Federal Consumer Protection News
President Biden issued an Executive Order on Improving the Nation’s Cybersecurity following the ransomware attack on the Colonial Pipeline which led to the pipeline shutting down and declarations of emergency and gasoline supply shortages in some states. The order declared that “the prevention, detection, assessment, and remediation of cyber incidents is a top priority and essential to national and economic security” and that “[a]ll Federal Information Systems should meet or exceed the standards and requirements for cybersecurity set forth in and issued pursuant to this order.” The order addresses risks both to federal agencies and critical infrastructure security as well as cybersecurity for consumers. It also addresses the need for a cyber-security capable workforce.
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB or Bureau) obtained a settlement with debt settlement company DMB Financial LLC (DMB) requiring at least $5.4 million in restitution. DMB allegedly charged unlawful upfront fees and failed to provide required disclosures to its customers in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act.
The CFPB and FTC put the nation’s largest landlords on notice about tenants’ pandemic-related protections. The letters were sent to apartment owners, who collectively own more than 2 million units, to remind the landlords of federal protections in place to keep tenants in their homes and stop the spread of COVID-19. However, in a Memorandum Opinion on May 5, the U.S. District Court for the District of D.C. held that the CDC restrictions were not authorized by law. Similar rulings were made by federal courts in Texas and Ohio in February and March. The Department of Justice filed a notice of appeal, so the national moratorium remains in effect and is set to expire on June 30, 2021.
The CFPB released two reports regarding the high rate of delinquencies of mortgage borrowers coping with the COVID-19 pandemic and economic downturn. The first report documents that Black and Hispanic mortgage borrowers are much more likely to be delinquent or in a forbearance program than white borrowers. In a second report, the CFPB states that overall mortgage complaints to the CFPB have risen to their highest level in three years.
The CFPB obtained more than $565,000 in consumer restitution from an auto lender for imposing allegedly unfair interest charges on late payments. The Bureau alleged that 3rd Generation, Inc., d/b/a California Auto Finance, charged interest to 5,800 consumers without disclosing the charge. In addition to restitution, the company must pay a $50,000 civil penalty.
Federal Trade Commission
The Federal Trade Commission (FTC) began sending nearly $60 million in restitution to 51,875 opioid addiction sufferers who were overcharged for suboxone. The payments were made pursuant to settlements with Reckitt Benckiser Group and Indivior, Inc., who allegedly conspired to thwart lower-priced generic competition with the branded drug Suboxone. The average payment amount is $1,139.
The FTC finalized a settlement with photo app developer Everalbum, Inc. related to alleged misuse of facial recognition technology on its Ever app. Everalbum, Inc. allegedly misled users that it would not apply facial recognition technology to users’ content unless they affirmatively chose to activate the feature but did so anyway in most instances. The settlement requires deletion of photos and videos of users who deactivated their accounts and deletion of the models and algorithms it developed by using the photos and videos uploaded by users.
The FTC is sending more than $273,500 in refunds to student loan debt relief scheme victims. Manhattan Beach Venture (MBV) allegedly charged consumers up to $1,400 in upfront fees supposedly to help reduce their student loans. However, MBV allegedly funneled consumers into financing this fee through a high-interest loan with third-party financier Equitable Acceptance Corporation, another defendant in the case. The FTC is sending checks to 2,889 people, averaging about $95 each.
The FTC announced its latest enforcement action halting deceptive CBD product marketing. Arizona-based Kushly Industries LLC and the company’s sole officer Cody Alt have agreed not to make false or unsupported claims or falsely claim that scientific evidence exists to back them up. They also will pay the FTC more than $30,000 in consumer redress.
In Other Federal News
The Consumer Product Safety Commission (CPSC) and Peloton announced the recall of Tread+ treadmills after one child death and 70 incidents. The CPSC and Peloton also announced the recall of Tread treadmills due to risk of injury. The recalls of the two Peloton models come after the CPSC had warned consumers to stop using the Tread+ treadmill in mid-April.
The FCC unanimously adopted final rules to implement the $7.17 billion Emergency Connectivity Fund Program, funded by the American Rescue Plan Act of 2021, to enable schools and libraries to purchase laptop and tablet computers, and Wi-Fi hotspots and broadband connectivity for students, school staff, and library patrons in need during the COVID-19 pandemic.
The FCC demanded that two companies immediately stop facilitating illegal robocall campaigns. Cease and desist letters were sent to VaultTel Solutions and Prestige DR VoIP demanding that they immediately cease carrying allegedly illegal robocall campaigns on their networks and report to the commission the concrete steps they implemented to prevent a recurrence.
The FDA expanded the emergency use authorization for the Pfizer-BioNTech COVID-19 vaccine to include adolescents 12 through 15 years of age.
