FTC Approves Reynolds Acquisition of Lorillard, With Divestitures
- The Federal Trade Commission approved Reynolds American’s (“Reynolds”) acquisition of Lorillard, on the condition that the companies divest four cigarette brands—Winston, Kool, Salem, and Maverick—to Imperial Tobacco Group. Reynolds originally offered to sell these four brands, along with Lorillard’s Blu e-cigarettes, as a condition of its $27.4 billion purchase in July 2014. The FTC’s Complaint (which it issued alongside its proposed Consent Order and redacted Decision and Order), does not mention Blu.
- According to the FTC “without the divestiture to Imperial, the proposed merger raises significant competitive concerns by eliminating current and emergent, head-to-head competition between Reynolds and Lorillard in the U.S. market for traditional combustible cigarettes. It also increases the likelihood that the merged firm would unilaterally raise prices, and that coordinated interaction would occur between Reynolds and Altria, the remaining two large competitors in an already concentrated industry.”
- The FTC approved the merger on a 3-2 vote, with Commissioners Brill and Wright voting no.
Minnesota AG Files Suit Against Savers for Alleged Charity Violations
- Minnesota AG Lori Swanson filed a lawsuit against Savers, the nation’s largest thrift store chain, and its subsidiary Apogee Retail, Inc., alleging that it misled people who donated clothing and household goods about the extent their donations would benefit the intended charities.
- The lawsuit follows a compliance report AG Swanson issued in November 2014 questioning the relationship between Savers and several Minnesota charities, including Vietnam Veterans of America, the Lupus Foundation of Minnesota, Courage Kenney Foundation, and True Friends.
- Savers CEO Ken Alterman indicated in a statement that “[Savers was] disappointed by the decision of the Minnesota Attorney General’s office to take this action because [it had] made multiple attempts to work collaboratively on a resolution that benefits everyone involved. The money [Savers pays its] charitable partners furthers medical research and supports veterans and their families across Minnesota.”
States Reach Agreement With Classmates.com, Florists’ Transworld Delivery, and FTD.com
- A group of 22 AGs reached a settlement with Classmates, Inc.; Florists’ Transworld Delivery, Inc.; and FTD.com Inc. (the “Defendants”) to resolve allegations that the companies engaged in misleading billing and advertising practices. According to the allegations, third-party marketers offered discount buying clubs and travel rewards programs through negative option sales on Defendants’ websites, and signed consumers up for the services unless they specifically declined. The Defendants also allegedly shared consumers’ personal information, including credit card account numbers, without the consumers’ knowledge so they could be billed for the services if they did not affirmatively cancel.
- The Defendants agreed to settle with the AGs for $8 million, without any admission of wrongdoing. Classmates also is establishing a $3 million restitution fund to provide refunds to consumers who were enrolled into Classmates’ subscription service without authorization or who experienced difficulty when trying to cancel their Classmates subscriptions.
- The Defendants also agreed to injunctive relief, including compliance with the FTC’s “Guide Concerning the Use of the Word ‘Free’ and Similar Representations,” as well as a number of terms governing their future contractual relationships with their marketing partners.
Thirty-Eight States, RadioShack, Reach Agreement to Protect Consumer Privacy
- A coalition of 38 states, led by Texas Attorney General Ken Paxton, reached an agreement with General Wireless, the proposed purchaser of RadioShack’s ecommerce business, regarding General Wireless’s ability to retain RadioShack customer data. Under the agreement, the overwhelming bulk of RadioShack’s consumer data will be destroyed, and no credit or debit card account numbers, social security numbers, dates of birth, or phone numbers will be transferred.
- Of the 8.5 million customer email addresses in RadioShack’s files, General Wireless will be allowed to retain only the email addresses of those customers who requested product information in the last two years. General Wireless also agreed not to sell or share any of the customer information it obtains with any other entity.
Vermont AG Bill Sorrell Enters Data Breach Settlement Agreements with Embassy Suites and Auburn University
- Vermont AG Bill Sorrell entered an Assurance of Discontinuance (AOD) with Embassy Suites Management LLC to resolve allegations that Embassy Suites failed to notify Vermont of a data breach in the most expedient time possible. According to the AOD, Embassy Suites San Francisco Airport discovered “keyloggers” on two of its computers in October 2013, but failed to notify the Vermont AG’s office or customers until February 2015, constituting a violation of Vermont’s Security Breach Notice Act (the “Act”), which requires notice to the AG within 14 business days of a data breach. The AOD requires future compliance with the Act and calls for stipulated penalties of $5,000 per violation for future violations of the injunctive relief contained therein.
- AG Sorrell also recently announced a similar agreement with Auburn University (“Auburn”), alleging that Auburn failed to notify the AG’s office and Vermont consumers of a 2013 data breach until almost four months after the breach was discovered. The agreement with Auburn similarly requires future compliance with the Act, and requires Auburn both to implement policies to ensure compliance with the Act and provide the AG with access to records to monitor Auburn’s compliance. It also calls for stipulated penalties of $10,000 per violation for future violations of the injunctive relief contained therein.
FTC Highlights Importance of Cooperation With Law Enforcement After Data Breach
- The Federal Trade Commission (FTC) recently published a blog post outlining what a company can expect if the FTC targets it for a data privacy-related investigation.
- According to the FTC, “a company that has reported a breach to the appropriate law enforcers and cooperated with them has taken an important step to reduce the harm from the breach.” As a result, it is likely that the FTC would view the company more favorably than one that did not sufficiently cooperate with its investigation.
- The FTC also highlighted the fact that an investigation is not tantamount to a violation, and closes more cases than it brings because it finds that, on the whole, companies’ data security practices are reasonable, despite experiencing a breach.
FTC Reaches Agreement With For-Profit College
- The Federal Trade Commission (FTC) settled allegations that Ashworth College (“Ashworth”) misrepresented to students that they would receive training and credentials to get a new job or switch careers, and that credits students earned from online courses would transfer to other schools.
- According to the FTC’s Complaint, certain degrees and programs offered by Ashworth failed to meet basic requirements established by state licensing boards for certain jobs, including school teachers, real estate appraisers, home inspectors, and massage therapists. The FTC also alleged that Ashworth lacked the data to support its claims that other institutions would accept credits students earned at Ashworth.
- Pursuant to the Settlement, Ashworth agreed to stop misrepresenting that:
- Ashworth’s programs qualify students to obtain licenses without any further training or experience;
- there will be job security or steady employment for consumers who completed its programs; and
- course credits are generally recognized and accepted by other postsecondary institutions.
- Ashworth also agreed to an $11 million judgment, which was suspended due to Ashworth’s inability to pay.
DOJ Investigates Movie Theaters for Collusion
- The U.S. Department of Justice is investigating claims that Regal Entertainment Group, AMC Entertainment Holdings, and Cinemark Holdings (collectively, the “Dominant Theaters”) have engaged in collusive behavior regarding the allocation of first-run movies.
- At the root of the investigation is the use of a business practice called “clearances” through which theaters seek exclusive rights from movie studios to show first-run movies within certain geographic areas or zones. Various independent movie theaters have alleged that the Dominant Theaters are using their collective market power to secure clearances for anticompetitive purposes, namely, to block smaller theaters’ ability to show the “premium” first-run movies at the same time as the Dominant Theaters in order to preempt competition, and to discourage future independent theater construction in growing markets.
- AMC stated that it is only “playing by rules that have been long established,” and indicated that the clearances process is legal, and that fewer than 10 percent of AMC’s 342 locations have used the process to acquire an allocated film zone.
Fifty States, the District of Columbia, and the FTC Charge Cancer Charities With Massive Fraud
- The Federal Trade Commission (FTC) and AGs from all fifty states and the District of Columbia brought a lawsuit in the U.S. District Court for the District of Arizona alleging that Cancer Fund of America, Inc.; Cancer Support Services, Inc.; Children’s Cancer Fund of America, Inc.; the Breast Cancer Society, Inc.; and related officers and directors (collectively, “Defendants”) violated the FTC Act, the Telemarketing Act, and numerous state laws prohibiting deceptive practices and regulating charitable organizations.
- According to the allegations in the Complaint, Defendants portrayed themselves as legitimate charities dedicated to supporting cancer patients by providing pain medication, transportation for chemotherapy, and hospice care. In reality, Defendants allegedly spent 88 percent of donations on fund-raising events, compensation, vehicles, college tuition, luxury cruises, and loans to friends and family, among other goods and services for personal use.
