Last week, the Federal Trade Commission (FTC) Bureau of Consumer Protection’s Acting Director, Thomas Pahl, posted on the FTC’s Business Blog about the FTC’s role as the federal agency with the “broadest jurisdiction” to pursue privacy and data security issues. Pahl noted that for over twenty years the FTC has used its authority, “thoughtfully and forcefully to protect consumers even as new products and services emerge and evolve.”  Pahl emphasized that the FTC is “the enforcement leader in the privacy and security arena” and that the FTC will continue to “focus the national conversation on keeping consumer privacy and data security front and center as new technologies emerge.”

Pahl’s blog posting supports recent statements by FTC Acting Chairman Maureen Ohlhausen, who recently testified before Congress that, “the FTC is committed to protecting consumer privacy and promoting data security in the private sector.”

Companies should not expect the FTC to reduce its enforcement activities relating to privacy and data security issues, but companies can expect the FTC to shift away from bringing cases based on novel legal theories.  Ohlhausen is committed to re-focusing the FTC’s efforts on “bread-and-butter” enforcement.  Ohlhausen has spoken openly in opposition to recent enforcement actions brought under the Obama Administration that were based on speculative injury or subjective types of harm rather than concrete consumer injury.

Furthermore, companies should expect further guidance from the FTC relating to privacy and data security expectations to help reduce unnecessary regulatory burdens and provide additional transparency to businesses on how they can remain compliant and avoid engaging in unfair or deceptive acts of practices.  Under Ohlhausen’s leadership, companies should be watching closely for FTC guidance laying out what they should do to protect consumer privacy and ensure proper data security, rather than just waiting to find out what they should not do from FTC enforcement actions.

The FTC issued a press release earlier this week in which it stated that it is “moving aggressively to implement Presidential directives aimed at eliminating wasteful, unnecessary regulations and processes.”  The press release does not identify the directives but presumably they are contained in President Trump’s executive orders entitled “Core Principles for Regulating the United States Financial System” and “Presidential Executive Order on a Comprehensive Plan for Reorganizing the Executive Branch.”

The press release listed a series of initiatives that are already underway to implement the directives that include the following:

  • New groups within the FTC’s Bureau of Competition and Bureau of Consumer Protection are working to streamline demands for information in investigations to eliminate unnecessary costs to recipients of such demands.
  • Both Bureaus are reviewing their dockets and closing older investigations, where appropriate.
  • The entire FTC is working to identify unnecessary regulations that are no longer in the public interest.
  • The Bureaus of Consumer Protection and Economics are working together to integrate economic expertise earlier in FTC investigations to better inform agency decisions about the consumer welfare effects of enforcement actions

The FTC has sent a letter to the CFPB summarizing the FTC’s debt collection activities in 2016.  The letter is intended to provide the CFPB with information for its annual report to Congress on the federal government’s FDCPA activities.

The letter includes a discussion of the FTC’s collaboration with the CFPB on two amicus briefs in cases involving FDCPA issues.  In one such case, the FTC and CFPB argued in the Seventh Circuit that an unpaid parking fee is a “debt” within the meaning of the FDCPA.  In the other such case, the FTC and CFPB argued in the Ninth Circuit that the FDCPA requirement for a debt collector to provide certain information to the consumer “after the initial communication” does not apply only to the first debt collector that contacts a consumer to collect a particular debt but applies to each debt collector that contacts the consumer to collect that debt.

The letter’s centerpiece is the FTC’s description of its enforcement activities.  The FTC stated that in 2016, it brought or resolved 12 debt collection cases that included the following:

  • Three actions involving “phantom debt collection” in which the defendants were charged with such activities as selling portfolios of fake payday loans used by debt collectors to get people to pay on debts they did not owe, threatening consumers to collect debts they did not owe, and attempting to collect on debts known to be bogus.
  • Three actions against debt collectors for allegedly using text messages, emails and phone calls to falsely threaten consumers with arrest or and lawsuits.
  • An action against debt collectors for allegedly sending letters in connection with the collection of utility bills and government debts that contained threats of arrest appearing to come from a court

The letter also discussed the FTC’s education and public outreach initiatives, such as its work with community-based organizations and national groups that order and distribute FTC information, its development of a series of fotonovelas in Spanish, and its development and distribution of business education materials.  The FTC also described its research and policy development activities, which consisted of holding conferences and workshops and coordination with the CFPB.

The FTC has sent its annual letter to the CFPB reporting on the FTC’s activities related to compliance with the Equal Credit Opportunity Act and Regulation B.