The United States Department of Justice (USDOJ) announced the indictment of two individuals in a $650 million cattle Ponzi scheme. Joyce Stachniw of Illinois and Ron Throgmartin of Georgia, allegedly fraudulently told investors that short-term investments in cattle would achieve returns of 10-20% in periods as short as several weeks but used proceeds to pay other victims and enrich themselves.
USDOJ announced that three Peruvian nationals pled guilty to conspiring to defraud thousands of Spanish-speaking U.S. residents through a series of Peruvian call centers that falsely told victims that they were required to accept and pay for English language courses and other educational products. The frauds also included lottery and government imposter schemes. Between April 2011 and July 2019, thousands of victims made payments based on calls from the defendants’ call centers.
The United States Attorney for the Southern District of New York announced that the owner of a consumer products testing company pled guilty to a $46 million fraud scheme involving fabricated test results. Gabriel Letizia, Jr., the owner and executive director of AMA Laboratories, Inc. in New York City, pled guilty to defrauding customers by reporting laboratory test results for panelist testing that was not fully performed. As a result of the fraud, sunscreens and other consumer products were sold and marketed to consumers on the basis of false laboratory testing reports.
The Securities and Exchange Commission (SEC) sued the promoters of a $2 billion global crypto lending securities offering. The SEC’s complaint against 5 individuals alleges that from approximately January 2017 to January 2018, BitConnect, an unincorporated organization, acting through the defendants, raised approximately $2 billion by conducting an unregistered offering and sale of securities in the form of investments into BitConnect’s “lending program.” The complaint seeks injunctive relief, disgorgement plus interest, and civil penalties.
The SEC sued mutual fund executives for allegedly misleading investors regarding investment risks in funds that suffered a $1 billion trading loss. Executives of LJM Partners Ltd. and LJM Funds Management Ltd. (collectively, LJM) allegedly made a series of misstatements to investors and the mutual fund’s board about LJM’s risk management practices, including false statements about its use of historical event stress testing and its commitment to maintaining a consistent risk profile instead of prioritizing returns when in fact they increased the level of risk in the portfolio which subsequently incurred catastrophic trading losses.
The Department of Homeland Security’s Transportation Security Administration (TSA) ordered critical pipeline owners and operators to implement new cybersecurity requirements following the Colonial Pipeline ransomware incident. The new measures include mandatory notification of the potential cybersecurity incident to the Department of Homeland Security Cybersecurity and Infrastructure Security Agency and designation of a Cybersecurity Coordinator to be available 24 hours a day, seven days a week.
The U.S. Treasury Department (Treasury) announced an additional $21.6 billion in emergency rental assistance allocation. In addition to this financial support, Treasury issued updated, strengthened guidance to expedite funds to renters and target those most severely in need of assistance. For example, the guidance makes clear that the $21.6 billion of emergency rental assistance made available through this program must be offered directly to renters when landlords do not accept direct payment. The guidance also reduces burdensome documentation requirements and wait times that can slow down assistance.
Treasury announced the distribution of $742 million to states and territories through the Homeowner Assistance Fund (HAF). HAF was designed to prevent mortgage delinquencies and defaults, foreclosures, loss of utilities or home energy services, and displacement of homeowners experiencing financial hardship due to the COVID-19 public health crisis.
Other Items of Interest
The Ninth Circuit Court of Appeals reversed a lower court ruling and held that Snap Inc. was not immune from suit under Section 230 of the Communications Decency Act. The ruling allows Snap to be sued by the surviving parents of two boys who died in a high-speed accident while using Snapchat’s smartphone app that encouraged users to report their speed while using the app. The court held that the suit treated Snap as a products manufacturer, not a publisher, and Snap’s duty to design a reasonably safe app was fully independent of Snap’s role in monitoring or publishing third-party content.
Ohio Attorney General Dave Yost sued a charity director for alleged misuse of funds. The lawsuit alleges that Thomas Merrill, director of Pen Ohio, a now defunct charity created to support young writers, falsified documents, approved his own compensation, and threatened board members when confronted about his activities. The suit alleges that Merrill used $110,000 of charitable funds for his own benefit without the governing board’s approval, abused a charitable trust, and breached his fiduciary duties.
Veterans and Military
The CFPB Office of Servicemember Affairs released its eighth annual report. The report details the work of the office to educate and empower military consumers, to monitor their complaints, and to coordinate with other state and federal agencies so that their financial concerns are given the attention they deserve.
Illinois Attorney General Kwame Raoul applauded the Illinois General Assembly’s bipartisan passage of his “Know Before You Owe” legislation to protect student loan borrowers and ensure they select a loan option that best meets their financial needs. Federal data shows that more than half of undergraduate students took out a private student loan even though they were still eligible for federal student loans. Private student loans offer fewer borrower protections, less flexible repayment options, and generally cost more than federal student loans. Raoul’s legislation ensures borrowers have information to determine whether they have exhausted their federal loan options before taking out private loans.
Other articles in this edition include: