On October 3, the Supreme Court heard oral argument in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited, where the Court is reviewing the Fifth Circuit’s opinion that struck down the Payday Lending Rule because the Fifth Circuit found that the Consumer Financial Protection Bureau’s (the “Bureau”) funding structure is unconstitutional. While the Fifth Circuit decision was limited to the Payday Lending Rule, a ruling upholding the Fifth Circuit’s decision would have severe ramifications for the Bureau and could potentially lead to the demise of the agency without congressional action.

As a refresher, the Fifth Circuit held that the Bureau’s “unique” funding structure violates Article I of the Constitution—vesting Congress with appropriation power—because the agency is not funded through congressional appropriations. Rather, the Bureau receives its funding from the Federal Reserve, which is funded through bank assessments. In short, the Fifth Circuit found that Congress had abdicated its “power of the purse” and had run afoul of the nondelegation doctrine where it has no involvement in the CFPB’s ongoing funding.Continue Reading C[FPB] You Later? Agency’s Future Hangs in the Balance After Oral Argument

Last week, the Federal Trade Commission (FTC) won a large battle in its extended war with Intuit, the makers of TurboTax tax-preparation software. An administrative law judge (ALJ) issued a lengthy initial decision, ruling that Intuit’s advertisement of a TurboTax offering as “free” was deceptive, ordering Intuit to cease and desist future advertising related

On September 19, Sam Levine, the director of the Federal Trade Commission’s Bureau of Consumer Protection, outlined the agency’s priorities at the annual conference of the National Advertising Division. Here are the highlights:

Levine outlined three pillars of the enforcement agenda:

  • Focus on the practices that cause the most consumer harm
  • Obtain relief that not only halts the violative conduct but also changes incentives to engage in such conduct in the future
  • Use tools beyond case-by-case enforcement to change behavior (think rule making)

After also noting that the pace of enforcement at the FTC had increased, Levine then focused on some substantive areas of concern, starting with junk fees and dark patterns.Continue Reading FTC Consumer Protection Chief Sam Levine Outlines FTC Priorities at the NAD Conference

Last week, the Federal Trade Commission (FTC) and six states permanently banned Roomster Corp. and its owners, John Shriber and Roman Zaks, from purchasing or incentivizing consumer reviews as part of a settlement over charges that they utilized fake reviews to lure consumers into paying for access to nonexistent rental listings. The settlement comes in the middle of a public notice and comment period for the proposed rule by the FTC on fake reviews that would cover much of the conduct alleged of Roomster.  

According to the complaint, Roomster allegedly bought tens of thousands of fake reviews that were used to funnel unwitting customers to the company’s rental listings, which often ended up being fake or nonexistent.Continue Reading Bad News for Fake Reviews: FTC Issues Permanent Ban on Roomster

The Seventh Circuit has once again weighed in on the scope of the Federal Trade Commission’s (FTC’s) remedial authority. The case, FTC v. Credit Bureau Center, LLC, has had, in the words of the court, “a long and winding journey through the federal courts, including a trip to the Supreme Court and back.” Last week’s decision focused on monetary relief under Section 19 of the FTC Act—specifically, on how to calculate redress under Section 19 and whether monetary relief imposed under Section 19 can be deposited into the U.S. Treasury as disgorgement.

The lower court entered a judgment of $5,260,671.36, which equaled Credit Bureau Center’s total revenues minus refunds already paid and chargebacks. On appeal, Credit Bureau Center argued that a monetary award under Section 19 must be limited to net profits that can be traced to the underlying fraud (as opposed to net revenues). Credit Bureau Center relied on Liu v. SEC, 140 S. Ct. 1936 (2020), in which the Supreme Court found that a disgorgement award could not exceed a firm’s net profits from wrongdoing. The Seventh Circuit rejected this because Section 19—unlike the statute at issue in Liu—explicitly permits the refund of money to make consumers whole, and, therefore, relief under Section 19 is not limited to the traditional scope of remedies available in equity. Continue Reading Another Day, Another Decision Interpreting Section 19 of the FTC Act

As we covered previously, courts are coming around to reading Section 19 of the FTC Act more narrowly than the Federal Trade Commission may hope. In the latest instance, on June 9, 2023, a magistrate judge in the Southern District of Texas issued a report and recommendation rejecting the FTC’s claim for consumer redress, even after finding there was consumer injury. The report and recommendation were adopted by the district judge on August 3.