- In addition to traditional methods of seeking donations, such as telemarketing and Internet advertising, Defendants distributed materials through the Combined Federal Campaign, which targets federal employees for donations to nonprofit organizations. Defendants allegedly were able to disguise the funding actually passed on to charitable organizations through abuse of the “Gifts in Kind” accounting rules, a tactic that allowed Defendants to overvalue the products they sent to developing countries, thus boosting the amount they could report as directly contributing to program services.
- The regulators proposed stipulated judgments against the Children’s Cancer Fund of America and its executive director for $30 million, and the Breast Cancer Society and its director for $65.5 million, as well as ordering the charities to be liquidated. Litigation is ongoing against the Cancer Fund of America and Cancer Support Services.
Consumer Financial Protection Bureau
CFPB Settles With PayPal for “Billing Customers Later”
- The Consumer Financial Protection Bureau (CFPB) settled with PayPal, Inc., and its wholly owned subsidiary Bill Me Later, Inc., resolving allegations that the online payments company violated the Consumer Financial Protection Act by signing consumers up for its online credit product, PayPal Credit (formerly known as Bill Me Later), without permission.
- The Complaint alleges that PayPal enrolled consumers in PayPal Credit without proper knowledge or consent, either through inadequate disclosures embedded in online purchasing processes, or automatically when consumers opened a PayPal account. It also alleges that PayPal directed purchases on eBay (PayPal’s parent company) and other online retailers toward PayPal Credit, even though consumers may have indicated a different payment method. Finally, the Complaint alleges that PayPal Credit failed to honor promotions, did not timely process payments yet still charged late fees and interest, and failed to adequately respond to billing disputes.
- As part of the Stipulated Order, which awaits court approval in the S. District Court for the District of Maryland, PayPal must pay a $10 million civil penalty, and is required to place $15 million into a segregated account for the purpose of providing redress to affected consumers. Within 60 days, PayPal must submit a plan on how it will identify all affected consumers and how it will effectuate payment accordingly. PayPal must also build disclosure into the offering of PayPal Credit, and is prohibited from setting its credit product as a default payment method unless the consumer affirmatively consents.
States Reach Agreement With Credit Reporting Agencies
- Ohio AG Mike DeWine led a group of 31 AGs in resolving a multi-year investigation into the practices of the three national credit reporting agencies: Equifax Information Services LLC, Experian Information Solutions Inc., and TransUnion LLC.
- The investigation was initiated due to an increasing number of consumers reporting difficulty in correcting errors in their credit reports through the procedures previously offered, as well as to increasingly inaccurate data reporting by credit furnishers with no real oversight by the reporting agencies.
- Under the Assurance of Voluntary Compliance, the credit reporting agencies will pay $6 million to the participating states. In addition, the credit reporting agencies will adopt a series of new procedures, including:
- Maintaining information on problematic data furnishers;
- Limits on marketing credit monitoring products to consumers calling to dispute information on their credit report;
- Improved process for handling complicated disputes, such as those involving identity theft, fraud, or files with mixed consumers’ information;
- Enhanced limits on what can be placed on consumers records, including waiting periods for medical debt; and
- Better consumer education, including information on how to challenge the outcome of a dispute investigation with other agencies.
Michigan Reaches Settlement With Online Lenders Over “Sky-High” Interest Rates
- Michigan AG Bill Schuette reached a settlement with South Dakota-based Western Sky Financial, LLC, and California-based CashCall, Inc., (Lenders) to resolve claims that the Lenders made unlicensed loans over the internet to Michigan consumers at illegally high interest rates.
- The Lenders charged interest on Internet-based loans at annual percentage rates that ranged from 89 to 350 percent, exceeding both the 7 percent cap for unlicensed lenders and the 25 percent cap for licensed lenders. They also charged excessive processing fees. A consumer who borrowed $1,000 under these terms would repay over $4,000 during the loan’s two-year term.
- The settlement requires the Lenders to establish a $2.2 million settlement fund to be distributed pro rata to eligible consumers and to reduce the interest on all loans still under payment to 7 percent annually on the loan’s then-outstanding balance of principal. It also precludes Lenders from selling or assigning loans made to Michigan residents to any unaffiliated third-party and from making negative reports to credit reporting bureaus on any implicated loans.
False Claims Act
New Jersey AG Resolves False Claims Act Allegations With With UPS Over Billing Practices
- New Jersey AG John Hoffman reached an agreement with United Parcel Service, Inc., (UPS) to resolve allegations that the package delivery company violated the New Jersey False Claims Act by charging the state for Next Day Air service when the packages arrived late.
- UPS allegedly used an inapplicable “exception code” to register late deliveries that were charged to state accounts, without disclosing to the state that such deliveries were late and without refunding the difference in price between Next Day Air and regular delivery services. The New Jersey investigation began when a UPS employee filed a whistleblower lawsuit in Virginia, providing a detailed account of the practice.
- Under the Settlement Agreement, UPS admits no fault, but agrees to pay $740,000 to the state to resolve the claims. This marks the largest False Claims Act settlement outside of the Medicaid context by the state since the New Jersey False Claims Act took effect in 2008.
States v. Federal Government
North Carolina Petitions Fourth Circuit to Overturn FCC Order on Municipal Broadband
- North Carolina has filed an appeal to the Fourth Circuit, asking it to overturn a March 12, 2015, Order by the Federal Communications Commission (FCC), in which the FCC preempted certain state laws that regulate the manner in which municipalities can offer broadband services.
- North Carolina law prevents publicly owned broadband Internet service providers—in this case, the City of Wilson—from offering services outside of county boundaries. The FCC found the state law to conflict with Section 706 of the Telecommunications Act of 1996, which requires the FCC to encourage the deployment of broadband through “measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.”
- North Carolina argues that the FCC’s actions disrupt the balance in the U.S. Constitution between state and federal power, are outside the FCC’s authority, and are arbitrary and capricious under the Administrative Procedures Act and related case law.
Kentucky Attorney General Sues Oil Company for Anticompetitive Pricing
- Kentucky AG Jack Conway filed a lawsuit alleging that Marathon Petroleum Co. is using anticompetitive practices to charge higher gasoline prices in Kentucky in violation of the Kentucky Consumer Protection Law, the Sherman Act, and the Clayton Act.
- According to the Complaint, gasoline prices in Louisville and Northern Kentucky, in particular, are significantly higher than comparable markets. The lawsuit alleges that Marathon has a dominant position through ownership of refineries that provide 90 to 95 percent of gasoline to the affected markets.
- AG Conway alleges that Marathon is abusing its dominant position by engaging in certain practices, including:
- entering supply agreements which require independent gas retailers to buy all of their fuel from Marathon;
- demanding other refiners sign “exchange agreements” allegedly designed to keep out competing gasoline products; and
- using deed restrictions to prohibit independent gasoline retailers from using their property as a gas station for 25 years unless it sold only Marathon gas.
- Marathon responded that it “disputes the allegations” and “will defend this judicial action vigorously in court.” Marathon also indicated that “the FTC has looked at [the issue] before and reviewed it in a couple of different requests.”
Consumer Financial Protection Bureau
CFPB Files Lawsuit Against Mortgage Payment Company
- The Consumer Financial Protection Bureau (CFPB) filed a lawsuit alleging that Nationwide Biweekly Administration, Inc., its subsidiary Loan Payment Administration LLC, and its owner and president Daniel Lipsky (Nationwide), violated the Consumer Financial Protection Act and the Telemarketing and Consumer Fraud and Abuse Act in attempts to market mortgage payment services.
- Nationwide offers a biweekly mortgage payment program called the “Interest Minimizer.” This program purportedly allows customers to make mortgage payments to Nationwide every two weeks, which Nationwide forwards on to the mortgage servicer, resulting in customers making one additional monthly payment per year. However, Nationwide allegedly keeps the first extra biweekly payment (up to $995) as a set-up fee, and charges consumers between $84 and $101 in processing fees each year, without expressly disclosing as much.
- In the Complaint, the CFPB alleged that the defendants misrepresented the savings consumers would achieve, deceived consumers about the cost of switching to the Interest Minimizer, and falsely claimed to be affiliated with mortgage lenders and servicers.
