Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB or Bureau) announced a $35 million settlement with Discover Bank, The Student Loan Corporation, and Discover Products, Inc. (collectively, Discover), resolving allegations that Discover violated a 2015 Bureau order, the Electronic Fund Transfer Act, and the Consumer Financial Protection Act (CFPA). Under the settlement, Discover must pay at least $10 million in consumer redress and a $25 million civil penalty. The Bureau found that Discover violated the 2015 order by misrepresenting the minimum loan payments consumers owed, the amount of interest consumers paid, and other material information, such as interest rates, payments, due dates, and the availability of rewards. Discover also did not provide all the consumer redress the 2015 order required. Some consumers ended up paying more than they owed, others became late or delinquent because they could not pay the overstated amount, while others may have filed inaccurate tax returns.
The CFPB sued debt adjuster DMB Financial, LLC (DMB) for alleged violations of the Telemarketing Sales Rule and the CFPA in connection with its debt-settlement and debt-relief services. The Bureau’s complaint alleges that DMB requested and received fees before it performed its promised services and before consumers started payments under any debt settlement. The Bureau also alleges that, after settling individual debts, DMB collected fees based on increased debt amounts after enrollment rather than the amount of each debt at the time of enrollment and that DMB misrepresented the debt amount that it would use to determine its fees.
The CFPB issued a $5.4 million consent order against mortgage servicer Seterus, Inc. for illegal practices that impeded borrowers’ attempt to avoid foreclosure. Seterus and Kyanite Services, Inc. (Kyanite), as Seterus’s successor in interest, allegedly took actions that delayed or deprived some borrowers of a reasonable opportunity to get their loss mitigation applications completed and evaluated. For some borrowers, the actions resulted in them failing to timely receive protections against prohibited foreclosure activities to which they were legally entitled. The consent order provides injunctive relief and requires Kyanite to pay $4,932,525 in total redress to approximately 11,866 consumers and pay a $500,000 civil penalty.
The CFPB issued a final rule to implement Fair Debt Collection Practices Act (FDCPA) requirements regarding disclosures for consumers. The rules are the first-ever regulations implementing the FDCPA and specify certain disclosures debt collectors must provide at the outset of collection communications, including details about the consumer’s debt and rights in debt collection, and information to help consumers respond. The rule requires specific steps to disclose the existence of a debt to consumers orally, in writing, or electronically, before reporting information about the debt to a consumer reporting agency. Collectors are also prohibited from, and will be strictly liable for, suing or threatening to sue a consumer to collect a debt for which the applicable statute of limitations has passed.
Federal Communications Commission
The Federal Communications Commission (FCC) issued two new orders to protect residential phone customers from robocalls and require phone companies to better police their networks. In the first order, the FCC amended its rules to limit the number of exempted calls, such as from tax-exempt nonprofit organizations, to three calls to any residential phone within any consecutive 30-day period. Previously, there was no limit on the number of such calls. Callers are also now required to allow consumers to opt out of such calls. In the second order, the FCC required terminating voice service providers to take new steps to ensure their networks are not used to transmit illegal robocalls. Voice service providers will now be required to take affirmative steps to stop illegal calls when notified of those calls by the FCC. They will also be required to aid FCC and law enforcement efforts to identify providers that originate illegal calls. The order also expanded safe harbors for providers to include network-based blocking of calls that are highly likely to be illegal and that have been identified using reasonable analytics, including caller ID authentication. The FCC requires phone companies to immediately notify callers when calls are blocked, provide a list of calls blocked to subscribers on request, and provide a status update on call blocking disputes within 24 hours.
The FCC submitted a “Report to Congress on Robocalls and Transmission of Misleading or Inaccurate Caller Identification Information” pursuant to the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence (TRACED) Act. The report provides information about the first year of TRACED Act implementation and enforcement activity, including action taken with state attorneys general against John C. Spiller and Jakob A. Mears, operating under the business names Rising Eagle and JSquared Telecom to make billions of spoofed robocalls.
The FCC issued a Notice of Proposed Rulemaking to create a robocall violation “tip line” for private entities to submit information about robocalls violating sections 227(b) and 227(e) of the Communications Act. The FCC’s Enforcement Bureau will monitor the Portal. Comments are due within 30 days of publication in the Federal Register.