The FTC has authority to enforce the ECOA and Reg B as to nonbank providers within its jurisdiction.  However, like the FTC’s letters on its 2014 and 2015 ECOA activities, the letter on 2016 activities does not describe any 2016 FTC ECOA enforcement activity and only contains information about the FTC’s research and policy development efforts and educational initiatives.

With respect to research and policy development, the letter discusses the following initiatives:

  • Auto survey.  In December 2015, the FTC published a notice in the Federal Register seeking comments on its plans to conduct a survey of consumers regarding their experiences in buying and financing automobiles at dealerships.  The FTC published a second notice in September 2016 seeking clearance from OMB for the survey, addressing comments received in response to the 2015 notice, and inviting further comments.  (In addition to ECOA enforcement authority, the FTC has authority to issue unfair or deceptive trade practices rules for auto dealers under Section 5 of the FTC Act.  The survey could be a prelude to such rulemaking.)
  • Big data report.  In January 2016, the FTC issued a report warning that certain uses of big data consisting of consumer information may implicate various federal consumer protection laws.  The report focused on big data’s impact on low-income and underserved populations and protected groups and discussed the potential applicability of various laws, including the ECOA, to big data practices and provided a list of ”questions for legal compliance” for companies to consider in light of these laws.
  • Fintech forum.  In June 2016, the FTC launched a series of forums exploring emerging financial technology and its implications for consumers.  The first forum focused on marketplace lending and examined how marketplace lending operates, potential consumer benefits, consumer protection issues, and the potential applicability of various consumer protection laws.
  • Report on fraud in African American and Latino communities.  In June 2016, the FTC issued a report on its work on fraud prevention, enforcement, and consumer outreach and education in African American and Latino communities.
  • Changing demographics workshop.  In December 2016, the FTC held a workshop in which the topics discussed included how the population is changing, the impact of those changes on the marketplace, concerns about auto lending and discriminatory lending, and the FTC’s future role.
  • Interagency fair lending task force.  The FTC noted its continued membership in the Interagency Task Force on Fair Lending with the CFPB, DOJ, HUD, and the federal banking agencies.

With regard to the FTC’s consumer and business educational initiatives, the FTC discussed its publication of various blog posts in 2016, including posts about its work in combating fraud, its workshop on changing demographics, its fintech forum, and its big data report.

The FTC has announced that to study the effectiveness of various class action settlement notice programs, it has issued orders to eight claims administrators requiring them to provide information on their procedures for notifying class members about settlements and the response rates for various methods of notification.

It is anticipated that such information will demonstrate that only a very small fraction of class members who must file claims to participate in a settlement fund actually do so.  Such information would provide support for critics of the CFPB’s proposed arbitration rule and serve as further evidence that the CFPB’s premise that consumers obtain more meaningful relief through class actions than in arbitration is incorrect.

The CFPB’s own arbitration study included data showing that even class members entitled to benefits frequently fail to obtain them.  The study found that in “claims made” class action settlements, the unweighted average claims rate was 21 percent and median was 8 percent.  The weighted average claim rate was only 4 percent.  Moreover, claims rates fell nearly 90 percent if documentary proof was required.  Presumably, the funds not distributed to the class members either reverted to the company or were used for a cy pres distribution

For more information on the FTC’s announcement, see our legal alert.

As observers ponder the CFPB’s future in a Trump Administration, the Federal Trade Commission’s continuing role as an enforcer of federal consumer financial protection laws should not be overlooked.  Over the approximately five years the CFPB has been operational, the FTC has demonstrated its intention to vigorously use its enforcement authority as to nonbanks even where it shares that authority with the CFPB.

On January 4, 2017, from 12 p.m. to 1 p.m., Ballard Spahr attorneys will conduct a webinar, “Beyond the CFPB: The Enforcement Role of the FTC and Other Federal Regulators Post-Election.”  A link to register is available here.

Under the Consumer Financial Protection Act, the FTC retained its authority to enforce Section 5 of the FTC Act against all nonbanks within its jurisdiction.  Section 5 prohibits unfair or deceptive acts or practices.  It also retained its enforcement authority for nonbanks under the “enumerated consumer financial laws.”  Such laws include the TILA, CLA, EFTA, ECOA, FDCPA, FCRA and Gramm-Leach-Bliley.

Other laws that can be enforced by the FTC as to nonbanks include the Military Loan Act, the Telemarketing and Consumer Fraud and Abuse Protection Act, and the Credit Repair Organizations Act.

