Last week, the Federal Trade Commission filed a complaint in the Northern District of Illinois against the Saint James School of Medicine (SJSM), an Illinois-based for-profit medical school, claiming its Caribbean medical programs deceived consumers with fake student success rates and offers to finance students’ attendance with illegal lending contracts.

Over the last several years, the FTC has focused on for-profit higher education institutions and allegedly deceptive money-making claims, which the FTC challenges as flawed and costly get-rich-quick schemes. Its move last week suggests that the agency remains highly focused on alleged deception of any type involving paying money to make money, regardless of the format.

The FTC’s complaint alleges that SJSM advertises its Caribbean medical programs as an affordable alternative to American medical schools. However, SJSM also allegedly draws students into the program by advertising that more than 96% of its students pass the USMLE Step 1 exam—a critical standardized medical school test—the first time they take it. In fact, the FTC alleges that the passage rate for SJSM students since 2017 is 35%, and that is only for students who are allowed to take the exam after meeting prerequisites set by the school. The FTC claims that the true passage rates are disclosed to students only in hard-to-find areas of SJSM’s website and are buried in a student handbook that students receive only after SJSM has collected their reservation fees.

Continue Reading The FTC Moves Its Attention to A For-Profit Medical School

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

At the peak of tax-filing season, when millions of consumers are still considering their method of filing, the Federal Trade Commission has set its sights on Intuit, Inc., one of the largest online tax-filing services.

On March 28, 2022, the FTC filed an administrative complaint against Intuit, alleging that the company’s marketing of TurboTax as a free tax-filing service misleads consumers because the free service applies only to some, while many end up getting hit with charges at the time of filing.

In a press release, Samuel Levine, director of the Bureau of Consumer Protection at the FTC, stated that Intuit’s advertising is a “bait-and-switch” tactic that a court should immediately halt to protect tax-paying consumers. The FTC simultaneously filed a complaint for a temporary restraining order and preliminary injunction against Intuit in federal court in the Northern District of California, seeking to immediately enjoin it from advertising its tax-filing product and service, TurboTax, as free.

Continue Reading “Free” Must Mean Free? FTC Seeks to Enjoin Intuit from Advertising TurboTax as a “Free” Service

A few weeks ago, we wrote an article discussing two enforcement actions by the Federal Trade Commission in the Central and Southern Districts of California that highlighted the risks to payment processors and financial institutions for their relationships with companies engaged in allegedly unlawful “negative option” marketing.

In both FTC v. Triangle Media Corporation et al. (the “Triangle Action”) and FTC v. Apex Capital Group, LLC (the “Apex Action”), the FTC accused the defendants of engaging in an alleged scheme to offer fake “free trials” of personal care products and dietary supplements to obtain consumers’ credit and debit card information.

Also, in both cases, the court granted the FTC’s request and recommendation that a Receiver be assigned to oversee, manage, and preserve the assets of both sets of defendants. That Receiver then sued Wells Fargo—the bank used by the defendants in both the Triangle and Apex Actions—alleging that Wells Fargo engaged in illicit activity, including, but not limited to, aiding and abetting fraud, conspiracy to commit fraud, breach of fiduciary duty, negligent supervision, and violating the California Unfair Competition Law (UCL). Last week the court denied most of Wells Fargo’s motion to dismiss, allowing the claims against the bank to proceed.

Continue Reading Update: Judge Allows Most of Receiver’s Claims Against Wells Fargo for Involvement with Negative Option Marketers to Proceed

On March 23, Utah Governor Spencer Cox signed into law sweeping amendments to the state’s Business Opportunity Disclosure Act (BODA). The amendments expand the scope of the statute to cover a broad spectrum of business activity. The amendments apply to any seller of a “business opportunity” who represents to the buyer that the buyer will—or may—derive income from the business that exceeds the amount the buyer pays to buy the product, equipment, supply, or service.

How Do the Amendments Expand the Scope of BODA?