Fifty States and the Federal Government Settle Cramming Charges With Sprint and Verizon
- Fifty states (led in part by Vermont AG William Sorrell), the District of Columbia, the CFPB, and the FCC settled claims against Sprint Corporation and Cellco Partnership d/b/a Verizon Wireless regarding unauthorized charges for third-party messaging services (“cramming”). The lawsuits alleged cramming to be a violation of the Consumer Financial Protection Act, Section 201 of the Communications Act of 1934, and various state Unfair and Deceptive Practices Acts.
- According to the Complaint, the cramming charges were typically associated with “premium” text message subscription services—such as horoscopes, trivia, flirting tips, and sports scores—offered by third parties. These services charged a monthly fee through the carrier’s billing statement, typically $9.99 per month, with the carrier receiving a percentage. However, in many cases, there was no evidence that consumers had requested the services, and consumers were often unaware that they were being charged.
- Under the terms of the consent orders, Sprint will pay $68 million and Verizon will pay $90 million, of which $50 and $70 million respectively will be used to repay affected consumers through programs overseen by the CFPB. Sprint will pay penalties of $12 million to the states and $6 million to the FCC; Verizon will pay $16 million to the states and $4 million to the FCC.
- In addition, Sprint and Verizon will be required to implement procedures to obtain customers’ express consent prior to charging for third-party services, provide a complete refund when customers are billed for unauthorized charges, inform new customers that they can block third-party charges, and create a special section in customers’ bills where third-party charges are clearly distinguished.
FTC Seeks to Shed Ill-Gotten Monies From Company Alleged to Deceptively Market Weight Loss Products
- The Federal Trade Commission (FTC) issued a complaint alleging that Lunada Biomedical, Inc., and its officers and owners, violated the FTC Act through the marketing and sale of dietary supplement Amberen.
- The Complaint alleges that Lunada deceptively labeled, advertised, marketed, and sold Amberen through a combination of unsubstantiated efficacy claims, false proofs, false claims regarding customer satisfaction, false “risk-free” trial offers, and that they failed to disclose material connections with endorsers. Defendants allegedly also hired a marketing company to create and maintain a blog, in which the president of the marketing company described personal experiences with menopause, and endorsed Amberen, without disclosing that Lunada was paying for, and consulting on blog topics.
- The commissioners voted 5-0 in favor of the complaint, which seeks permanent injunctive relief, along with restitution for injured consumers, refund of monies paid, and disgorgement of ill-gotten monies. The lawsuit is pending in federal court for the Central District of California.
Hedge Fund Acquires RadioShack Consumer Data, Agrees to Mediate With Attorneys General
- Standard General LP, a hedge fund that purchased hundreds of RadioShack’s store leases in a prior sale, has won the auction to purchase RadioShack Corp.’s brand name and other intellectual property, as well as a vast cache of customer data, for $26.2 million.
- Thirty-seven State AGs, led by Texas AG Ken Paxton, have objected to RadioShack’s attempt to sell the data, which is reported to consist of 85 million email addresses and 67 million customer names and physical address files. AG Paxton has called the sale “not only a direct violation of the terms of [RadioShack’s] own privacy policies, but also a clear violation of Texas law.”
- RadioShack agreed to mediate the issue with the objecting AGs to resolve their concerns, which include what type of information is included and how it will be used. The sale of these assets must ultimately be approved by the U.S. Bankruptcy Court for the District of Delaware, which is overseeing the bankruptcy.
SEC Charges For-Profit College With Multiple Violations of Securities Laws
- The Securities and Exchange Commission (SEC) brought charges against ITT Educational Services Inc., along with ITT’s chief executive officer Kevin Modany, and chief financial officer Daniel Fitzpatrick, for allegedly defrauding investors in violation of multiple sections of the Securities Act, the Exchange Act, and multiple SEC Rules.
- The Complaint identifies numerous situations where ITT allegedly mislead investors, analysts, and auditors, including claims that ITT failed to disclose material facts, filed materially false and misleading reports, and made false certifications regarding ITT’s performance from 2009 to 2012, and the potential impact of increasing defaults in the private student loan programs that ITT guaranteed.
- The SEC is seeking injunctive relief, disgorgement, and civil penalties from ITT. It is also asking that Modany and Fitzpatrick be ordered to return all bonuses, incentive-based and equity-based compensation, as well as profits realized from the sale of ITT stock.
Michigan Attorney General Settles With Natural Gas Driller Over Alleged Bid-Rigging
- Michigan AG Bill Schuette settled with Chesapeake Energy Corporation over allegations that the energy company conspired with Encana Oil & Gas to allocate the market for oil and gas leases in Michigan in violation of state antitrust laws. AG Schuette also alleged Chesapeake and Encana committed a number of false pretense and racketeering criminal offenses, alleging that the company used landowners’ mortgages as an excuse to selectively void lease obligation when the company became aware that a lease would be unprofitable.
- Chesapeake pleaded no contest to misdemeanor charges of attempted antitrust and false pretenses and received an 11-month delayed sentence, which will be dismissed if it satisfies the terms of the civil settlement. Chesapeake agreed to pay $25 million into a victims’ compensation fund, offering repayment of attorneys’ fees and lost revenues to victims listed in the state’s complaint. Chesapeake also will pay $2.5 million to the Department of Natural Resources and $2.5 million to fund the state’s antitrust enforcement division.
- AG Schuette previously settled with Encana in May 2014 for $5 million. As part of that consent judgment, Encana agreed to adopt enhanced reporting and compliance procedures. Encana also pleaded no contest to the criminal charges, and received a delayed sentence, dependent on satisfying the civil settlement.
New York Attorney General Brings Action Against Charitable Trustees
- New York AG Eric Schneiderman settled with trustees of the Victor E. Perley Fund, a charitable trust formed to benefit underprivileged children, for allegedly failing to administer the trust in accordance with the New York’s Estates, Powers and Trusts Law.
- In the Assurance of Discontinuance, AG Schneiderman alleged that the trustees failed to fulfill their legal duty to administer and invest the charitable assets prudently, including a failure to observe basic principles of governance. The AG specifically claimed that “highly speculative” investments “entered into without adequate due diligence” caused the trust assets to dwindle from $3.7 million to a sole property worth approximately $1 million and used for the benefit of the fund chairman.
- The trustees, while admitting no fault or violations of law, will be held jointly and severally liable to pay more than $1 million to restore the fund, and to resign as trustees. In addition, the trustees are barred, for varying periods of time, from serving as an officer, director, or fiduciary of any nonprofit organization operating or soliciting contributions in New York.
Consumer Financial Protection Bureau
CFPB Takes Action to Enforce “Opt-In” Rule
- The Consumer Financial Protection Bureau (CFPB) settled with Regions Bank over claims that the retail bank violated the Electronic Fund Transfer Act, the Consumer Financial Protection Act, and the 2010 “Opt-In Rule,” when it charged overdraft fees to consumers who had not opted-in for overdraft coverage, and by misrepresenting the use of overdraft and non-sufficient funds fees on its deposit advance products.
- Regions voluntarily refunded approximately $48 million to customers who had allegedly been charged illegal overdraft fees through 2013. Under the consent order, Regions will hire an independent auditor to identify all other overdraft fees charged in violation of the relevant rules to ensure that all affected customers are fully refunded. Regions is also required to submit a plan for ensuring future compliance and to provide a report to the CFPB on the implementation of that plan.
- In addition to all refunds provided, Regions must correct any negative credit reporting in connection to the overdraft or non-sufficient fund fees, and will make a $7.5 million payment to the CFPB’s Civil Penalty Fund.
FTC Seeks Greater Disclosure From Firm Tracking Consumers Through Retail Stores
- In a 3-2 decision, the Federal Trade Commission (FTC) issued a complaint and proposed consent order to resolve claims that Nomi Technologies, Inc. (Nomi), a retail marketing analytics firm, violated the Federal Trade Commission Act by failing to disclose the use of technology that can identify and track unique mobile communication devices in retail stores.
- As outlined in the complaint, Nomi collected the following information without, in most cases, providing disclosures to consumers: the percentage of consumers passing versus entering a retail store, the average duration of consumer visits, the types of mobile devices used by consumers who frequent a given location, the percentage of repeat visits within a given time period, and the number of customers that have visited other retail chain locations where Nomi technologies are employed.
