A Texas federal district court has entered a $2 million civil penalty judgment against the former president of a debt collection company for alleged violations of the FDCPA and FTC Act.  The judgment follows the court’s finding in a prior order that $2 million was a “reasonable and appropriate penalty for [the president’s] violations of the Fair Debt Collection Practices Act.”  The company and former president had previously been banned by the court from “participating in debt collection activities”  and “advertising, marketing, promoting, offering for sale, selling, or buying any consumer or commercial debt or any consumer information relating to a debt.” 

In January 2015, the DOJ, on behalf of the FTC, had filed a complaint against the company and its former president and vice president alleging that the defendants had engaged in various practices in violation of the FDCPA and FTC Act, including impersonating attorneys and attorneys’ staff and falsely threatening consumers with litigation or wage garnishment.  In April 2016, the court entered summary judgment against the company and former president, stating “the summary judgment record is clear and uncontroverted that [the company] is a debt collector covered by the FDCPA and that its collectors have committed numerous violations of the FDCPA and Section 5 of the FTC Act.”  With regard to the company’s president, the court found that as president and sole owner of the company, he had actual or implied knowledge of the FDCPA violations because he “not only played a role in formulating the policies and practices that resulted in the violative acts, but in fact actually set the policies of his company.  As President, he had the authority to fire or otherwise discipline his employees for employing deceptive debt collection activities.”   In September 2016, the court entered a stipulated order permanently banning the company’s former vice president from participating in debt collection activities and activities related to the sale or purchase of consumer or commercial debts or debt-related consumer information. The order also imposed a $496,000 civil penalty judgment that was suspended except for $10,000 based on inability to pay.) 

In its order finding $2 million to be an appropriate penalty, the court noted that the FTC Act authorizes a penalty of up to $40,000 for each act that violates the FDCPA “with actual or implied knowledge of the FDCPA” and that the “maximum theoretical penalty for the estimated  109,634 violations exceeds $4 billion.”  The court stated that the FTC had established the defendant’s lack of good faith through his admissions that the company had no formal FDCPA training program and that he had hired “abusive collection managers and refused to fire them if they were effective.”  The court also noted his awareness of consumer complaints and that he “he had the ultimate authority over the collection managers and the collectors.”

 

 

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 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.

Yesterday, the FTC announced the launch of a redesigned Military Consumer website as part of its joint initiative with the DoD, CFPB and others. Military.Consumer.gov is a financial readiness website designed to help servicemembers and their families navigate consumer decisions and protect against fraud. The website also provides tools for personal financial managers, counselors, and others in the military community to promote financial education. To facilitate navigation and utility, the website has been optimized for use on a mobile device and updated with “quick, mobile-friendly tips” for servicemembers to access on the go.

The FTC recently held a workshop, “Putting Disclosures to the Test,” to explore the question of what should be done to make disclosures effective.  The workshop included reports on numerous studies related to consumer understanding of disclosures, and the efficacy of different methods and timing of consumer disclosures.

Among the panelists at the workshop was Heidi Johnson, a CFPB research analyst.  She discussed research being conducted by the CFPB, through its Decision Making and Behavioral Studies team, that is exploring the factors that influence the efficacy of disclosures in financial services, how to use different methodologies to study disclosure, and the market effects of disclosures.

For more information about the workshop, including key takeaways from studies that were presented, see our legal alert.

 

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.