In Federal Trade Commission v. Zaappaaz, LLC, the FTC argued at summary judgement, and the court agreed, that the defendants violated the Merchandise Rule by falsely advertising shipping speeds of personal protective equipment and refusing to offer refunds. For these rule violations, the FTC further argued that the appropriate measure of consumer redress under Section 19 was net revenue of the PPE sales—$37,549,472.14. In denying the FTC’s request for net revenue, the court distinguished between requiring the agency to demonstrate individual reliance as a means of proving consumer injury and the amount of compensation necessary to redress that consumer injury.Continue Reading Following Noland: Another District Court Tightens the Reins on the Scope of Consumer Redress

Last week, the Federal Communication Commission’s (FCC) issued a Notice of Apparent Liability for Forfeiture proposing a $20 million forfeiture, essentially a fine, against two telecommunications service providers for failing to properly authenticate customers’ identity before providing online access to Customer Proprietary Network Information (CPNI). CPNI includes sensitive data, such as called phone numbers, the length and time of calls, and service features. FCC rules mandate that companies handling such information use “reasonable measures” to guard access to CPNI.

Because it would be easy for third parties to impersonate customers and gain access to their CPNI, FCC rules prohibit the use of readily available biographical information or account information. “Readily available biographical information” includes “information drawn from the customer’s life history and includes such things as the customer’s social security number . . . mother’s maiden name; home address; or date of birth.” Account information is “information that is specifically connected to the customer’s service relationship with the carrier, including such things as an account number or any component thereof, the telephone number associated with the account, or the bill’s amount.” FCC rules thus requires service providers to authenticate customer identity without the use of the above information and then require a password.Continue Reading FCC Proposes $20 Million Forfeiture Against Telecommunications Service Providers for Failing to Protect User Data

With the end of the Supreme Court’s term in June, most eyes have been on the release of the last remaining merits decisions. In the midst of issuing the final opinions of the term, the Court also granted certiorari on a number of cases, one of which—Securities and Exchange Commission v. Jarkesy—might have implications for the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).

In Jarkesy, the SEC sued talk radio host George Jarkesy and his two hedge funds (collectively, “the Jarkesy Parties”) through an administrative action before an SEC administrative law judge (ALJ). After an evidentiary hearing, the ALJ determined that the Jarkesy Parties committed securities fraud, and the Commission affirmed the ALJ’s decision, imposing a civil penalty, disgorgement of ill-gotten gains, and enjoining Jarkesy from various securities industry activities. The Jarkesy Parties proceeded to appeal the Commission’s decision to the U.S. Court of Appeals for the Fifth Circuit. The Jarkesy Parties appealed on several constitutional grounds previously raised and denied during the ALJ and Commission proceedings:Continue Reading Supreme Court Case Watch: Securities and Exchange Commission v. Jarkesy and Its Impact on Independent Agencies

Thirteen months after proposing sweeping changes to its Endorsements and Testimonial Guides (Guides), the Federal Trade Commission (FTC) has finalized its revised guidelines and released an updated set of FAQs to help guide the industry with respect to the proper use of customer reviews, influencer marketing, and traditional endorsements and testimonials. 

The new Guides are over 80 pages. We will dive into specific sections in greater depth in the coming weeks, but here are some highlights:Continue Reading FTC Finalizes Updated Endorsement and Testimonial Guides

The Federal Trade Commission (FTC) recently announced a settlement with a group of related companies and two of their officers that used a merchant of record (MoR) model to facilitate sales for merchants. According to the FTC, the MoR businesses violated the law by assisting and facilitating fraudulent telemarketing sales of tech support services and laundering credit card charges through the defendants’ own merchant processing accounts.

The MoR model is one of several novel models payments companies and platforms have launched in the marketplace. While numerous compliance questions related to money transmission and unlawful payments aggregation abound, this particular FTC case warns that consumer protection agencies are taking a closer look at risks presented by the MoR model.Continue Reading Increasing Regulatory Scrutiny for the Merchant of Record Model