On September 22, 2021, FTC Chairperson Lina Khan published a memorandum to FTC staff urging the agency to unite behind her vision and priorities for the agency, and announcing that the elite vanguard leading Khan’s effort will be acting Bureau Directors Sam Levine and Holly Vedova, both of whom will become permanent directors of the Bureau of Consumer Protection and the Bureau of Competition, respectively. Khan has previously indicated that the FTC needs to throw off its bureaucratic chains of past approaches and practices and be more aggressive in enforcing both consumer protection and competition laws. Given the implicit and explicit criticism in her prior communications, the memorandum appears to be an effort to gather support among FTC staff for her approach. An overarching theme of the memorandum is that the FTC may be blurring the lines between the FTC’s consumer protection and competition missions by increasing collaboration between the Bureau of Consumer Protection and the Bureau of Competition. While many prior chairpersons have expressed this ambition, Khan appears ready to make that aspiration operational.

Chairperson Khan starts her strategic discussion by announcing that the agency will be taking a “holistic approach to identifying harms.” In elaborating on this “holistic approach,” she frequently combines references to individual consumers and businesses, and highlights nontraditional harms of anti-competitive activity, many of which are familiar to consumer protection, for example, disparate impact, privacy violations, and asymmetrical bargaining power. Her message is clear: the distinction between antitrust and consumer protection will no longer be as defined as it was in the past. Also clear are the consequences: once this boundary is eliminated, the FTC can use the merger review process to conduct discovery on consumer protection violations, perhaps hoping the cost and threat of that inquiry will deter merger activity.


Continue Reading The Khan Manifesto

On July 21, 2021, and in response to President Biden’s Executive Order calling on the FTC to address repair restrictions, the FTC unanimously adopted the Right to Repair Policy Statement related to manufacturer and seller restrictions to product repairs. In the policy statement, the FTC announced its plans to prioritize enforcement against unlawful repair restrictions, including promoting possible updates to state and federal legislation. Manufacturers and sellers should ensure compliance with current consumer protection and antitrust laws and monitor potential rulemaking, a path the FTC is careening toward.

The FTC expressed concern that repair restrictions make it more difficult for competitors, local businesses, and consumers to repair products. In a May 2021 report to Congress, Nixing the Fix: An FTC Report to Congress on Repair Restrictions, the FTC detailed manufacturer-created restrictions, including limiting the availability of parts, software, and telematics information and access to authorized repair networks; designing products to make self-repairs less safe; asserting trademark and patent rights in an overbroad manner; and implementing restrictive end-user license agreements and software locks. The FTC also warned that repair restrictions drive up repair costs, repair wait times, and electronic waste; reduce competition; and have an especially large impact on communities of color and lower-income Americans.


Continue Reading FTC Turns Focus to Repair Restrictions in New Policy Statement

The FTC has sued a seller of personal protective equipment (PPE), bringing its first PPE-related case under the COVID-19 Consumer Protection Act (CCPA). The lawsuit demonstrates the FTC’s continued focus on COVID-19-related advertising practices. Although this is not the first time the FTC has brought an action for a failure to deliver PPE on time,

This week, the Federal Trade Commission (FTC) announced a proposed settlement with MoviePass to resolve allegations that the company offered an automatically renewing movie subscription program but blocked paid subscribers from using the advertised services, and failed to adequately secure subscribers’ personal data.

The FTC brought the case against MoviePass under the Restore Online Shoppers Confidence Act (ROSCA), the federal statute governing online negative option programs. The statute requires sellers to clearly and conspicuously disclose all “material terms of the transaction” and obtain consumers’ express informed consent before charging them for online negative option features.

