SPECIAL FOCUS: CFPB
Author: Chuck Washburn
On May 9, 2013 the Federal Trade Commission sent a letter to the Bureau of Consumer Financial Protection (“CFPB”) that describes its enforcement actions and other activities during 2012 with respect to several federal consumer financial protection laws. The CFPB requested the information for use in preparing its annual report to Congress.
The letter first outlines the agency’s powers to enforce consumer protection laws, including Regulations Z and E. It then makes clear that although the Dodd-Frank Act gives broad enforcement powers to the CFPB, the FTC “retained its authority to enforce Regulations B, E, M and Z” and also gained shared authority to enforce new CFPB rules, including the unfair, deceptive or abusive acts or practices (“UDAAP”) standard. The agencies cooperate in enforcing these shared powers with respect to nonbank “covered persons” pursuant to a 2012 memorandum of understanding between the agencies.
The FTC states that its “primary focus in the financial services area is bringing law enforcement actions against those who violate statutes and regulations.” It says entities within its jurisdiction “include most providers of financial services that are not banks” or other traditional financial institutions. The CFPB asked about FTC examination activities during 2012, but the FTC reminds the CFPB that the FTC does not conduct exams.
The FTC’s Regulation E discussion is of particular interest to retailers. It states that several Regulation E actions that resulted in litigation and million-dollar settlements were taken against retailers that tried to obtain authorizations for recurring payments through “negative option” plans. The FTC restates the rule that Regulation E prohibits “companies from debiting consumers’ bank accounts on a recurring basis without obtaining proper written authorization for preauthorized electronic fund transfers and without providing the consumer with a copy of the written authorization.”
The FTC’s letter to the CFPB may be found here.
Why it matters: Although the CFPB can promulgate rules for federal consumer financial protection laws like Regulations Z and E, the FTC makes clear that it has equal enforcement authority when it comes to nonbanks, and that it actively exercised that authority during 2012. Accordingly, nonbanks have to worry about two federal sheriffs in town (plus state sheriffs) when it comes to compliance with these rules. In addition, the FTC signals its intention to actively enforce Regulation E requirements that apply to recurring payments that are charged to debit cards or bank accounts. Authorizations must be clear, and the FTC notes that copies of the authorization must be provided. Regulation E presents significant challenges to retailers that offer recurring payment programs, especially when authorizations may be obtained by phone.
back to top
Manatt to Host Complimentary Webinar on New TCPA Consent Requirements
The risks and costs associated with sending text or pre-recorded phone messages to consumers can be significant across a wide spectrum of businesses. Fines for violations under the Telephone Consumer Protection Act begin at $500 per call or text message, and, when tripled in a class action, can potentially bankrupt a company. Effective October 16, 2013, the FCC’s updated TCPA regulations go into effect and heighten the need for attention to compliance. The new rules pose significant implementation challenges by requiring that consumers give express written consent before receiving marketing calls or text messages.
In an advanced, no-cost webinar, “Are You Ready for New TCPA Consent Requirements?” attorneys Marc Roth and Becca Wahlquist of Manatt will join forces with Ken Sponsler of CompliancePoint, a leading direct marketing and security compliance firm, to provide updates on recent legal developments, provide insights on enforcement trends and strategies, and discuss solutions that will help to remain ahead of the curve in meeting TCPA challenges.
back to top
Washington AG Comes Calling on T-Mobile Over False Ads
T-Mobile must engage in a corrective advertising campaign pursuant to a settlement reached with Washington Attorney General Bob Ferguson, who filed suit against the company over deceptive advertising that promised consumers an annual contract was not necessary to purchase a phone plan.
According to the suit, T-Mobile charged customers hidden fees for early termination of their phone plans despite the company’s marketing message. The company claimed it had “no restriction,” “no annual contract,” and no requirement to “serve a two-year sentence.” Phones could be purchased separately at a monthly rate over a two-year term, paid for up front, or consumers could provide their own phone.
What the ads failed to disclose was that consumers who purchased a phone using the 24-month plan were obligated to enter into a service agreement with T-Mobile for the entire time period. If a customer cancelled earlier, the company charged them for the entire two-year balance, Ferguson alleged, and they faced “an unanticipated balloon payment.”
In an Assurance of Discontinuance filed in Washington state court with nationwide effect, T-Mobile agreed that it would no longer misrepresent consumers’ obligations under its contracts and would make adequate disclosures about termination fees. The company will also conduct a corrective advertising campaign by contacting customers to inform them that they can obtain a full refund for their telephone equipment and cancel their service plans without having to pay the balance owed.
Going forward, T-Mobile will train customer service representatives to comply with the settlement and to fully disclose all obligations under the terms of its contracts. In addition, the company will “more clearly state in all advertisements” the true cost of telephone equipment, including the 24-month service plan requirement.
Finally, T-Mobile will pay attorneys’ fees and costs to the AG totaling $26,046.40.
Why it matters: In a statement about the settlement, Ferguson said the action was triggered by T-Mobile’s failure to disclose “a critical component” of the plan to consumers. Companies seeking to avoid similar regulatory action – or a consumer class action – should adequately disclose all relevant terms and conditions to consumers.
back to top
Second Time Not the Charm for TCPA Plaintiff in NY
Class actions seeking statutory damages pursuant to the Telephone Consumer Protection Act are still not viable in New York federal court, according to a district court judge.
Earlier this year, U.S. District Court Judge William F. Kuntz, in dismissing the case sua sponte for a lack of subject matter jurisdiction, ruled that class actions pursuant to the TCPA seeking statutory damages are not permitted under federal law.