States v. Federal Government
Florida Attorney General Argues Withdrawal of Federal Health Care Funding is Unlawful Coercion
- Florida AG Pam Bondi filed a lawsuit against the Obama Administration alleging that the government is threatening to withhold federal funding as a means to coerce the state into expanding its Medicaid coverage, in violation of the Administrative Procedures Act and the U.S. Constitution.
- The dispute centers on the 2015 expiration of the Low Income Pool (LIP), an optional federally-funded program designed to provide incentives to healthcare providers to treat low income and vulnerable populations. As the Centers of Medicare and Medicaid Services (CMS) are trying to phase out LIP, CMS indicated that it will only extend LIP funding as part of a comprehensive package that also expands Medicaid access and controls providers’ rates. Florida argues in the complaint that conditioning LIP funding on Medicaid expansion inappropriately coerces the state to implement a federal program.
- Florida cites the 2012 Supreme Court case, National Federation of Independent Businesses v. Sebelius, which held that Congress cannot force states to expand Medicaid by withholding funding for current Medicaid programs. In response, the Obama Administration argues that the LIP program is optional—only 8 other states use it—and funding for the program is set to expire.
California Attorney General Appeals Swipe Fee Decision to Ninth Circuit
- California AG Kamala Harris has appealed to the Ninth Circuit, asking it to overturn a district court decision holding that a California law prohibiting retailers from imposing a “surcharge” on credit card purchases, yet permitting merchants to offer discounts to consumers who pay with cash, was “an unconstitutional restriction on plaintiffs’ freedom of speech and is void for vagueness.”
- AG Harris defended the California law under a theory of consumer protection, arguing that the law prevents merchants from charging a hidden “swipe fee” at the cash register to an unaware customer paying with credit. The plaintiffs—a restaurant, a gas station, a dry cleaner, an auto repair business, and a web design company—wanted clarity as to how they could frame the discount for cash customers. The case is Italian Colors Restaurant et al. v. Harris, No. 2:14-cv-00604.
- Prior to 2013, major credit card companies had merchant rules in place that prohibited merchants from imposing surcharges. Now, as a result of nationwide antitrust settlements, credit card companies have agreed to drop the surcharge restrictions, leaving small businesses in multiple states to change the law through the courthouse.
Consumer Financial Protection Bureau
CFPB Settles With Military Payroll Processor Over Camouflaged Fees
- The Consumer Financial Protection Bureau (CFPB) settled with Fort Knox National Company and its subsidiary, Military Assistance Company, LLC, for charging hidden fees when processing military allotments in violation of the Consumer Financial Protection Act (CFPA). The military allotment system allows service members to transfer a portion of their pay into a pooled bank account out of which a processor makes payments to service members’ creditors.
- The CFPB alleged that the companies failed to send statements to clients and did not disclose certain fees charged in connection with their processing services, including a $5 fee to send a letter to the service member or to their current or past creditors, as well as a recurring monthly fee of $12 to $20 if an account sat idle with a positive balance for more than six months.
- The consent order requires the respondents to pay $3.1 million in monetary relief to be administered by the CFPB as redress for injured consumers. It also requires respondents to cease all actions alleged to be in violation of the CFPA, to assist the CFPB in locating injured consumers, and to create and maintain records that demonstrate compliance with the order for five years.
Vermont Attorney General Adopts Regulations to Clarify State’s “GE” Labeling Requirements
- Vermont AG Bill Sorrell formally adopted regulations to implement Act 120, Vermont’s law requiring that food products made with genetically engineered ingredients provide certain disclosures on the label.
- The new regulations, Consumer Protection Rule 121 (Rule), set forth the requirements for labeling unpackaged and packaged food produced or partially produced with genetic engineering, provide the format for sworn statements certifying that foods were not produced with genetic engineering (when applicable), and outline a safe harbor period whereby the AG will provide 30 days’ notice prior to issuing a civil investigative demand or initiating an enforcement action against any retailer alleged to be in violation of Act 120.
- The Rule indicates that violators can be liable for civil penalties up to $1,000 per day, per “uniquely named, designated and marketed product” in violation of the Rule. Act 120 and the Rule take effect on July 1, 2016.
FTC and CFPB Bring Lawsuit Against Mortgage Servicer
- The Federal Trade Commission (FTC) joined with the Consumer Financial Protection Bureau (CFPB) to bring a lawsuit in federal court in Minnesota alleging that Green Tree Servicing, LLC, violated the FTC Act, the Consumer Financial Protection Act, Fair Credit Reporting Act, Fair Debt Collections Practices Act, and the Real Estate Settlement Procedures Act in connection with its residential mortgage loan servicing and debt collection practices.
- The complaint alleges that Green Tree failed to honor loan modification agreements in connection with mortgages it acquired from prior servicers; delayed recognition of the in-process modification status of other borrowers; demanded payment from struggling borrowers without providing loss mitigation options such as loan modifications, deferrals, extensions or forbearances; and employed aggressive and threatening debt collection practices.
- The proposed stipulated order, which must be approved by the court, requires Green Tree to pay $48 million in consumer redress and $15 million in civil penalties. The order also requires Green Tree to implement programs that enhance consumer loss mitigation options, ensure the accuracy of consumer loan information before servicing the loans, and substantiate collection amounts when consumers are in the process of loan modifications or when there is reason to believe that Green Tree has flawed loan information.
Delaware Attorney General Announces Quartet of Online Privacy Bills
- Delaware AG Matt Denn and state lawmakers announced an array of proposed legislation to increase consumer privacy on the internet and through social media. AG Denn indicated that the proposals are designed to be consistent with laws already on the books in other states such as California and Georgia. The proposals include the following, which will be introduced in the upcoming legislative session:
- The Delaware Online Privacy and Protection Act, which would restrict marketing of certain products to children and require commercial internet services that collect personally identifiable information to provide users with an explanation as to how the service uses that information.
- The Employer Use of Social Media Act, which would prohibit employers from requiring employees and applicants to provide the employer with access to personal social media accounts.
- The Victim Online Privacy Act, which would make it unlawful to post or solicit information online related to a participant in the Department of Justice’s Address Confidentiality Program for the purpose of inciting violence or harm to that person.
- The Student Data Privacy Protection Act, designed to create guidelines for school districts, schools, teachers, and staff regarding permissible methods of collecting and using student data for appropriate educational purposes. It would also create procedures to protect the privacy and data security of students and their parents/guardians.
New York Attorney General Presses Legislation to Ban Microbeads
- New York AG Eric Schneiderman announced that the Microbead-Free Waters Act—legislation designed to address the increased presence of plastic microbeads from personal care products in waters across the state—passed the State Assembly and now awaits consideration by the Senate.
- Microbeads are used as abrasives in consumer products like toothpaste and body scrubs in lieu of natural materials like ground almonds or pumice. According to the AG, because microbeads are made of plastic, they absorb a variety of chemicals they come into contact with, and over time they become “toxic-sponges.” If released from a controlled system, such as municipal wastewater treatment, they can become a hazard for aquatic ecosystems.
- The Act seeks to ban the sale of any cosmetic product in which microbeads are intentionally added; it defines microbeads as sub-five-millimeter plastic components of personal cosmetic products. The recent legislative efforts to ban microbeads stem from a study conducted by AG Schneiderman, which identified a large number of wastewater treatment facilities from which microbeads are being discharged.
States v. Federal Government
Supreme Court Holds State Antitrust Laws Not Preempted by U.S. Natural Gas Act
- The U.S. Supreme Court issued a 7-2 decision in favor of the respondents in ONEOK, Inc. v. Learjet, Inc., holding that the U.S. Natural Gas Act does not preempt state antitrust laws that seek to prevent price-fixing in retail gas markets.
- The dispute consolidated multiple lawsuits, originally brought in state courts, into one multi-district litigation in the District of Nevada. The original plaintiffs (respondents at the Supreme Court) included an array of retail gas purchasers, from manufacturers to school districts and universities. The original defendants (petitioners at the Supreme Court) were a group of interstate pipelines and gas providers.
- The decision was in line with arguments made by a group of 21 AGs, led by Kansas AG Derek Schmidt, through an amici brief. The AGs had emphasized the distinction between the federal law’s intent to occupy the field when regulating interstate wholesale markets, and the state interest to protect consumers and small businesses purchasing through in-state retail markets. The petitioners, backed by an amicus brief from the federal government, had argued that the state laws were preempted because the challenged industry practices, although applied at the retail level, affected the interstate wholesale market.
