FTC 2018 Annual Financial Acts Enforcement Report

Federal Trade Commission staff attorneys have provided its 2018 Annual Financial Acts Enforcement Report to the Consumer FTC financial acts enforcement report imageFinancial Protection Bureau on its enforcement and related activities regarding Regulation Z (Truth in Lending Act), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act).

The report from FTC attorneys on TILA, CLA, and EFTA highlights, among other things, the FTC’s enforcement actions related to automobile purchases and financing, payday lending, and consumer electronics financing; leasing; and negative options and other practices involving electronic fund transfers.

It also addresses the FTC’s research and policy efforts related to truth in lending, leasing, and electronic fund transfer issues, including a qualitative study of consumers’ experiences in buying and financing automobiles at dealerships.

The report also highlights the agency’s Military Task Force, which comprises a cross-section of FTC representatives and focuses on various initiatives to assist military consumers. The report also outlines the FTC’s consumer and business education efforts on truth in lending, leasing, and electronic fund transfer issues.

Interestingly, six of the Commission’s cases alleging violations of the EFTA and Regulation E arose in the context of “negative option” plans, a favorite of many affiliate marketers. Under these plans, a consumer typically agrees to receive various goods or services from a company for a trial period at no charge or at a reduced price.

According to the report, companies also obtain, sometimes through misrepresentations, the consumer’s debit or credit card number. If the consumer does not cancel before the end of the trial period, the shipments of goods or provision of services continue, and the consumer incurs recurring charges.

The EFTA and Regulation E prohibit companies from debiting consumers’ debit cards, or using other electronic fund transfers to debit their 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.

In 2018, the FTC filed a complaint and obtained a temporary restraining order and asset freeze, halting a group of San Diego-based Internet marketers from deceptively advertising free trial offers and not only charging consumers full-price for the trial product, but also allegedly enrolling them in expensive, ongoing continuity plans without their knowledge or consent.

The defendants allegedly marketed and sold a variety of products online, including skin creams and electronic cigarettes. Consumers who ordered the free trial for $4.95 or less, ended up purportedly being charged as much as $98.71 for the trial shipment, followed by enrollment in the negative option plan without their consent. The complaint also alleged that the defendants used deceptive order confirmation pages to trick consumers into ordering additional products, which similarly enroll consumers in additional negative-option plans, and that the defendants make it difficult to cancel the negative option plans, or stop or avoid the charges. The FTC’s complaint charged the defendants with violating the FTC Act, the EFTA and Regulation E, and the Restore Online Shoppers’ Confidence Act (ROSCA).

In a second negative option case, the FTC filed a complaint and obtained a temporary restraining order halting an alleged Internet marketing scam. The Commission alleged that the defendants marketed supposedly “free trial” offers for personal care products and dietary supplements online but charged consumers the full price of the products and enrolled them in negative option continuity plans without their consent. The Commission charged the defendants with violations of the FTC Act, the EFTA, and ROSCA. The FTC also obtained stipulated preliminary injunctions, and litigation continues in this matter.

In a third negative option case, the FTC filed a complaint and obtained a temporary restraining order halting a company’s advertising of three dissolvable oral film strips that the Commission alleges were deceptively marketed as effective smoking cessation, weight-loss, and sexual-performance aids. The Commission charged the defendants with violations of the FTC Act, the EFTA, the Telemarketing Sale Rule, and ROSCA, and the FTC obtained preliminary injunctions and litigation is ongoing.

In a fourth negative option case, a health products company and its owner agreed to settle charges that they deceived consumers with promises that their products could treat everything from arthritis to memory loss. The settlement order bars the defendants from engaging in a wide range of business practices that the FTC and State of Maine previously alleged caused financial injury to consumers. The complaint included allegations that the defendants misrepresented the terms of a “risk free” trial period and enrolled consumers in auto-renewal plans without adequately disclosing the practice in violation of the FTC Act, obtained and charged consumers’ debit card numbers without authorization in violation of EFTA, and failed to disclose material terms and conditions for third party upsells and material terms of their refund and cancellation policy, in violation of the TSR. In addition to providing injunctive relief, the settlement imposes a judgment of $3.7 million, part of which is suspended based on the defendants’ financial condition.

In 2018, the FTC also mailed 16,596 checks totaling more than $750,000 to consumers who bought two of the defendants’ deceptively marketed dietary supplements, NeuroPlus and BioTherapex; the average refund amount was $44.34.38 In a fifth negative option case, which was previously filed, the Commission obtained court orders permanently barring the two remaining defendants from the deceptive marketing and billing tactics they allegedly used in connection with selling skincare products offered to consumers with supposedly “risk-free” trials, and from failing to obtain written authorizations in a manner that complies with EFTA. The court orders also impose a $320,665 judgment against the defendants (suspended based on their financial condition).

In a sixth negative option case, which was previously filed, the FTC mailed 2,116 refund checks totaling more than $355,000 to people who bought CogniPrin, a deceptively marketed ‘memory improvement’ supplement; the average check amount was $168.08, and represented full refunds. The court previously entered stipulated final orders resolving charges by the FTC and State of Maine with all of the nine defendants engaged in violations of the FTC Act and the EFTA.

Experienced FTC compliance lawyers can assist digital marketers with avoiding related violations, including unfair or deceptive acts or practices under the Federal Trade Commission Act.

Richard B. Newman is an FTC advertising compliance attorney at Hinch Newman LLP. Follow him on Twitter @ FTC Defense Lawyer.

Informational purposes only. Not legal advice. Attorney advertising.