The week and a half proceeding the Thanksgiving federal holiday was busy for the Federal Trade Commission. Not only did the Commission release yearly updates such as its Fiscal Year 2022 Agency Financial Report and National Do Not Call Registry Data Book for Fiscal Year 2022, it also filed three complaints, an amicus brief and announced an advanced notice of proposed rulemaking. The Bureau of Consumer Protection has been busy in November and focused on many false advertising and deceptive business practice issues. These stories, plus more, after the jump.
Tuesday, November 15, 2022
Bureau of Consumer Protection: Finance & Financial Institutions, Data Privacy
- The FTC announced the effective date for compliance with the Safeguards Rule would be extended by six months, extending the effective date to June 9, 2023. The Safeguards Rule requires “non-banking financial institutions . . . to develop, implement, and maintain a comprehensive security program to keep their customers’ information safe.” The Commission is extending the deadline based on various reports, including from the Small Business Administration, regarding a shortage of qualified personnel necessary to implement the security programs, and supply chain issues that may hinder companies from obtaining necessary equipment to update the security programs. The FTC originally approved the updates to the Safeguards Rule in October 2021 with an effective date of December 9, 2022 for specific provisions. The provisions affected by the six-month extension include the following requirements: 1) designate a qualified individual to oversee the information security program, 2) develop written risk assessment, 3) encrypt all sensitive information, 4) develop an incident response plan, among others. The commission voted 4-0 to extend the deadline. The Effective Date Notice for the “Standards for Safeguarding Customer Information,” 16 CFR Part 314, officially extended the date from December 9, 2022 until June 9, 2023.
- On Monday, November 14, the day preceding the Commission’s official statement, Commissioner Wilson issued a concurring statement addressing the effective date of certain provisions of the recently amended Safeguards Rule. When the Commission voted to update the Safeguards Rule, Commissioner Wilson voted against those revisions. While the Commissioner continues to note her concerns about the revisions, she “support[s] extending the effective date.” The Commissioner articulated that the effective date extension will provide additional time for companies to meet the requirements given issues outside of their control, such as labor shortages and supply chain issues.
- The Federal Trade Commission issued its Fiscal Year 2022 Agency Financial Report. The report is prepared in accordance with Office of Management and Budget (OMB) requirements and was submitted to both OMB and Congress. The report includes audited financial statements, accomplishments in consumer protection and competition promotion, and opportunities for performance improvements.
Wednesday, November 16, 2022
Bureau of Consumer Protection: Business Opportunity, Advertising & Marketing
- The FTC filed a complaint against DK Automation and its owners for using unfounded claims of “big returns” intended to entice customers into phony business and cryptocurrency moneymaking schemes. The complaint alleges the defendants “promised consumers that they could generate passive income on autopilot” even though few customers made money from the described schemes. Further, DK Automation continued to use “deceptive earnings claims” after receiving Notices of Penalty Offenses regarding the advertised moneymaking opportunities and endorsements from the FTC. The complaint alleges DK Automation harmed consumers by 1) deceiving consumers about potential earnings, 2) suppressing negative reviews, and 3) failing to provide required disclosures. The proposed order would require defendants to pay $2.6 million to refund consumers harmed by the alleged deception. In addition, DK Automation would be required to provide written support for advertising claims, cease all misleading advertising regarding the likelihood of profits, and cease interference with reviews and complaints.
Thursday, November 17, 2022
Bureau of Consumer Protection: Business Opportunity, Advertising & Marketing
- The FTC announced it is seeking public comment on how to improve, alter or expand the Business Opportunity Rule especially to better address false moneymaking schemes. The expansion could include additional types of moneymaking opportunities such as mentoring programs, e-commerce opportunities, and/or investment opportunities. The Federal Register notice seeks comment on “a number of questions related to the rule, including the need for the rule, its benefits and costs to consumers and to industry, the level of compliance with the rule, and any changes that should be made to the rule, including any practices or types of business opportunities that should be covered by the rule.” The notice further invites comment on whether false business opportunity practices disproportionately affect historically underserved communities. The Business Opportunity Rule was adopted in 2012 to make information more readily available to consumers investing in a business opportunity. The rule prohibits deceptive statements and requires key disclosures related to the investment, such as information supporting earnings claims. The FTC will accept comment on the advance notice of proposed rulemaking for sixty days after publication, which occurred on November 25. Therefore, written comments must be received on or before January 24, 2023. The commission voted 4-0 to publish the Rule review notice. In addition, Chair Kahn made a statement regarding the advance notice of proposed rulemaking. Chair Kahn briefly discussed “scams [that] may not meet the precise definition of a business opportunity [, but nevertheless] violate its spirit by luring consumers with false promises of easy money,” seemingly indicating support for expansion of the rule.