Texas Attorney General Settles With Alleged Anticompetitive Dental Supplier
- Texas AG Ken Paxton filed a lawsuit against Benco Dental Supply Company (Benco) alleging that it engaged in anticompetitive conduct to prevent lower-cost dental suppliers from entering the market and simultaneously entered into a consent order with Benco settling the claims.
- The petition, which followed a year-long investigation, alleges that Benco shared information with established participants in the dental supply market and colluded with distributors and manufacturers to discourage them from forming working relationships with new market entrants. The new market entrants sought to bypass traditional distributors like Benco, and sell products without sales representatives through an online platform developed by the Texas Dental Association.
- In the consent order, Benco denied the AG’s allegations and did not admit liability; however, it agreed to pay $300,000 to the State for investigative costs and attorney’s fees. In addition, the consent order prohibits Benco from participating in agreements, or coercing other suppliers, to limit supply of dental supplies to any third party. It also precludes Benco from soliciting information from dental supply manufacturers and distributors related to their sales to third parties. Benco also agreed to provide the State with records of all communications between Benco officers and third parties regarding sales for a period of three years.
Consumer Financial Protection Bureau
CFPB Settles With Lender Over Use of Government Logos
- The Consumer Financial Protection Bureau (CFPB) settled with RMK Financial Corporation, resolving allegations that the mortgage lender engaged in deceptive mortgage advertising practices in violation of the Consumer Financial Protection Act, the Mortgage Acts and Practices Rules, and the Truth in Lending Act (TILA).
- The CFPB alleged that RMK used the names and logos of the Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA) in print advertisements sent to more than 100,000 consumers—including thousands of U.S. military service members and veterans—across several states. The CFPB claimed that RMK used the logos to falsely and deceptively imply that the RMK and its mortgage products were sent, endorsed, or sponsored by the VA or FHA. In addition, the advertisements failed to adequately disclose certain information required under TILA, such as the type of mortgage product offered and whether the interest rates were variable.
- The consent order requires RMK to pay $250,000 in civil penalties and precludes RMK from seeking tax deductions in accordance therewith. It also requires RMK to develop and submit a compliance plan to the CFPB Enforcement Director demonstrating how RMK will implement the order and ensure that all future advertisements comply with federal law, and to keep detailed records on RMK’s advertising practices for five years.
CFPB Joins With Navajo Nation to Stop Alleged Predatory Lender
- The CFPB, together with the Navajo Nation, brought a lawsuit against S/W Tax Loans, Inc.; J Thomas Development of NM, Inc.; owner Jeffrey Scott Thomas; and the president of S/W, Dennis Gonzales, (defendants), for alleged violations of the Truth in Lending Act and the Consumer Financial Protection Act.
- The complaint alleged that defendants operated an illegal tax refund scheme through which employees of Thomas’ tax advisory practices were given bonuses to direct low-income Navajo customers seeking tax advice to “short-term, triple-digit-APR loans secured by the consumer’s anticipated tax refund” offered by S/W Tax Loans, when significantly lower interest rates were available at other businesses. The complaint alleges that Thomas and his employees also made deceptive statements regarding the loans offered, and failed to disclose that Thomas had a financial interest in S/W.
- The proposed consent order, which must be approved by a court, requires defendants to pay $254,267 in consumer redress in addition to $183,733 already paid in remediation, and $438,000 in civil penalties. It also enjoins defendants from providing tax refund anticipation loans, as well as assisting or receiving compensation from any person engaged in similar loans. Finally, the order precludes defendants from disclosing or using consumer information and mandates recordkeeping and reporting.
Massachusetts Attorney General Settles Claim Against Solar Power Developer
- Massachusetts AG Maura Healey settled with Soltas Energy Corporation over allegations that the solar power developer violated the state False Claims and Consumer Protection Acts by improperly allocating certain electricity credits related to the generation of solar power multiple times.
- Soltas had entered into power purchase agreements (PPAs) with two Central Massachusetts towns and two nonprofit organizations which required Soltas to allocate “net metering credits” for solar energy generated at a nearby location to the towns and nonprofits in return for fixed price electricity. Soltas, however, allegedly allocated the same credits to other customers through a public bidding process, negating the benefit to the parties to the PPAs.
- Pursuant to the terms of the assurance of discontinuance, Soltas has agreed to pay $330,000 in damages and restitution: $175,000 to Athol Memorial Hospital, $40,000 to the town of Petersham, $38,000 to the Athol YMCA, $22,000 to the town of Warwick, and $55,000 to the Commonwealth.
FTC Issues Final Order Barring App That Claims to Detect Melanomas
- In a 4 to 1 decision, the Federal Trade Commission (FTC) voted to approve a final consent order barring Health Discovery Corporation (HDC) from making claims that its smartphone app “MelApp” can detect or diagnose melanomas without HDC having proper scientific evidence to substantiate its claims.
- In the consent order, the FTC indicated that scientific testing must be accomplished in order to make claims of health efficacy for a product like MelApp. The FTC also identified the type of documentation that will be required, including those describing the testing methods and results, the recruitment and identification of participants, any statistical analysis of participants, and the sponsorship of such tests. HDC admits no fault, but agreed to pay $17,693 to the FTC.
State Attorneys General Go Back to Court to Prevent RadioShack Data Sale
- RadioShack has asked a bankruptcy court for approval to sell data on as many as 117 million customers as part of a second asset auction that includes various intellectual property, including the rights to the name RadioShack.
- Texas AG Ken Paxton, leading the group of AGs objecting to the sale of any consumer data that contains personally identifiable information (PII), asked the court to require RadioShack to specify whether the data being offered is limited to contact information, such as name, address, phone number, and email address, or whether it also includes other information such as credit card numbers or account history.
New York Attorney General Investigates “On-Call” Staffing Practices
- New York AG Eric Schneiderman has opened an investigation to determine whether certain retailers’ “on-call” scheduling practices violate New York labor laws. On April 10, the AG sent letters to 13 major retailers inquiring about their scheduling practices, giving them until May 4 to respond.
- According to AG Schneiderman, the practice in question involves requiring employees to check in by telephone, text message, or email before a scheduled shift to see if their services are still needed, allowing retailers to adjust staffing levels to meet customer traffic. AG Schneiderman claims, however, that New York law requires employers to pay employees who report for a scheduled shift at least four hours’ wages, even if they are sent home.
Attorneys General Back Students in Pursuit of Loan Forgiveness
- Nine State AGs, led by Massachusetts AG Maura Healey, have asked the U.S. Department of Education (DoE) to relieve student borrowers of the obligation to repay federal student loan debt that was originated to enroll in classes at Corinthian Colleges, Inc., in connection to Corinthian’s alleged violations of state law.
- In a letter to Secretary of Education Arne Duncan, the AGs argue that the Higher Education Act and DoE Regulations permit students to assert legal claims against schools as a defense to loan payment obligations.
- The AGs also urge the DoE to outline the formal process through which students can assert claims to have their loans discharged, including guidance on how students can request relief from loan servicers. Finally, the AGs suggest that the DoE accept findings from State AG investigations as sufficient evidence upon which students can assert their rights under the law.
- Corinthian objected to the “mischaracterization of our job placement efforts and the suggestion that we misrepresented these efforts” and drew a distinction between AG investigations and violations of law, stating that “[i]t is important to note the difference between findings and allegations—a number of state AGs have made allegations but as these cases are still in progress, it would be inappropriate to presume guilt without due process.”
Washington Legislature Passes Attorney General’s Bill to Prevent Patent Misuse
- The Washington House of Representatives passed AG Bob Ferguson’s Patent Troll Prevention Act (PTPA), designed to protect “small businesses from predatory and bad faith patent infringement claims and demands.” The bill overwhelmingly passed House and Senate votes, and is expected to be signed by the Governor.
- The PTPA prohibits alleged patent owners from asserting patent rights in bad faith, including: sending demand letters that contain false or deceptive information, threatening litigation if the demanded fee is not paid, and failing to identify the alleged infringement and/or the individual asserting ownership of the patent. It also precludes letters sent by parties who do not have the legal right to enforce the indicated patent.