Federal Trade Commission:
The Federal Trade Commission (FTC) settled with Voice over Internet Protocol (VoIP) service provider Alcazar Networks Inc. and its owner over charges that they facilitated tens of millions of illegal telemarketing phone calls, including calls from overseas and calls displaying spoofed caller ID numbers. The proposed settlement bars the defendants from similar misconduct in the future, imposes a $105,000 civil penalty, and requires them to screen and monitor their customers. This is the FTC’s second case against a VoIP service provider. According to the FTC’s complaint, Alcazar and its owner Gavin Grabias have assisted and facilitated illegal robocalls in violation of the TSR. They allegedly continued to do so even after they learned that customers were using their service to initiate calls to numbers on the FTC’s Do Not Call (DNC) Registry and calls displaying spoofed caller ID numbers, including displaying “911.” For example, Alcazar customer Derek Bartoli (who was the subject of an FTC action for allegedly violating the TSR), allegedly made more than 50 million illegal telemarketing calls using Alcazar’s services after Alcazar learned Bartoli was calling consumers on the DNC Registry without permission to do so. In addition, many of Bartoli’s calls were robocalls that displayed spoofed caller ID numbers, also in violation of the TSR. These calls used Alcazar’s VoIP services during 2018 and pitched “medical alarms.”
The FTC is sending checks totaling $774,755 to 13,221 consumers who bought Synovia, a supplement advertised and sold by A.S. Research, LLC as a treatment for arthritis and joint pain. The average refund amount is $58.60 per consumer. According to the FTC’s complaint, A.S. Research made misleading health claims and used phony testimonials, including one in which a user said he “gave away his walker” after using the supplement. The FTC also alleged that the defendants told consumers they had to pay extra for a version of Synovia containing an ingredient added to increase pain relief and speed joint repair, when in fact all purchasers received that product.
The FTC settled charges against ten individual and corporate defendants in the Sanctuary Belize real estate scam case filed in 2018. In November 2018, the FTC obtained an order temporarily shutting down the scam, the largest investment scheme the FTC had ever targeted. According to the FTC, the alleged scheme took in more than $120 million, primarily from American consumers, with the scammers marketing lots in what supposedly would become a luxury development in Central America known by several names, including Sanctuary Belize, Sanctuary Bay, and The Reserve. The settlements require the defendants to forfeit assets, the sale of which the FTC expects to lead to significant recoveries for injured consumers.
The FTC announced the first law enforcement crackdown on deceptive claims in the growing market for cannabidiol (CBD) products. The FTC took action against six sellers of CBD-containing products for allegedly making a wide range of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and others. The FTC is requiring each of the companies, and individuals behind them, to stop making such unsupported health claims immediately, and several will pay monetary judgments to the agency. The orders settling the FTC’s complaints also bar the respondents from similar deceptive advertising in the future and require that they have scientific evidence to support any health claims they make for CBD and other products.
The FTC is issuing orders to nine social media and video streaming companies, requiring them to provide data on how they collect, use, and present personal information, their advertising and user engagement practices, and how their practices affect children and teens. The FTC is issuing the orders under Section 6(b) of the FTC Act, which authorizes the FTC to conduct wide-ranging studies that do not have a specific law enforcement purpose. The orders are being sent to Amazon.com, Inc.; ByteDance Ltd., which operates the short video service TikTok; Discord Inc.; Facebook, Inc.; Reddit, Inc.; Snap Inc.; Twitter, Inc.; WhatsApp Inc.; and YouTube LLC. The companies will have 45 days from the date they received the order to respond.
The FTC has settled charges that glue maker Chemence, Inc., and its company president James Cooke, made deceptive “Made in USA” claims on pre-labeled and pre-packaged glues for trade customers. The FTC settled an earlier suit against Chemence in 2016 for making deceptive Made in USA advertising claims for products sold under its own brand names, including Kwik Fix, Hammer Tite, and Krylex. Despite Chemence and Cooke’s representations, in numerous instances, foreign materials accounted for more than 80 percent of the materials costs and more than 50 percent of the overall manufacturing costs for the products. As part of the proposed settlement, Chemence and Cooke are required to pay $1.2 million to the FTC, the highest monetary judgment ever for a “Made in USA” case.
The FTC, along with 19 federal, state, and local law enforcement partners announced a nationwide crackdown on scams that target consumers with fake promises of income and financial independence that have no basis in reality. The impact of these scams has intensified as scammers take advantage of the COVID-19 pandemic and financial crisis. Called “Operation Income Illusion,” the crackdown encompasses more than 50 law enforcement actions against the operators of work-from-home and employment scams, pyramid schemes, investment scams, bogus coaching courses, and other schemes that can end up costing consumers thousands of dollars.