On September 15th, the FTC will hold a workshop to examine the testing and evaluation of disclosures that companies make to consumers about advertising claims, privacy practices, and other information.  The FTC’s workshop will explore how to test the effectiveness of these disclosures to ensure consumers notice them, understand them, and can use them in their decision-making.  Companies should incorporate the principles articulated during the workshop by federal regulators such as the FTC and the CFPB into the development of their own consumer disclosures, especially relating to e-commerce and mobile initiatives.

The “Putting Disclosures to the Test” workshop will explore ways to improve the evaluation and testing of consumer disclosures by industry, academics, and the FTC related to:

  • Disclosures in advertising  designed to prevent ads from being deceptive;
  • Privacy-related disclosures, including privacy policies and other mechanisms to inform consumers that they are being tracked; and
  • Disclosures in specific industries designed to prevent deceptive claims.

Among the participants at the workshop will be Heidi Johnson, a research analyst from the CFPB Office of Research, who will present a case study entitled, “Disclosure Research in the Lab and Online.” The CFPB’s Decision Making and Behavioral Studies team is engaged in a strategic initiative to invest in research that explores the factors that influence a disclosure’s efficacy, how to use different methodologies to study disclosure, and the market effects of disclosure. Ms. Johnson’s work as a part of this team has included consumer research on overdraft and other financial products.

On June 9, 2016, the FTC will host a “FinTech forum on marketplace lending,” the first in a forum series described by the FTC as “exploring emerging financial technology and its implications for consumers.”  According to the FTC, the forum “will examine the range of marketplace lending models, their potential benefits to consumers, possible consumer protection concerns, and the applicability of consumer protection laws to market participants.”

The regulators scheduled to be speakers at the forum include several FTC representatives as well as Thomas Dresslar, a Deputy Commissioner of the California Department of Business Oversight (DBO), who, according to the FTC, “is directing the DBO’s inquiry into the online lending market.”  In December 2015, the DBO announced that it was launching an inquiry into the marketplace lending industry and, in April 2016, it issued a summary report of aggregate data provided by the companies that responded to the DBO’s online survey that was part of the inquiry.

In March 2016, the CFPB announced that it had begun to take complaints about marketplace lenders.

 

The Federal Trade Commission has provided its annual report to the CFPB covering the FTC’s enforcement activities in 2015 related to compliance with Regulation Z (Truth in Lending), Regulation M (Consumer Leasing), and Regulation E (Electronic Fund Transfers).  Under Dodd-Frank, the FTC retained its authority to enforce these regulations with respect to entities within its jurisdiction.  The FTC and CFPB coordinate their enforcement and related activities pursuant to a MOU entered into in 2012 and reauthorized in 2015.

Reg Z/TILA.  The FTC’s enforcement activities included one federal court action involving alleged deceptive advertising by an auto dealer, five consent orders in administrative actions settling deceptive advertising claims against auto dealers, and two consent orders in administrative actions settling deceptive advertising claims by auto title lenders (representing the FTC’s first actions against such lenders).  Other TILA-related enforcement activities included a stipulated order in a federal court action against two online payday lenders settling claims that the lenders gave inaccurate TILA disclosures to borrowers and a final judgment in one federal court action and continued litigation in two other federal court actions against companies providing mortgage assistance relief services (including alleged forensic audit scams in which the providers offered, for a fee, to review or audit mortgage documents of distressed homeowners to identify legal violations).

Reg M/Consumer Leasing.  The FTC’s enforcement actions included proposed or final consent orders in administrative actions against three auto dealers to settle deceptive advertising claims.

Reg E/EFTA.  The FTC’s enforcement actions included three federal court actions involving negative option plans in which the defendants are alleged to have debited consumers’ accounts without obtaining proper written authorization and a consent order in a federal court action against two online payday lenders settling claims that the lenders conditioned the extension of credit on preauthorized transfers.

 

The interest of federal regulators in marketplace lending continues to grow.  In March 2016, the CFPB announced that it is taking complaints about marketplace lenders.  In July 2015, the Treasury Department issued a request for information regarding online marketplace lending and, in February 2016, the FDIC published an article highlighting the risks for banks that partner with marketplace lenders.

Now, the FTC has joined in by announcing that on June 9, 2016, it will host a half-day forum in Washington, D.C. “exploring the growing world of marketplace lending and its implications for consumers.”  The forum will be the first in a series of FTC events looking at consumer protection across different areas of emerging financial technology.

According to the FTC’s announcement, the forum will bring together marketplace lending industry participants, consumer groups, researchers, and government representatives.  It will examine the various models used by marketplace lenders, potential benefits to consumers, and possible consumer protection concerns.  It will also look at how existing consumer protection laws might apply to companies participating in the marketplace lending space.