- The PTPA provides the AG with enforcement authority under the Washington Consumer Protection Act to bring an action in the name of the state, or as parens patriae on behalf of persons residing in the state, and allows the AG to recover damages and attorneys’ fees, as well as to seek injunctive relief.
Massachusetts Attorney General Seeks Bill to Enhance Health Policy Commission Reports
- Massachusetts AG Maura Healey, together with House Majority Leader Ron Mariano, submitted a bill to the legislature intended to strengthen the State Health Policy Commission (HPC) and the AG’s ability to control rising consumer health care costs associated with mergers and acquisitions in the healthcare industry.
- The bill would provide that HPC’s Cost and Market Impact Review Reports create a presumption that a proposed merger or acquisition in the healthcare market is a violation of the Massachusetts Consumer Protection Act. HPC reports are referred to the AG if the HPC determines that a transaction will result in a provider gaining a dominant market share resulting in higher prices. The bill would also allow HPC reports to justify temporarily enjoining a proposed merger between healthcare organizations.
- Under the current law, HPC reports do not establish prima facie that the entities involved have engaged in unfair methods of competition in violation of the Massachusetts Consumer Protection Act. Instead, HPC reports “may be evidence” in any action brought by the AG.
Consumer Financial Protection Bureau
CFPB Sues Robo-Call Phantom Debt Collection Operation
- The Consumer Financial Protection Bureau (CFPB) filed a lawsuit charging Marcus Brown and Mohan Bagga, along with a group of debt-collection companies owned by them (Defendants) with orchestrating an illegal “robo-call phantom debt collection operation” in violation of the Consumer Financial Protection Act (CFPA) and the Fair Debt Collection Practices Act. The CFPB also brought claims under the CFPA against telemarketing firm Global Connect LLC and a group of payment processing companies for their roles in the underlying operation.
- The CFPB’s complaint alleged that Defendants purchased consumers’ old or expired debt and personal information from debt brokers and payday loan lead generators, and made robo-calls through Global Connect that threatened consumers with various legal actions. Defendants allegedly used the acquired consumer personal information (including Social Security Numbers and bank account information) to appear legitimate, and threatened that if the callers did not immediately pay the debts to defendants, they would be arrested for fraud or sued.
- The CFPB filed the lawsuit in federal court in the Northern District of Georgia and is seeking injunctive relief along with restitution, damages, disgorgement, civil penalties, and costs.
Florida Attorney General Settles With Home Security Providers
- Florida AG Pam Bondi settled with Security Networks, LLC and Vision Security, LLC for allegedly making false and misleading statements in violation of the Florida Deceptive and Unfair Trade Practices Act (DUTPA).
- The security providers allegedly deceived consumers in door-to-door sales by falsely representing that they were affiliated with their current security providers and that consumers’ current security systems were outdated and in need of upgrading. Once upgraded, consumers were allegedly charged for two security systems—their original system and the “upgraded” system.
- The Assurance of Voluntary Compliance for Security Networks, among other things, prohibits the company from making false statements to induce consumers to utilize their services, and requires Security Networks to cancel service contracts when a consumer has a legitimate basis and to pay more than $80,000 in restitution and $70,000 in attorneys’ and investigative fees to the Department of Legal Affairs.
- The Assurance of Voluntary Compliance for Vision Security, among other things, requires the company to suspend all business activities within Florida for two years, operate in compliance with Florida’s DUTPA after the two-year period, pay restitution to consumers, and pay attorneys’ and investigative fees of $18,134 to the Department of Legal Affairs.
New York Attorney General Teams With State Lawmakers to Push Payroll Card Legislation
- New York AG Eric Schneiderman announced that State Assembly Majority Leader Joseph Morelle and Senator Patrick Gallivan will sponsor the AG’s draft legislation to regulate the use of payroll cards. Payroll cards are prepaid debit cards through which an employee can access wages that are deposited electronically into an account at a bank selected by the employer or by the payroll card vendor.
- AG Schneiderman proposed the bill, the Payroll Card Act, in response to an investigative study undertaken by his office in 2013. Although payroll cards can serve as an efficient method to provide payment services to the unbanked, the AG’s study suggested that there were a growing number of cases where the use of payroll cards may hurt low-wage workers because they were often charged fees to gain access to their wages (through ATMs, point-of-sale purchases, electronic funds transfers, etc.).
- The Payroll Card Act seeks to regulate the use of payroll cards by, among other things, limiting fees and requiring adequate disclosure of the terms and conditions.
Ohio Attorney General Sues to Keep U.S. Army From Dumping Dirt in Lake Erie
- Ohio AG Mike DeWine, at the request of the Ohio State Department of Natural Resources and Environmental Protection Agency, filed a lawsuit against the U.S. Army Corps of Engineers (ACE) to prevent it from dumping sediment dredged from Cleveland Harbor and the Cuyahoga River into Lake Erie.
- The U.S. Water Resources Development Act of 2007 requires ACE to use available funds to maintain the navigability of the Great Lakes and connecting channels through dredging and other methods. ACE has proposed dumping the sediment from dredging in Lake Erie because it is the most cost-effective way to dispose of it. The AG asked ACE to deposit the sediment in a confined disposal facility, but ACE indicated that it will only comply with the AG’s request if a non-federal partner agrees to pay the extra costs.
- In the complaint, filed in the Northern District of Ohio, AG DeWine alleges, based on Ohio EPA studies, that the sediment collected from the prescribed dredging contains high levels of carcinogenic toxins, and dumping it in Lake Erie would violate a number of federal laws, including the National Environmental Policy Act and the Clean Water Act. AG DeWine seeks a range of declaratory and injunctive relief, specifically asking the court to order ACE to dispose of the sediment in a confined area without requiring reimbursement from a non-federal partner.
False Claims Act
Maryland Legislature Passes Enhanced False Claims Act
- A bill expanding the Maryland False Claims Act and strongly supported by AG Brian Frosh, passed the General Assembly and will be presented to Governor Larry Hogan for signature.
- The bill expands Maryland’s false claims law, bringing it into harmony with other states and the federal law. Whereas the previous law only applied to cases of Medicaid and healthcare-related fraud, the new law will open up potential claims in all areas of fraud committed against state and local governments. It will also provide incentives and protection to whistleblowers, including a share in the proceeds if the government recoups money as a result of the information they provide. AG Frosh anticipates the False Claims Act expansion will recoup millions for the state budget.
Texas Attorney General Settles With Generics Maker
- Texas AG Ken Paxton settled an enforcement action against pharmaceuticals manufacturer Glenmark Generics Inc. (the U.S. subsidiary of Glenmark Pharmaceuticals Ltd.), resolving allegations that Glenmark violated the Texas Medicaid Fraud Prevention Act by inflating the prices it reported to the Medicaid program.
- Glenmark admitted no fault in the settlement, and indicated that the settlement will not materially impact the organization’s operations, stating that it remains committed to “continuing our mission of providing… the finest generic pharmaceutical products in the US and complying with all applicable state and federal pricing requirements.”
- Pursuant to the settlement, Glenmark agreed to pay $25 million in 16 quarterly payments of $1.56 million. Of that amount, $11.25 million will go to the state’s general revenue fund, $11.25 million to the federal government, and $2.5 million to the Texas AG’s office for attorneys’ fees and costs.
States v. Federal Government
Attorneys General Submit Dueling Amici Briefs at DC Circuit
- Changes to the Department of Labor’s (DoL) Home Care Rule are at the center of a recent AG amici face-off in Home Health Care Association of America v. Weil, currently on appeal at the Court of Appeals for the DC Circuit. The new rule applies wage and hour requirements inherent in the Fair Labor Standards Act to home-care workers that were exempted under a domestic service exception in prior DoL regulations.
- Kansas AG Derek Schmidt together with eight other AGs submitted an amici brief in support of Appellees, various companies providing home care services. In their brief, the Schmidt-led AGs argue that the DoL does not have the legal authority to issue the regulations that require overtime compensation for home healthcare workers and place limits on the services that they can provide because Congress intended to exclude from overtime limitation “any employee” providing domestic service. The AGs also argue that the new rule changes the balance struck between states and the federal government under the Medicaid program.
- New York AG Eric Schneiderman, as lead AG for a group of eight submitted an amici brief in support of Respondents, DoL, et al, arguing that it was lawful and proper to extend wage and hour laws to home-care workers, as the industry has grown since the DoL first promulgated the prior regulations.