Bureau of Consumer Protection: Advertising & Marketing, Education
- Chair Kahn delivered remarks at the Financial Literacy and Education Commission Meeting. In the remarks, Chair Khan highlighted three areas of focus for the FTC to ensure “effective and efficient enforcement that promotes deterrence.” The three areas of focus are 1) impersonation scams, 2) false earnings claims, and 3) fake online reviews. Government and business impersonation scams are the top category of fraud reports and the FTC proposed a trade regulation rule to combat these impersonation scams in September of 2022. Similarly, false earnings claims routinely mislead consumers and the FTC initiated a rulemaking to challenge these types of claims in February of 2022. Third, false reviews hurt both consumers and competing businesses and the FTC proposed a rule regulating fake reviews and deceptive endorsements in October of 2022. Finally, Commissioner Khan highlighted cryptocurrency scams and related enforcements, such as the filing against DK Automation the day prior to these remarks.
- The FTC issued a statement following the death of former FTC Chair Michael Pertschuk. The statement recognized Chairman Pertschuk’s leadership of the FTC from 1977 to 1981 and continued service as a Commissioner from 1981 to 1984. In addition, Chair Kahn highlighted Chair Pertschuk’s “lifelong endeavor” to fight for the consumer by effectively using the FTC’s enforcement toolkit, developing substantive rules, and bolstering the FTC’s ability to analyze policy implementation.
Friday, November 18, 2022
Bureau of Consumer Protection: Consumer Protection, Advertising & Marketing
- The FTC received a monetary judgment in its deceptive energy savings claims case against Kansas based Superior Products International II, Inc. (“Superior”). The U.S. District Court for the District of Kansas ordered Superior to permanently halt its deceptive energy-efficient claims regarding coating products sold for home and other building application. The permanent injunction was accompanied by a $14,182.95 monetary judgment. Superior falsely claimed its products provided significant energy savings of “between 40% and 70%” and the court deemed this claim misleading. The FTC’s R-Value Rule covers the labeling and advertising of home insulation.
Monday, November 21, 2022
Bureau of Consumer Protection: Advertising & Marketing, Telemarketing
- The FTC released the National Do Not Call Registry Data Book for Fiscal Year 2022. The Registry allows consumers to add their phone number and choose not to receive most legal telemarketing calls. The Registry has more than 246 million phone numbers. Impersonator calls remains the most prominent consumer complaint the FTC receives, even though the total number of complaints decreased from 3.4 million to 1.8 million from fiscal year 2021 to 2022. Technological advancements such as Voice over Internet Protocol (VoIP) allows callers to make higher volumes of inexpensive calls. The FTC tracks the use of these types of technological advancements and pursues enforcement in this area.
Tuesday, November 22, 2022
Bureau of Consumer Protection: Amicus, CFPB, Credit and Finance
- The FTC and CFPB filed an amicus brief with the U.S. Court of Appeals for the Eleventh Circuit in Louis v. Bluegreen Vacations Unlimited, Inc. The agencies ask the court to overturn the lower court decision that denied servicemembers the right to sue to invalidate a contract that they allege violates the Military Lending Act. The agencies are defending the right of servicemembers to sue under the Military Lending Act, which was designed to protect servicemembers and military families from predatory lending. Under the law, any agreement that violates the act is void from inception. The district court dismissed the lawsuit finding that the Louis family did not have the legal right to sue, lacking standing, because they failed to identify any concrete harm as a result of the statutory violation. The Commission vote on whether to file the amicus brief with the CFPB was 4-0.
Bureau of Consumer Protection: Advertising and Marketing, COVID-19
- The FTC filed a complaint against California-based Precision Patient Outcomes, Inc. for marketing an over-the-counter dietary supplement as an effective treatment to mitigate the effects of COVID-19. The supplement only contains vitamins, zinc, and a flavonoid. The Director of the FTC’s Bureau of Consumer Protection stated “We don’t simply seek to stop this kind of fraud, but to permanently prohibit companies and company owners engaging in misconduct from endangering the health and well-being of American consumers.” The FTC is seeking a permanent injunction to stop the company from using deceptive treatment and prevention claims with no supporting scientific substantiation. The Commission vote authorizing the staff to file the complaint was 4-1, with Commissioner Wilson dissenting.
Bureau of Consumer Protection: Deceptive Business Practices
- The U.S. DOJ, on behalf of the FTC, and the Wisconsin Attorney General filed suit against Consumer Law Protection and related companies for scamming consumers out of approximately $90 million in a “timeshare exit scam.” The Missouri-based company has operated under various names, including Square One, Premier Reservations Group, Resort Transfer Group, and Timeshare Help Source. The complaint alleges the companies harmed consumers by making false affiliation claims, deceiving consumers about timeshare exit options, utilizing fear tactics, failing to provide promised full refunds, and using pressure tactics to have consumers sign contracts with unenforceable terms. The Commission voted 5-0 to refer the civil penalty complaint to the DOJ for filing.