Prior to these amendments, BODA applied to sellers of “assisted marketing plans”—defined as the sale or lease of any product, equipment, supplies, or service to a buyer for an initial payment of $500 or more for the purpose of enabling the buyer to start a business—who also made one of four qualifying representations to buyers about the plan. The first three representations are largely unchanged in the new amendments, but the fourth, which has been the focus of litigation under BODA, has changed. The prior language covered representations: that upon payment by the buyer of more than $500 to the seller, the seller will provide a sales program or marketing program that will enable the buyer to derive income that exceeds the price paid.

Continue Reading Biz Opps Stung, Once Again, by the Beehive State

Last month, love was not all lost for the owner of Tinder and OKCupid when a Texas federal district court in FTC v. Match Group, Inc. granted in part the online dating service provider’s motion to dismiss. Specifically, the court agreed with Match that the FTC could not seek equitable monetary relief under Section 13(b) of the FTC Act and barred two claims based on Match’s immunity under the Communications Decency Act (CDA).

To set the scene, here is a recap of the legal landscape. In recent history, the FTC under Section 13(b) brought “proper cases” directly in federal courts without needing to conduct administrative proceedings. The agency also pursued permanent injunctions and equitable monetary relief.

In the past few years, courts have become increasingly less enamored with the FTC’s interpretation of its authority under Section 13(b). The first blow was FTC v. Shire Viropharma, Inc., in which the Third Circuit concluded that under Section 13(b), the FTC cannot base claims on “long-past conduct” alone, but must affirmatively plead facts that a defendant “is violating” or “is about to violate” the law, i.e., that there is “existing or impending conduct.”

Continue Reading FTC v. Match Group, Inc.: Court Gets Cold Feet on the Standard Set Forth in Shire

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

We frequently post about negative option marketing in this blog, but our focus has been the FTC’s enforcement actions against businesses that utilize this marketing strategy. We haven’t written as much about a different risk: payment processors and financial institutions caught in the crosshairs of a court-appointed receiver for their relationships with companies engaged in allegedly unlawful “negative option” marketing. Recently, two FTC enforcement actions in the Central and Southern Districts of California highlight these risks.

In Federal Trade Commission v. Triangle Media Corporation et al. (the “Triangle Action”), the FTC sued Triangle for engaging in an alleged scheme to offer fake “free trials” of personal care products and dietary supplements to obtain consumers’ credit and debit card information.

According to the FTC, Triangle then applied recurring charges to consumers’ cards without authorization. In a later, unrelated action, the FTC brought charges against Apex Capital Group, LLC for essentially the same activity (the “Apex Action”). In both cases, the courts granted the FTC’s request and recommendation that a receiver be assigned to oversee, manage, and preserve the assets of both sets of defendants. In an interesting turn, the same receiver, Thomas McNamara of McNamara LLP (the “Receiver”), was recommended by the FTC, and accepted by the courts, as the Receiver for Triangle’s and Apex’s assets.

Subsequently, the FTC filed an amended complaint in the Apex Action that accused Apex’s credit card payment processor, Transact Pro, of credit card laundering and chargeback manipulation in violation of Section 5 of the FTC Act. Both Apex and Transact Pro entered into a settlement with the FTC requiring a stipulated judgment ordering the parties to pay monetary relief.

Continue Reading How Negative Option Marketing Can Risk Entangling Third-Party Banks and Payment Processors

Last week, New York Attorney General Letitia James announced that online travel agency Fareportal Inc., which operates several travel-related websites and mobile platforms, including CheapOair.com and OneTravel.com, will pay $2.6 million to New York for misleading consumers with deceptive marketing tactics.

“Consumers wanted to land affordable tickets through Fareportal’s platforms, but were met with lies instead,” James said in a statement. “Fareportal used deeply deceptive tactics to trick millions of consumers into booking airline tickets and hotel rooms.”

The investigation into Fareportal revealed that, since at least 2017, the company created false urgency around the availability of airline tickets and hotel rooms to pressure consumers into making purchases on its platforms. The AG challenged these marketing tactics as “dark patterns,” referring to alleged misleading design features and methods used to manipulate consumers into buying goods and services. As we have covered previously, alleged “dark patterns” have become a priority in rulemaking and enforcement.

Continue Reading New York Attorney General Secures $2.6 Million from Fareportal for Deceptive Marketing Tactics