The suit was filed by New Yorker Todd Bank on behalf of himself and an estimated 10,000 other residential phone lines that received prerecorded calls advertising Independence Energy Group LLC’s electricity-related services.
Bank filed a motion to reconsider, relying upon last year’s U.S. Supreme Court decision in Mims v. Arrow Financial Services. In that case, the justices held that state and federal courts have concurrent jurisdiction over TCPA claims and plaintiffs may file in either venue.
But Judge Kuntz held firm to his earlier ruling. Because the court was considering whether TCPA claims could be brought in state – not federal – court, the comments on federal jurisdiction were mere dicta, he said. Instead, he relied upon a 2010 decision from the U.S. Court of Appeals for the Second Circuit, Holster III v. Gatco, Inc., where the panel held that Section 901(b) of New York Civil Practice Law and Rules bars TCPA class actions in federal court.
The Mims decision did not abrogate the Holster decision, Judge Kuntz said. The justices relied upon federal-question jurisdiction to reach their holding. Alternatively, the Second Circuit explicitly stated that it was not relying upon the Erie doctrine, but instead it looked to state court rules. Therefore, the Holster decision remains untouched by Mims, Judge Kuntz wrote, and “remains the binding law within this Circuit.”
He was similarly unswayed by other district court post-Mims holdings, including another case from the Southern District, that state procedural rules regulating class actions do not apply to TCPA claims brought under federal question jurisdiction. Although the District Court judge in that suit predicted that the Second Circuit would depart from its prior case law in light of Mims, Judge Kuntz refused to prognosticate. “The Second Circuit has not yet so departed,” he wrote. “Therefore, Holster remains the binding law of this Circuit. And, in any event, district court cases, even those within the Second Circuit, do not bind this Court.”
To read the court’s order in Bank v. Independence Energy Group, click here.
Why it matters: The battle over federal court jurisdiction of TCPA claims in New York will continue, as the plaintiff has already filed notice of appeal to the U.S. Court of Appeals for the Second Circuit. If the court accepts the case, the answer to whether Mims overruled the Circuit’s existing law may be answered.
back to top
FTC Goes Undercover to Investigate FCRA Violations
After conducting an undercover sting operation, the Federal Trade Commission sent letters to ten data brokers warning them that they could be violating the Fair Credit Reporting Act.
As part of an increased focus on the FCRA, the agency used test shoppers to approach 45 companies seeking financial data about consumers for employment, credit, or insurance decisions. Pursuant to the FCRA, companies that collect, distribute, and sell such consumer information are considered consumer reporting agencies and must reasonably verify the identity of the purchasers, as well as ensure that the purchasers have a “legitimate purpose” under the Act to receive the information.
Of those researched, ten companies received warning letters because they “appeared willing to sell information without complying with the requirements of the FCRA,” the FTC said.
Recipients included (1) ConsumerBase and a second, unnamed company, which offered “pre-screened” lists of consumers to help make a firm offer of credit; (2) Brokers Data and US Data Corporation, which the agency said offered consumer information for use in making insurance decisions; and (3) Crimcheck.com, 4Nannies, U.S. Information Search, People Search Now, Case Breakers, and USA People Search, all of which appeared to offer information for employment purposes.
In its warning letters, the agency explained the duties required of a credit reporting agency and noted that disclaiming responsibility under the Act did not prevent potential liability. “Even if you place a disclaimer on your website indicating that your data must not be used for employment or other FCRA-covered purposes, you may still be a [credit reporting agency],” Associate Director Maneesha Mithal wrote. “Regardless of any disclaimers, if you do not intend to be a [credit reporting agency], you should have clear policies in place explaining the purposes for which you will and will not sell information, you should educate your employees and customer service representatives about the importance of not selling consumer information for FCRA purposes, and you should review all marketing materials to ensure that you are not marketing your products to HR professionals or employers.”
While the agency said it had not made a formal determination of whether the letter recipients had violated the FCRA, it encouraged them to review their products, services, policies, employee training, and other procedures for compliance – or face legal action which could lead to injunctive relief and/or monetary penalties of up to $3,500 per violation.
To read the agency’s warning letters, click here.
Why it matters: The test shopping effort was part of an international privacy-related initiative sponsored by the Global Privacy Enforcement Network. The FTC was one of several privacy enforcement authorities taking part in the transparency sweep “to promote and support cooperation in cross-border enforcement of laws protecting privacy.” The sting operation follows several warning letters sent to the operators of mobile apps and serves as a reminder that the FTC remains focused on the activities of data brokers. The agency also settled with online data broker Spokeo for $800,000 after the agency initiated a civil action alleging the company violated the FCRA, and it supports laws that would impose additional regulations on data brokers.
back to top
Noted and Quoted . . . InsideCounsel Turns to Marc Roth for Insight on Implications of Recent Google Settlement
On May 1, 2013, Marc Roth, a partner in Manatt’s advertising practice, spoke to InsideCounsel regarding Google’s settlement with 38 state attorneys general for collecting personal data, such as emails and passwords, from unencrypted Wi-Fi networks in connection with the company’s Street View mapping project.
Google received a $7 million fine and must also set up an internal privacy program as part of the deal. The settlement provides a useful example for in-house counsel as to how to promote privacy within their own companies.
According to Marc, “The requirements are very stringent and onerous simply because Google has been in the crosshairs previously. I don’t think companies will be subject to similar requirements if they are investigated. However, companies need to take a look at what these requirements are and apply them to their business to the extent reasonably necessary given what they do.”
back to top