Developments at the FTC: Working to Help Vulnerable Consumers

in the Economic Downturn

Monica Vaca, Assistant Director Tom Pahl, Assistant Director Kati Daffan, Staff Attorney Laura Stack, Staff Attorney

Washington, D.C., December 8, 2011

Today’s Agenda

1. Who is the FTC and What Does it Do?

2. FTC Work Impacting Low-Income and Other Vulnerable Consumers

3. Partnering with the FTC: The Legal Services Collaboration

Part I

Who is the FTC and What Does It Do?

FTC Today

• Small, independent agency of 1,100 employees – lawyers, investigators, and economists

• Employees in Washington, D.C. and seven regional offices

• Annual budget of a little under $300 million

• Both consumer protection and competition jurisdiction in most economic sectors

Limits to FTC Jurisdiction

FTC does not have jurisdiction over:

Banks

Common Carriers

Insurance

FTC’s Mission

The FTC’s work is performed by three Bureaus:

• Bureau of Consumer Protection (BCP) protects consumers against unfair, deceptive and fraudulent practices in the marketplace

• Bureau of Competition (BC) eliminates and prevents anticompetitive business practices through enforcement of antitrust laws, review of proposed mergers, and challenges to other non-merger business practices that impair competition

• Bureau of Economics (BE) provides economic analysis and support to BCP and BC, and provides policy recommendations relating to competition and consumer protection to the public and other branches of government

Bureau of Consumer Protection

BCP Staff • Headquartered in DC – approximately 300 employees

• Regional offices – approximately 150 employees • East Central Region (Cleveland) • Midwest Region (Chicago) • Northeast Region (New York) • Northwest Region (Seattle) • Southeast Region (Atlanta) • Southwest Region (Dallas) • Western Region (Los Angeles) • Western Region (San Francisco)

Consumer Protection Toolbox

• Bring law enforcement actions in administrative and federal court

• Promulgate rules and regulations – e.g., The Mortgage Assistance Relief Services Rule and The Business Opportunity Rule

•Consumer and business education

• Policy and research development through hearings, workshops, and conferences

•Work with state, federal, and criminal law enforcement partners

MARKETING PRACTICES

BCP

ADVERTISING PRACTICES

FINANCIAL PRACTICES

PLANNING & INFORMATION

ENFORCEMENT PRIVACY AND IDENDITY PROTECTION

CONSUMER & BUSINESS EDUCATION

REGIONS

• The FTC Act (15 U.S.C. §§ 41 – 58) • Rules published in the Code of Federal

Regulations (Title 16) • Guides published in the CFR that explain

how the agency interprets Section 5 of the FTC Act

• Other laws in which Congress gives the FTC enforcement authority

Sources of FTC Law

“[U]nfair or deceptive acts or practices

in or affecting commerce are hereby declared unlawful.”

15 U.S.C. § 45(a)

Section 5 of the FTC Act

A practice is deceptive if: it’s likely to mislead consumers who are acting reasonably under the

circumstances, and it would be material to their decision to

buy or use the product. FTC Deception Policy Statement, appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984)

Deception

A practice is unfair if it’s likely to cause substantial consumer

injury (physical, economic, or otherwise) that is not reasonably avoidable by

consumers themselves and that is not outweighed by benefits to

consumers or competition. Unfairness Statement, appended to International Harvester Co., 104 F.T.C. 949, 1070 (1984); see also 15 U.S.C. § 45(n)

Unfairness

Fair Credit Reporting Act Truth in Lending Act Fair Debt Collection Practices Act Equal Credit Opportunity Act Credit Repair Organizations Act Children's Online Privacy Protection Act Do Not Call Registry Act CAN-SPAM Act Textile labeling laws Fair Packaging & Labeling Act