However, the FTC’s complaint did not take issue with the company’s billing disclosures or consent mechanism. Instead, it asserted that the company’s failure to disclose its deceptive tactics that prevented subscribers from accessing all of the advertised benefits violated ROSCA. In the complaint the FTC alleged that MoviePass, Inc deceptively marketed a MoviePass subscription service that allowed customers to view movies at local theaters for a monthly fee. However, once customers purchased a subscription, MoviePass allegedly used various methods to prevent subscribers from accessing the advertised service. For example, to limit the movies that customers could view, MoviePass allegedly blocked account access by invalidating subscriber passwords under the guise of “suspicious activity or potential fraud.” The FTC asserted that resetting a password was cumbersome and often failed, precluding subscribers from regaining access. Next, the FTC alleged that MoviePass’s operators implemented a ticket verification program that required users to submit pictures of their physical movie ticket stubs for approval through the app within a certain time frame after purchase. Users who failed to submit their ticket stubs would be blocked from viewing future movies and could risk subscription termination. Third, MoviePass allegedly used “trip wires” to block certain groups of subscribers—heavy users who viewed more than three movies per month—from using the service to purchase more tickets. These allegations seem to echo statements from the FTC’s Dark Patterns workshop (we blogged about the workshop here), which discussed ways the FTC should address websites and apps that impair consumers’ autonomy, decision making, and choice.


Continue Reading Lights, Camera, Action! FTC Settlement Signals Novel Use of ROSCA

On April 29, 2021, the Federal Trade Commission (“FTC”) held a virtual workshop, Bringing Dark Patterns to Light, which discussed the use of “dark patterns,” how they impact consumers, and ways the FTC can combat these methods.

What are dark patterns?

The FTC has defined “dark patterns” as website design features or interfaces which are used to deceive, steer, and manipulate users into behavior that is profitable for the website owner but detrimental to consumers. The panelists agreed that while the term “dark patterns” is useful as a general characterization, it does not adequately convey the term’s meaning from a legal standpoint. According to the panelists, dark patterns are also difficult to identify because many are intentionally designed to be covert.

Although many of the panelists used terms like “manipulative tactics” or “deceptive practices” to describe dark patterns, one of the most comprehensive definitions came from Arunesh Mathur, a Postdoctoral Research Fellow at Princeton University, who described six attributes that make up dark patterns:


Continue Reading FTC Holds Workshop on “Dark Patterns” and Seeks Public Comments

On April 20, 2021, Acting Chairwoman Rebecca Kelly Slaughter and Commissioners Rohit Chopra, Noah Phillips, and Christine Wilson testified before the Senate Committee on Commerce, Science, and Transportation and provided an overview of the FTC’s consumer protection priorities. In addition, the hearing addressed the Commission’s imperiled consumer redress authority under Section 13(b) of the FTC Act and the agency’s continuous efforts to combat COVID-19-related scams.

As we have previously written, the Supreme Court is set to decide the scope of FTC’s Section 13(b) authority to obtain a permanent injunction and equitable monetary relief. At the hearing, the Commission emphasized that Section 13(b) authority is the FTC’s “bread and butter” and requested that Congress clarify that authority. Chair Maria Cantwell (D-WA) and Ranking Member Roger Wicker (R-MS) showed an interest to move quickly with a legislative fix if the Supreme Court decides against the FTC. Specifically, Senator Cantwell gave two examples of how the FTC has used its Section 13(b) power to get consumer redress. In 2019, the FTC returned more than $34 million to consumers who were allegedly tricked into buying computer repair products and services, and the FTC sent settlement payments of nearly $50 million to students allegedly lured by a university’s deceptive advertisements that it worked with reputable companies to create job opportunities.


Continue Reading The Uncertainty Continues: Compromised Section 13(b) Authority, COVID-19 Scams, and the FTC’s Plans for Consumer Protection

The FTC has filed its first lawsuit under the COVID-19 Consumer Protection Act, charging St. Louis-based chiropractor Eric Anthony Nepute and his company, Quickwork LLC, with violating the Act by deceptively marketing nutritional supplements as scientifically proven to treat or prevent COVID-19.

According to the FTC, despite its May 2020 warning letter to Nepute regarding unsubstantiated COVID-19 efficacy claims he made in connection with other products, the defendants continued marketing their vitamin and mineral products—namely, their “Wellness Warrior” vitamin D and zinc supplements—as proven immunity boosters that effectively treat or prevent COVID-19. The FTC also accuses the defendants of routinely dismissing public health guidance and falsely representing that their products provide protection against the disease that is equal to or better than that provided by available vaccines. The FTC’s complaint seeks both monetary penalties and broad injunctive relief.


Continue Reading FTC Files First Action Under COVID-19 Consumer Protection Act

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

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?