U.S. Department of Justice
The U.S. Department of Justice (USDOJ) filed a civil case against Walmart Inc., for Controlled Substances Act (CSA) violations related to opioids. The suit, filed in the U.S. District Court for the District of Delaware, alleges that, as the operator of its pharmacies, Walmart knowingly filled thousands of controlled substance prescriptions that were not issued for legitimate medical purposes or in the usual course of medical practice. The complaint also alleges that as the operator of its distribution centers, which ceased distributing controlled substances in 2018, Walmart received hundreds of thousands of suspicious orders that it failed to report as required to the U.S. Drug Enforcement Agency. The complaint alleges that this unlawful conduct resulted in hundreds of thousands of violations of the CSA. Together, the complaint alleges, these actions helped to fuel the prescription opioid crisis. The USDOJ seeks civil penalties, which could total in the billions of dollars, and injunctive relief.
USDOJ obtained a permanent injunction shutting down a technical-support fraud scheme. The consent order resolves a case filed in October 2020 and bars Michael Brian Cotter of Glendale, California, and four companies, Singapore registered Global Digital Concierge Pte. Ltd., formerly known as Tech Live Connect Pte. Ltd., Nevada registered companies Sensei Ventures Incorporated and NE Labs Inc., and New York registered KeviSoft LLC, from selling technical-support services or software via telemarketing or websites. The complaint asserted that Cotter and co-conspirators operating call centers in India bilked unsuspecting victims, many of them seniors, into paying hundreds to thousands of dollars for unwanted and unnecessary technical-support services after receiving pop up messages fraudulently claiming their devices were infected with malware.
USDOJ announced the extradition of a Canadian citizen from Spain to face charges of operating a massive psychic mail fraud scheme. Patrice Runner allegedly operated the scheme from 1994 through 2014 and defrauded over one million victims in the United States of more than $180 million. The scheme allegedly involved sending millions of U.S. consumers, many of whom were elderly and vulnerable, letters purporting to be from two well-known French psychics, promising that the recipient had the opportunity to achieve great wealth and happiness with the psychic’s assistance in exchange for payment of a fee. The letters also frequently stated that a psychic had seen a personalized vision regarding the recipient of the letter, when in fact the scheme sent nearly identical letters to tens of thousands of victims each week. Runner and his co-conspirators obtained the names of elderly and vulnerable victims by renting and trading mailing lists with other mail fraud schemes. When a victim responded to one letter, Runner and his co-conspirators sent dozens of additional letters to the victim. Each of these additional letters also appeared to be a personalized letter from a psychic and requested additional money from the victim. In fact, the psychics had no role in sending the letters, did not receive responses from the victims, and did not send the additional letters after victims paid money. Two co-conspirators previously pleaded guilty to conspiracy to commit mail fraud.
USDOJ charged the CEO of a medical device company with COVID-19-related securities fraud. Keith Berman, the CEO of California-based Decision Diagnostics Inc. (DECN), allegedly defrauded investors by making false and misleading statements about the purported development of a new COVID-19 test, leading to millions of dollars in investor losses. The indictment alleges that, from February through December 2020, Berman engaged in a scheme to defraud investors by falsely claiming DECN had developed a 15-second test to detect COVID-19 in a finger prick sample of blood. In truth, Berman knew his test was merely an idea and not a validated method of accurately detecting COVID-19, much less an actual product ready for manufacture and sale. The indictment further alleges that Berman falsely told investors that the U.S. Food and Drug Administration (FDA) was on the verge of approving DECN’s request for emergency use authorization of its new COVID-19 test and hired a political consultant to lobby members of Congress, telling them in talking points that the FDA had “moth-balled” the company’s submission and that it remained “stuck in limbo” at or around the same time that Berman was telling investors that the test was on the verge of approval. Between early March and April 23, 2020, DECN’s stock price rose by over 1,500 percent.
The owner of a Texas chain of hospice companies was sentenced for operating a $150 million health care fraud and money laundering scheme, USDOJ announced. Rodney Mesquias owned and controlled the Merida Group, a large health care company that operated dozens of locations throughout Texas. According to evidence presented at trial, Mesquias and the Merida Group adopted a strategy to market their hospice programs as providing medical benefits “you don’t have to die to use.” They also aggressively enrolled patients with long-term incurable diseases, such as Alzheimer’s and dementia, and limited mental capacity who lived at group homes, nursing homes and in housing projects. In some instances, Merida Group marketers falsely told patients they had less than six months to live and sent chaplains to lie to the patients. They also discussed last rites and preparation for their imminent death. Hospice services require patients to be suffering from a terminal illness expected to result in death within six months. Not only were patients not in such circumstances, but they were also walking, driving, working and even coaching athletic sporting events in some instances. However, Mesquias and others kept patients on services for multiple years in order to increase revenue. Placing patients on such palliative hospice care meant they were unable to obtain medical coverage for curative medical services.