Examples of other laws enforced by the FTC

Examples of Rules enforced by the FTC

Telemarketing Sales Rule Used Car Rule Funeral Rule Mail Order Rule Financial Privacy Rule

and Safeguards Rule under the Gramm-Leach-Bliley Act

MARS Rule Red Flags Rule

Home Insulation Rule Contact Lens Rule and

Eyeglasses Rule Appliance Labeling Rule 900 Number Rule Care Labeling Rule Cooling-Off Rule Franchise Rule Business Opportunity Rule

Part II

FTC Work Impacting Low-Income and Other Vulnerable Consumers

Mortgage Assistance Relief Services

• Mortgage Assistance Relief Services Rule (MARS Rule)

– Prohibits misrepresentations (e.g., gov’t affiliation, success claims)

– Mandated disclosures (e.g. non-government affiliation and no guarantee of loan modification)

– No advance fees – FTC and Consumer Financial Protection Bureau (CFPB)

enforcement • FTC Act – Unfair and Deceptive Acts and Practices

MARS – Laws

• In the past two years, FTC has resolved through litigation or settlement 27 MARS cases against 132 defendants

• FTC v. Federal Housing Modification Department – False claim to be a gov’t agency – False claim they would obtain a loan

modification – $2,500 - $3,000 in advance fees

MARS – FTC Enforcement

Debt Relief Services

• TSR Debt Relief Amendments – Cover in-bound calls in response to debt relief ads – Prohibits misrepresentations (e.g., success claims) – Mandated disclosures – (e.g., time and total cost) – No advance fees

• FTC Act – Unfair and Deceptive Acts and Practices

Debt Relief Services - Laws

• In the last two years, the FTC has resolved through litigation or settlement 12 debt relief cases alleging violation of the FTC Act, the TSR, or both

• FTC v. US Debt Care – False claims of gov’t affiliation and approval – FTC

Act and TSR violations – Deceptive claims that debts will be substantially

reduced – FTC Act and TSR violations

Debt Relief Services – FTC Enforcement

Credit Repair

• Credit Repair Organizations Act (CROA) – Prohibition on deceptive claims – Mandated extensive disclosures – Required contract terms – Advance fee ban

• FTC Act – Unfair and Deceptive Acts and Practices

Credit Repair - Laws

• In the past two years, the FTC has filed or resolved 7 actions against 29 defendants who promised to fix or improve the credit of consumers

• United States v. RMCN Credit Services – Charged/received advance fees in violation of

CROA – Made false or misleading statement to CRAs re

the creditworthiness of consumers in violation of CROA

Credit Repair – FTC Enforcement

The FTC gets more consumer complaints about debt collectors than any other single industry

Debt Collection

• Fair Debt Collection Practices Act (FDCPA) – Prohibits unfair, deceptive, and abusive conduct by debt

collectors – CFPB has authority to issue rules

• FTC Act – Unfair and Deceptive Acts and Practices • FTC and CFPB enforcement of the FDCPA; FTC

only enforcement of FTC Act

Debt Collection Laws

• In past two years, the FTC has resolved through litigation or settlement 4 debt collection cases relating to 8 defendants

• FTC v. Rumson Bolling & Associates – Creditor/Clients - FTC Act violations

• Misrepresent that fees collected would be forwarded • Misrepresent that they identified assets and they would

take legal or other action to collect

Debt Collection – FTC Enforcement

• Debtors – FTC Act and FDCPA violations – False threats of lawsuit, arrest, seizure of assets, or

liability for legal expenses – Disclosure of debts to third-parties – Use of profane language – Threats of violence to debtors and their property – Repeated phone calls and faxes

Debt Collection – FTC Enforcement (Cont’d)

• Debt Buyers • Debt Collection Technologies • Debt Collection Litigation and Arbitration

Debt Collection – FTC Research and Policy Development

Payday Loans

• Origination of Payday Loans – FTC Act – Unfair and Deceptive Acts and Practices – TILA – APR and other disclosures – Credit Practices Rule

• Processing and Collecting on Payday Loans – Fair Debt Collection Practices Act – FTC Act – Unfair and Deceptive Acts and Practices