Consumer Financial Protection Bureau
The CFPB Takes First Steps to Reform Payday and Title Loan Practices
- The Consumer Financial Protection Bureau (CFPB) announced that it is considering proposed rules to regulate the market for short-term and long-term payday loans, as well as vehicle title, high-cost installment, and open-end credit loans, and deposit advance products. As the first step in the rulemaking process, the CFPB is convening a Small Business Review Panel to gather feedback from lenders.
- The proposed rules seek to eliminate concerns associated with certain kinds of loans marketed to vulnerable consumers through both prevention and protection measures. Under the prevention measures, lenders would be required to determine at the outset whether the consumer will be able to repay the loan on time. Alternatively, lenders could choose to satisfy certain protection measures, which include limiting the number of consecutive loans to a single borrower over the course of a 12-month period.
- In addition, the proposed rules seek to reduce the perceived harm caused by lenders who collect directly from consumers’ checking accounts. The proposed rules would require lenders to provide three business days’ notice before submitting a payment request to the consumer’s account and would limit the number of unsuccessful attempts to collect from a consumer’s account.
FTC Reveals New Actions Against Auto Industry in “Operation Ruse Control”
- The Federal Trade Commission (FTC) announced “Operation Ruse Control,” a series of actions and proposed consent orders resulting from a nationwide enforcement effort targeting alleged deceptive marketing practices in the auto sales and financing. The FTC worked with multiple federal and state law enforcement agencies in this effort and marks the first significant foray into this area under the enhanced authority to regulate auto dealers provided by the Dodd-Frank Act. The FTC states that these six new cases include more than $2.6 million in monetary judgments.
- One area specifically addressed by the enforcement actions was “add-ons,” which is the practice of a dealer adding charges for other products or services to the vehicle sales, lease, or finance agreement. Add-ons can take the form of extended warranties, special payment programs, guaranteed automobile protection (commonly called GAP or GAP insurance), credit life insurance, road service, theft protection, and undercoating. Auto lenders and car dealerships were also targeted for alleged deceptive advertising, loan application fraud, odometer fraud, and deceptive marketing of car title loans.
New York Attorney General Settles With Herbal Supplement Retailer
- New York AG Eric Schneiderman reached a settlement agreement with GNC Holdings, Inc., arising out of his investigation of herbal supplements. Under the terms of the settlement agreement, GNC will implement source material traceability standards that utilize DNA barcoding to confirm the authenticity of ingredients prior to any extraction processes, and will display signage at its retail locations regarding whole herbs and extracts.
- The Assurance of Discontinuance provides that the AG’s office found no evidence that GNC deviated from the FDA Current Good Manufacturing Processes rules or standard industry practice in the production of the supplements at issue.
- The Council for Responsible Nutrition (CRN), a trade association representing dietary supplement and functional food manufacturers, issued a statement on the GNC settlement, calling it “a real disservice to consumers because it wrongly perpetuates the misdirected notion that DNA barcode testing is appropriate for herbal supplements, when it is not.” CRN further explained that “federal law already requires dietary supplement manufacturers to adhere to good manufacturing practices… and to perform ‘at least one appropriate test’ for the identification of raw materials. FDA, the federal agency charged with enforcing these requirements, does not require DNA barcode testing for plant identification of dietary supplements, nor does it use DNA sequencing by itself for identification of herbal extracts.”
Five States File Lawsuits to Stop Allegedly Fraudulent Magazine Subscription Seller
- AGs from Minnesota, Missouri, New York, Oregon, and Texas collaborated to bring separate state lawsuits against Liberty Publishers Services, Inc., Orbital Publishing Group, and a “labyrinth of corporate entities” that were allegedly created to disguise a nationwide scheme to deceive consumers into renewing magazine subscriptions at exorbitant rates.
- The AGs allege that the various defendants represented that they were offering magazine and newspaper subscription renewals designed to look like they came directly from various well-known publishers, and offering “one of the lowest available rates,” while in fact they were operating without the publishers’ permission and charging, in some cases, more than double the publication price and pocketing the difference.
- The AGs’ lawsuits allege violations of state deceptive business practices and false advertising laws, and seek injunctive relief, restitution, and civil penalties as authorized by state law. In addition, the Oregon complaint also alleges that a group of defendants operated as a criminal enterprise, and thus seeks civil penalties for racketeering, as well as forfeiture of any real and personal property used in the course of the alleged activity.
Attorneys General Succeed in Blocking the Sale of Consumer Data in Bankruptcy
- Texas AG Ken Paxton, leading a group of 30 AGs, filed an objection in RadioShack’s bankruptcy proceedings to the potential sale of personally identifiable information of 117 million consumers collected by RadioShack.
- Although RadioShack has agreed to move forward without a data sale in order to hasten the sale of assets to a buyer that will keep the electronics retailer’s business intact, the electronics retailer did not completely rule out such sale in the future. AG Paxton is still wary and is urging RadioShack to vow to keep the customer data private.
Attorneys General File Amici Brief in Support of Colorado and Federalism
- Washington AG Bob Ferguson and Oregon AG Ellen Rosenblum filed an amici brief in the U.S. Supreme Court in support of Colorado in an action commenced by Nebraska and Oklahoma. Nebraska and Oklahoma are seeking leave to file a complaint challenging the legality of Colorado’s marijuana legalization and regulatory regime under federal law.
- The AGs argue in their brief that the Supreme Court should not accept this dispute under its original jurisdiction because it does not involve competing state sovereign interests—i.e., a state’s power to adopt its own laws—but rather addresses whether federal controlled substance laws preempt the state law at issue. The AGs also argue that the Court should be sensitive to federalism, which “invites the States to explore new legal policies and address changes in society,” including experimenting with different marijuana policies.
- The AGs also argue that Nebraska and Oklahoma lack standing, in that the remedy sought (a declaration that Colorado’s marijuana laws are preempted) would not redress the alleged harm (increased quantities of marijuana crossing state lines). Under the anti-commandeering doctrine, the AGs contend, a federal court cannot require state law enforcement to enforce federal law.
Mortgages and Foreclosures
Massachusetts Attorney General Secures $1.9 Million Judgment Against Pinnacle for Mortgage Modification Scam
- Massachusetts AG Maura Healey prevailed in her office’s lawsuit against Pinnacle Financial Consulting, LLC, and owner Robert Burton, establishing that the defendants harmed struggling homeowners by engaging in unfair or deceptive practices and the unauthorized practice of law in connection with providing foreclosure-related services.
- AG Healey alleged that the defendants deceived consumers by stating they could provide loan modification and bankruptcy petition preparation services while also exaggerating the benefits thereunder. AG Healey also alleged that the defendants violated state law by charging advance fees for foreclosure assistance, practicing law without a license, and failing to provide the promised services after receiving payment and refusing to give refunds.
- The judgment orders the defendants to pay restitution to affected consumers totaling $1.2 million and civil penalties of $665,000. It also orders the defendants to pay approximately $55,000 in attorneys’ fees and costs to the Commonwealth. The AG’s office had previously secured an order of contempt when defendants violated a preliminary injunction, resulting in the court ordering approximately $170,000 in penalties, $30,400 in restitution, and $39,800 in fees and costs.
States v. Federal Government
North Dakota Joins Wyoming Lawsuit to Challenge New Federal Fracking Rules
- North Dakota AG Wayne Stenehjem announced that his state will join a lawsuit filed by Wyoming on March 26, 2015, to challenge a Bureau of Land Management (BLM) final rule that regulates underground injections used in the fracking industry.
- The BLM Final Rule applies to drilling on federal land and, among other things, requires the operator of a well “to submit detailed information about the proposed operation, including wellbore geology, the location of faults and fractures, the depths of all usable water, estimated volume of fluid to be used, and estimated direction and length of fractures” prior to drilling. It also requires the operator to disclose the chemicals used in the fracking process to the BLM and the public.
- Wyoming and North Dakota argue that the BLM does not have statutory jurisdiction to regulate underground injections, for which the U.S. Safe Drinking Water Act gives exclusive authority to the Environmental Protection Agency. The lawsuit is Wyoming v. U.S. Dept. of Interior Secretary, No. 15-cv-00043, and is pending in federal court in the District of Wyoming.