USDOJ announced distribution of more than $488 million to victims of the Madoff Ponzi scheme. The distribution, which was the sixth the department has made from the Madoff Victim Fund, brings the total distributed to almost $3.2 billion to nearly 37,000 victims nationwide and resulted in the recovery of more than 80 percent of victims’ losses.
USDOJ’s U.S. Trustee Program (USTP) entered into national agreements with three mortgage servicers to address past servicing deficiencies impacting homeowners in bankruptcy. The agreements with Nationstar Mortgage, LLC (Nationstar), U.S. Bank National Association (U.S. Bank), and PNC Bank, NA (PNC) address noncompliance with the Bankruptcy Code and Federal Rules of Bankruptcy Procedure that impacted over 60,000 accounts of borrowers in bankruptcy dating back to 2011 and resulted in payment application errors; inaccurate, missing, and untimely bankruptcy filings; and/or delayed escrow statements. Collectively, the USTP’s agreements with Nationstar and U.S. Bank, and the letter of acknowledgement with PNC, provide over $74 million to remediate over 76,000 historical servicing errors impacting borrowers in bankruptcy. The agreements also require the servicers to implement improvements in their bankruptcy operations to ensure that the errors do not recur. Most of the remediation and corrective actions have already been taken by the servicers.
USDOJ announced charges in an international fraudulent online puppy scam that exploited the COVID-19 pandemic. Fodje Bobga, a Cameroon national living in Romania operated the website www.lovelyhappypuppy.com. According to the unsealed affidavit filed with the criminal complaint, from around June 2018 to the present, Fodje Bobga and others communicated by text message and email with potential victims to induce pet purchases. Following each purchase, Fodje Bobga and the co-conspirators claimed that a transportation company would deliver the puppy or other animal and provided a false tracking number for the pet, then, acting as the transportation company, claimed the pet transport was delayed and that the victim needed to pay additional money for delivery of the pet.
Other Federal Agencies
The U.S. Food and Drug Administration authorized the first direct-to-consumer COVID-19 test system without a prescription. LabCorp’s Pixel COVID-19 Test Home Collection Kit allows an individual to self-collect a nasal swab sample at home and then send that sample for testing to LabCorp. Positive or invalid test results are then delivered to the user by a phone call from a health care provider. Negative test results are delivered via email or online portal. The kit can be purchased online or in a store and is intended to enable users to access information about their COVID-19 infection status that could aid with determining if self-isolation is appropriate and to assist with health care decisions after discussion with a health care professional.
The Internal Revenue Service (IRS) urged people to visit IRS.gov for the most current information on the second round of Economic Impact Payments rather than calling the agency or their financial institutions or tax software providers. Anyone who received the first round of payments in 2020 but does not receive a payment via direct deposit will generally receive a check or, in some instances, a debit card. For those in this category, the payments will conclude in January 2021.
The U.S. Senate Commerce Committee released a report of the committee’s investigation of aviation safety related to the Boeing 737 MAX and the Federal Aviation Administration’s (FAA) oversight of the aviation industry and management culture. According to the announcement, some of the report’s more significant findings include: 1) a lack of accountability of FAA senior managers for failing to develop and deliver adequate training in flight standards despite repeated findings of deficiencies over several decades; 2) The FAA retaliated against whistleblowers instead of welcoming their disclosures in the interest of safety; 3) The Department of Transportation (DOT) Office of General Counsel failed to produce relevant documents requested by the committee; 4) The FAA repeatedly permitted Southwest Airlines to operate dozens of aircraft in an unknown airworthiness condition for several years putting millions of passengers at risk; 5) During 737 MAX recertification testing, Boeing inappropriately influenced FAA human factor simulator testing of pilot reaction times involving a Maneuvering Characteristics Augmentation System failure; and 6) FAA senior leaders may have obstructed a DOT Office of Inspector General review of the 737 MAX crashes. The committee is still reviewing the ongoing production of requested documents from the FAA and additional information being received from whistleblowers.