Payday Loans – Laws

• In the past two years, the FTC has commenced 4 actions against payday lending operations

• FTC v. Lakota Cash – Origination Allegations

• Wage assignment clause in contract violated CPR • Credit conditioned on preauthorized EFTs violated EFTA

– Collection Allegations – FTC Act • Misrepresented authority to garnish • Misrepresented notification of garnishment • Unfairly disclosed debts to third parties

Payday Loans – FTC Enforcement

Automobile Finance

• FTC Act – Unfair and Deceptive Acts and Practices (e.g. terms of loan or lease)

• Holder in Due Course Rule • Financial Services Statutes and Rules

– TILA/Regulation Z – CLA/Regulation M – ECOA/Regulation B – Magnuson-Moss Warranty Act and Rules

Auto Finance - Law

• FTC Rulemaking? – Under Dodd-Frank Act, FTC has new authority to do

expedited rulemaking re UDAP of auto dealers – Roundtables in 2011: Detroit, San Antonio, and DC

• FTC Enforcement?

Auto Finance – Future

Job Scams

Operation Bottom Dollar, 2010 • Crackdown on job-placement and work-at-home scams

• Empty promises of jobs in the federal government, as movie extras, or as mystery shoppers; or making money at home by stuffing envelopes or assembling ornaments

• FTC brought 11 cases; DOJ brought 43 criminal actions; 18 actions by state attorneys general

Operation Empty Promises, 2011

• Scammers promised guaranteed jobs or home-based businesses

• 10 FTC cases; 48 criminal actions by DOJ; 7 Postal Inspection cases; 28 actions by state law enforcement agencies

Job Scams

Example case: FTC v. Real Wealth Inc. • AARP Legal Counsel for the Elderly referred this case, in which defendants deceptively marketed and sold booklets that supposedly explained how to earn money working from home or applying for government grants.

• Following the FTC’s motion for summary judgment, a federal judge banned defendants from marketing or selling work-at-home or grant-related products, and from assisting others in doing so.

• The court also ordered defendants to pay $10.4 million, the full amount of harm caused to thousands of victims nationwide.

Job Scams – Rulemaking Update

Amendments to the Business Opportunity Rule 16 CFR 437

• Rule has been expanded to include work-at-home offers such as envelope stuffing and craft assembly opportunities.

• Benefits for consumers? Consumers get a disclosure document from the seller that helps them fact-check the sales pitch.

• For sales conducted in languages other than English, all disclosures must be provided in the language in which the sale is conducted.

• Effective March 1, 2012.

Health Insurance Fraud

Operation Healthcare Hustle • Con-artists tricked the uninsured, unemployed, or uninsurable into buying medical discount plans

• Consumers paid $29-$280 in enrollment fees before receiving written information about the plans

• Purported “participating providers” did not accept the plans

• Federal and state law enforcement agencies filed 54 law enforcement actions

Government Grant Scams

“Three hundred billion dollars of free government grant money is available right now to anyone who applies for it... Congratulations, you have just taken your first step to receive 25,000 dollars or more in free government grant money, guaranteed.”

Internet Scam Telemarketing Scam

• Touted free government grants for personal expenses or paying off debt • Charged consumers’ credit card or bank a $1.99 fee to access a “members only” section of the website with useless information • Failed to disclose recurring monthly charges of $72 to $95

Prepaid Calling Cards

Three settlements as part of a crackdown on fraud in the prepaid calling card industry – totaling more than $4 million bar misleading consumers about the talk time that calling cards provide

require clear disclosure of all fees in the same language that the cards are marketed

Prepaid Calling Cards

FTC v. Millennium Telecard, Inc.

• Prepaid calling card distributor in New Jersey that targeted immigrant communities.

• Of the 141 cards we tested, 139 – more than 98% – failed to deliver the number of minutes advertised on the point-of-sale posters.