Consumer Financial Protection Bureau
CFPB Seeks to Enhance Public Disclosure With Consumer Narratives
- The Consumer Financial Protection Bureau (CFPB) has finalized a policy that will allow consumers to publish narratives in addition to filing complaints with the CFPB regarding their experiences with various financial products and services. These narratives, which constitute an additional element to the complaint process where the consumer can more specifically describe her experience, will be available in searchable format in the CFPB’s Consumer Complaint Database.
- Three elements will anchor this new public narrative option: 1) consumers must “opt in” to publish their narratives; 2) personal information surrounding the narratives will be removed to reduce the risk of re-identification; and 3) companies named in a published narrative will have 180 days to issue a response. Consumers can withdraw consent to publish their narrative at any time.
- The CFPB’s final policy statement identifies the dual purposes behind publishing consumer narratives: increasing consumer awareness and improving the efficiencies of related markets through increased transparency. The statement also addresses multiple concerns, including:
- verifying that narratives come from actual consumers;
- avoiding misuse of narratives as a tool to threaten financial companies involved in debt negotiation;
- balancing asymmetries where one company must respond to multiple consumer narratives; and
- minimizing potential second-order effects, such as attempts by financial products and service providers to force consumers to sign nondisclosure agreements.
FTC Creates New Office to Regulate Fairness and Deception Across New Technologies
- The Federal Trade Commission (FTC) announced that it has created the Office of Technology Research and Investigation (OTRI) to develop policies to protect consumers from unfair and deceptive practices involving new technologies.
- The OTRI will replace the Mobile Technology Unit and will be housed in the Bureau of Consumer Protection. The OTRI will focus on protecting consumer privacy and data security, as well as ensuring algorithmic fairness and transparency in new products and services including connected cars, smart homes, emerging payment methods, and the “Internet of Things.”
Florida Attorney General Sues Dating Company for Alleged Deception
- Florida AG Pam Bondi filed a lawsuit against SinglesPlus, its owner Kenneth Pogue, and related entities, alleging violations of the Florida Unfair and Deceptive Trade Practices Act in connection to “matchmaking” services.
- AG Bondi alleges that SinglesPlus falsely claimed to screen prospective members and to match members through analysis by trained psychologists. She also alleges that SinglesPlus exaggerated its success rates, engaged in high-pressure sales techniques, and failed to disclose that consumers’ initial interviews were being recorded.
- The complaint also alleges a violation of an assurance of voluntary compliance entered in 1999 between the Florida AG and Singles Plus Relationship Company, Inc., a defunct company previously operated by Pogue. AG Bondi is seeking a permanent injunction, restitution for consumers, civil penalties, and attorneys’ fees.
Washington Attorney General Looks Into New Data Breach at Regional Health Insurer
- Washington AG Bob Ferguson announced that his office is looking into a data breach at health insurer Premera Blue Cross, Premera Blue Cross Blue Shield of Alaska, and its affiliated companies, Vivacity and Connexion Insurance Solutions, Inc.
- The breach was discovered in January, and after an initial investigation, Premera determined that the breach was the result of a cyberattack in May 2014. AG Ferguson is working with Premera to determine what information was compromised, but has indicated that individuals from Washington, Oregon, and Alaska are potentially affected. The Washington Senate is currently considering a bill, already passed in the House, that would create additional obligations for data-breached entities and would enhance AG enforcement authority.
- Premera is offering two years of credit monitoring, as well as identity theft restoration services and insurance through Experian to all customers.
Massachusetts Attorney General Speaks to Congress on Deficiencies in Data Security Bill
- Massachusetts AG Maura Healey sent a letter to the U.S. House Subcommittee on Commerce, Manufacturing, and Trade, to express concern that a current bill under consideration, the Data Security and Breach Notification Act of 2015, would “drastically undercut” state law efforts to protect consumer data privacy.
- AG Healey highlighted the fact that the bill would broadly preempt and replace strong state law protections, like those of Massachusetts, with weaker and potentially ambiguous federal standards. Although AG Healey supported greater involvement by the FTC in data breach investigations, as called for in the bill, she stressed that State AGs play an important role, and any effective federal law should incorporate a dual federal/state enforcement model that continues to empower rigorous state policy goals.
- Finally, AG Healey argued that penalties may not provide proper deterrence, and that the bill does not create appropriate incentives regarding post-breach notification. She suggested that any federal legislation should reflect clearly defined notification policies like those expressed in Mass Gen Law 93H Sec. 3.
Federal Legislation to Protect Student Data Remains Elusive
- The Student Digital Privacy and Parental Rights Act, a draft bill designed to protect children’s privacy by limiting the use of data generated through educational software, was delayed from its proposed introduction in the U.S. House of Representatives.
- The bill would prohibit education technology companies from knowingly using or disclosing students’ personal information to create customized advertisements or to shape student consumer profiles. It also gives the FTC enforcement and regulatory authority over the burgeoning ed-tech industry.
- However, many privacy groups have criticized the bill as not going far enough to address all of the potential threats inherent in collecting data, including securing the data from hacking, allowing data to be erased over time so as to not let childhood mistakes follow into adulthood, and preventing colleges from using behavioral data to make admissions decisions. In addition, passage of a federal law on this issue would likely preempt many efforts at the state level that might provide greater protection.
New York Attorney General Settles Litigation With Custody Bank Over FX Rates
- New York AG Eric Schneiderman, together with U.S. Attorney Preet Bharara, announced a settlement with the Bank of New York Mellon Corporation (BNY Mellon) resolving multiple lawsuits and investigations that alleged that BNY Mellon deceptively and fraudulently profited by charging its clients higher-than-market foreign exchange rates.
- The various lawsuits and investigations alleged that BNY Mellon—which holds equities and other financial assets as a custodian for institutional investors—manipulated foreign exchange transactions that accompanied share purchases, or dividend payments, so that the bank was able to charge clients the higher intra-day exchange rate while paying a lower rate and keeping the difference.
- Under the settlement, BNY Mellon agreed to pay $714 million, with $167 million going to AG Schneiderman’s office to be used to compensate the victims, $167 million to the U.S. Attorney’s office, $30 million to the Securities and Exchange Commission, $14 million to the Department of Labor, and $335 million to private class action plaintiffs.
- In addition, BNY Mellon admitted the factual details of the alleged fraud, agreed to terminate the employment of certain executives who were centrally involved in the underlying actions, and will waive the deductibility of the settlement under New York State and local taxes.
States v. Federal Government
Tennessee Attorney General Petitions Sixth Circuit to Overturn FCC Order
- Tennessee AG Herbert Slatery filed a petition with the U.S. Court of Appeals for the Sixth Circuit, asking the court to overturn an order issued by the Federal Communications Commission (FCC) preempting certain state laws that regulate the manner in which municipalities can offer broadband services.
- Because Tennessee law prevents publicly owned broadband Internet service providers—in this case, the Electric Power Board, a public utility operating out of Chattanooga—from offering services to customers outside of the municipal boundaries, the FCC found the law to be in conflict with Section 706 of the Telecommunications Act of 1996, which requires the FCC to remove barriers to broadband investment and competition.
- AG Slatery’s petition alleges that the FCC “unlawfully inserted itself between the State of Tennessee and the State’s own political subdivisions,” and claims the Order violates the United States Constitution; exceeds the FCC’s authority; and is arbitrary, capricious, and an abuse of discretion under the Administrative Procedure Act.
Nine States File Amici Brief in Petition to Decide States’ Role Under CERCLA
- Colorado AG Cynthia Coffman along with seven other AGs filed an amici brief in support of Arizona in its petition to appeal the Ninth Circuit en banc decision in Arizona v. Ashton Company Incorporated Contractors and Engineers to the Supreme Court. There is also a separate petition in which Arizona is a respondent.
- At the root of Arizona’s petition is the question of the level of deference to which states are entitled when they enter into consent decrees with defendants to resolve liability under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The Ninth Circuit ruled that district courts must closely scrutinize CERCLA settlements proposed by states as opposed to those entered into by the U.S. Environmental Protection Agency (EPA).
- The amici AGs argued that Congress did not create a different standard of review for settlements proposed by states, and intended to put states on equal footing with the EPA when resolving liability under CERCLA through entering consent decrees. The AGs further argued that states play an important role in efficiently implementing CERCLA, and that the Ninth Circuit’s ruling will make defendants less willing to enter into early-stage state-proposed settlement agreements.