2019, the Federal Trade Commission held a public workshop “to consider ‘Made in USA’ and other types of U.S.-origin claims and in particular sought comments from the public on whether it should update its “Made in USA” Enforcement Policy.[1] While the Commission has not yet updated its Policy, it recently took action on two “Made in USA” cases, FTC v. Williams‑Sonoma and J-B Weld Company; moreover, J-B Weld is entangled in an ongoing class action in California, which has its own “Made in USA” standard. These cases show that the “Made in USA” regulation continues to be something sellers should pay close attention to when it comes to compliance.

“Made in USA” Background

Under Section 45a of the FTC Act, a product that is advertised or offered for sale with a “Made in USA,” “Made in America,” or an equivalent label must have domestic origins that are consistent with orders and decisions of the FTC. See 15 U.S.C. § 45a. The FTC’s 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. Specifically, “[a] product that is all or virtually all made in the United States will ordinarily be one in which all significant parts and processing that go into the product are of U.S. origin.”

Departing slightly from the “all or virtually all” standard, California law provides that companies cannot advertise Made in USA “if the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.” Cal. Bus. & Prof. Code § 17533.7. The statute also provides a 5% safe-harbor provision, providing that “[t]his section shall not apply to merchandise made, manufactured, or produced in the United States that has one or more articles, units, or parts from outside of the United States, if all of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 5 percent of the final wholesale value of the manufactured product.”


Continue Reading “USA, USA, USA…” – Recent Updates on “Made in USA” Claims