• Ads also failed to clearly disclose charges, such as “hang-up fees” and weekly fees that quickly wiped out the value of the card.

• FTC obtained an ex parte TRO in May 2011, with an injunction, asset freeze, immediate access to the business premises, and appointment of a receiver.

Identity Theft

Identity Theft is when someone uses the personal information of someone else to pose as that consumer, in order to

• fraudulently obtain goods or services in the victim’s name from private and public institutions, or

• conceal their true identity from authorities or others who perform background checks.

We receive many complaints about this issue, including from legal services advocates whose clients are facing its consequences. We are working together with service providers to address identity theft in vulnerable communities. E.g., case referrals to AARP.

Identity Theft

http://www.ftc.gov/bcp/edu/microsites/idtheft/

http://www.idtheft.gov/probono/

Identity Theft

Part III

Partnering with the FTC: The Legal Services

Collaboration

Collaboration and Communication

• Sharing expertise – yours and ours

• Case referrals

• Engaging in other forms of advocacy

• Consumer education

• Call us!

Sharing Expertise

• Provide training webinars, workshops

e.g., how to investigate companies using free resources on the internet, how to avoid online scams

• Consult on substantive issues, briefs

• Case referrals

• Consumer education

Case Referrals

• Identifying targets and consumer witnesses for possible law enforcement action

• Example: FTC v. Loma International

• What are we looking for?

•Hot leads, interstate commerce, and large in scope

Cases and Clients

• Collaboration ideas

• Client referrals: AARP Legal Counsel for the Elderly

• Press conference participation: Lawyers Committee for Civil Rights

Advocacy around policy issues

• Input on ongoing policy projects, such as the auto roundtables or regulatory initiatives

• Amicus briefs

• Advocacy with courts

• Other ideas?

http://www.ftc.gov/bcp/consumer.shtm

Consumer Information

•Victim stories •PSA’s (can be downloaded or embedded on website) •Tips on avoiding injury •Button to file a complaint

http://www.ftc.gov/moneymatters

Consumer Information – Microsites by Topic

•All materials are FREE, in the public domain, and can be bulk-ordered.

•Most in English and/or Spanish. •Materials are plain language, and we’re working on a low literacy site.

•On most issues, we have levels of information:

Consumer Information – Materials

Bookmarks for people who just need the high points Consumer Alerts – with a little more information Facts for Consumers – with a lot of information.

http://bulkorder.ftc.gov/

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File Complaints with the FTC

By telephone: 1-877-FTC-HELP

Or online:

www.ftccomplaintassistant.gov

Next Steps – Regular Communication

• Join the FTC’s Legal Services Listserv -- email mvaca@ftc.gov

• Get in touch with the team member in your

region. Consider establishing regular meetings/ communication (e.g., quarterly or monthly calls).

FTC Regional Office Contacts

East Central Region (Cleveland): Maria DelMonaco, mdelmonaco@ftc.gov Midwest Region (Chicago): Joannie Wei, jwei@ftc.gov Northeast Region (New York): Darren Lubetzky, dlubetzky@ftc.gov Northwest Region (Seattle): Julie Mayer, jmayer@ftc.gov Southeast Region (Atlanta): Barbara Bolton, bbolton@ftc.gov Southwest Region (Dallas): Emily Robinson, erobinson@ftc.gov Western Region (LA): Faye Chen Barnouw, fbarnouw@ftc.gov Western Region (San Francisco): Laura Fremont, lfremont@ftc.gov

Thank You!

Monica E. Vaca Assistant Director Division of Marketing Practices 202-326-2245 mvaca@ftc.gov Tom Pahl Assistant Director Division of Financial Practices 202-326-2128 tpahl@ftc.gov

Thank You!

Kati Daffan Attorney Division of Marketing Practices 202-326-2727 kdaffan@ftc.gov Laura Stack Attorney Division of Privacy and Identity Protection 202-326-2209 lstack@ftc.gov