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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.

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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.

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

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.

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

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

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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.

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

The FTC continues to devote substantial time and attention to its enforcement battle against companies seeking to take unfair advantage of consumers amid the COVID-19 pandemic. This week, the FTC announced its latest round of warning letters to ten companies making unsubstantiated claims that their products can treat or prevent the disease.

As we have…

As COVID-19 becomes a more prevalent part of everyday life, federal and state regulators have made it clear that they will aggressively enforce consumer protection laws against companies that seek to take improper advantage of the COVID-19 pandemic.

In a March 26, 2020, statement, Federal Trade Commission Chairman Joe Simons strongly condemned businesses who engage in unfair and deceptive business practices during the COVID-19 pandemic. Chairman Simons stated that the FTC was working with federal and state law enforcers, consumer advocates, and business owners to protect consumers from companies who seek to take advantage of consumer fears regarding COVID-19. As we previously blogged, the FTC, along with the Food and Drug Administration, began taking action against these companies by issuing warning letters to seven sellers of unapproved or misbranded products which claimed that their products could treat or prevent COVID-19. In their respective statements regarding these warning letters, the FTC and FDA indicated that these warnings were only a first step and committed to aggressively pursuing companies who seek to take advantage of consumers during this national emergency. The FTC also published information about Coronavirus-related complaints from consumers, noting the significant number of Coronavirus-related complaints reported from consumers this year.

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Continue Reading Federal Trade Commission and State Regulators Issue Warnings to Companies that Deceptively Advertise COVID-19-Related Products and Services

Last week, the Arizona Attorney General filed a complaint against telemarketer Valley Delivery LLC and affiliated companies Next Day Delivery LLC and My Home Services LLC, and an individual defendant, Mathew Willes, for allegedly distributing fake missed package slips to homeowners to collect their personal information in a “delivery slip scheme.” While the conduct here seems particularly egregious, the case serves as a good reminder that the State AGs remain focused on consumer protection issues especially involving personal data and telemarketing.

The complaint alleged that since January 2017, Valley Delivery gathered new homeowners’ addresses from the county recorder’s office and then dispatched “delivery drivers” to those addresses to post fake delivery slips, with the caption “Sorry We Missed You” on the door of each home. The delivery slips contained a callback telephone number, purportedly for consumers to reschedule the delivery. However, when consumers dialed the callback number on the slips, representatives allegedly collected consumers’ information for telemarketing purposes by affiliated companies and third parties. In addition, according to the complaint, the defendants created websites with false information about the company meant to induce consumers to contact the companies about their “missed delivery.” The defendants allegedly failed to provide sufficient disclosure to consumers concerning their business practices, both on the companies’ websites and on the delivery slips themselves. Even though, there was a purported disclaimer on the back of the slip that any contact information customers provide may be used by the companies or any of its partners for marketing purposes, many homeowners did not see this less conspicuous language placed in a smaller font than the language on the front of the slip.

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Continue Reading Arizona Attorney General’s Second Crackdown on the Same Telemarketer

Last week, the Federal Trade Commission (“FTC”) announced a settlement with Neurometrix, the makers of the Quell electrical nerve stimulation device. In the complaint, the FTC alleged that the company made false claims about Quell’s ability to treat chronic and severe pain throughout the body, even though the device is only placed below the knee, and allegedly false claims that the device is clinically proven and cleared by the Food and Drug Administration (“FDA”) to treat full body pain. The case provides a good reminder that the FTC remains focused on health claims and the standards that the FTC requires for marketing products making health claims.

The FTC’s complaint also challenged advertising claims about Quell users’ results from using the device, including that 81% of people achieve significant pain relief with Quell, and that Quell relieves chronic or severe pain throughout the body caused by a wide range of conditions, including osteoarthritis, nerve damage, sciatica, shingles, and fibromyalgia.

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Continue Reading FTC Targets Advertising Claims Made for Pain-Relief Device