On June 9, 2015, the Federal Trade Commission (“FTC”) announced that it provided its 2014 Annual Financial Acts Enforcement Report (the “Report”) to the Consumer Financial Protection Bureau (“CFPB”) and the Federal Reserve Board. The 23-page Report, dated May 29, 2015, provided information about enforcement and related activities involving Regulation Z (Truth in Lending Act (“TILA”)), Regulation M (Consumer Lease Act (“CLA”)) and Regulation E (Electronic Fund Transfer Act (“EFTA”)).
The majority of the Report was focused on Regulation Z (TILA); it summarized enforcement actions involving 1) automobile purchases and financing, 2) payday lending, 3) mortgage lending advertisements and 4) forensic audit scams:
First, the Report detailed two civil penalty actions that the FTC filed against auto dealers for alleged deceptive automobile dealer practices. In one action out of Iowa, the FTC entered into a stipulated final order with an auto dealer in December 2014, settling charges that the auto dealer deceptively advertised vehicle finance offers. The stipulated final order required the auto dealer to pay $360,000 in civil penalties, refrain from further violations of the FTC consent order; and adhere to compliance reporting and recordkeeping for 20 years. In December 2014, the FTC initiated an action making similar allegations against a West Virginia auto dealer for misrepresentations in its advertisements. The West Virginia case is currently ongoing. In total, within the auto enforcement context, the FTC completed12 final consent orders in 2014, 9 of which involved purchasing or financing motor vehicles. One stipulated order from May 2014 was against a national subprime auto lender that the FTC alleged used illegal tactics to collect and service consumers’ loans. The order required the auto lender to pay $5.5 million in consumer refunds and civil penalties, overhaul its business practices, and undergo compliance and reporting procedures. The FTC highlighted the significance of this penalty in a standalone press release.
Second, the Report highlighted three cases against payday lenders. In March 2014, a federal judge in Nevada held that the FTC had the authority to enforce the FTC Act and other statutes (i.e., TILA) against a payday lender with a tribal affiliation. The judge further opined that the lender hid the true cost of the payday loans by failing to disclose charges and fees. In September 2014, in an action where the FTC alleged the lender was engaged in an online payday lending scheme, a court in Missouri granted the FTC a temporary restraining order to gain immediate access to the lender’s business premises, impose an asset freeze, and appoint a receiver to seize control of business operations. In the last action out of the Southern District of New York that the FTC originally initiated in July 2010, the FTC is seeking over $14 million against a consumer electronics retailer for violating a consent order that stated the retailer violated Regulation Z and TILA by failing to provide written disclosures and account statements to consumers. All three cases are ongoing.
Third, the Report noted that the FTC settled charges against two lead generators and a home builder for mortgage lending advertisements that allegedly violated the FTC Act, Regulation Z, and TILA. The FTC entered a stipulated order in May 2014 that imposed a $225,000 penalty against one lead generator for deceptively advertising low interest-rate loans as “fixed” when, in fact, they were adjustable-rate mortgages. The stipulated order against the second lead generator entered into in September 2014 imposed a $500,000 penalty for disseminating deceptive refinancing ads. The stipulated order against the home builder that the FTC entered into in June 2014 imposed a $650,000 penalty for using the phrase, “Zip, Zero, Nada,” to deceptively advertise that consumers could finance their homes without a down payment or closing costs.
Fourth, the Report discussed forensic audit scam cases where mortgage assistance relief providers offered to review or audit mortgage documents for distressed homeowners for a substantial fee. The FTC obtained three final orders, filed two new complaints and sent refund checks to consumers in two other cases.
Under Regulation M (CLA), the Report focused on enforcement actions involving consumer leasing of automobiles. The Report identified consent orders with ten automobile dealers that overlap with the consent orders the FTC entered into for violation of Regulation Z. Five of these cases involved alleged violations of the CLA and Regulation M. In one particular case, the complaint alleged that the auto dealer’s ads violated the CLA and Regulation M by offering certain lease terms and failing to disclose clearly and conspicuously additional required terms.
Under Regulation E (EFTA), the Report discussed enforcement actions in “negative options,” payday lending and retail financing cases. In 2014, the FTC had 9 new or ongoing cases involving EFTA and Regulation E issues. In the 5 “negative option” cases where a consumer agrees to receive various goods or services for a trial period at no charge, but then incurs charges if he or she does not cancel at the end of the trial period, the FTC obtained settlements ranging from $2.5 million to $7 million. In four other cases, the FTC took on payday lenders and retail financing. In one case, the FTC reached a $1 million settlement against one payday lender in April 2014 for violating the EFTA and Regulation E by requiring consumers to authorize recurring electronic payments from their bank accounts in order to obtain payday loans.
In addition to discussing the FTC’s enforcement actions, the Report focused on the FTC’s rulemaking, research and policy development that it worked on during the year. While the FTC noted efforts to educate consumers and businesses on various issues related to auto sales and financing, mortgage advertising and mortgage relief, and military lending, the Report places particular emphasis on the FTC’s efforts to raise awareness on issues impacting the mobile marketplace. The FTC completed two staff reports on mobile telecommunications issues. The first report discussed the practice of unauthorized third-party charges on mobile phone bills, known as “mobile cramming,” and noted that no federal statutory provisions have been applied to allow customers to dispute these unauthorized charges. The second report focused on the FTC’s concern that mobile payment services that require consumers to move money from a traditional funding source (such as a credit card) into a stored value account may not have Regulation Z truth in lending protections. Meanwhile, the FTC determined after an examination of disclosures for 30 in-store purchase apps, that approximately half did not have any dispute resolution or liability limits prior to download. Beyond these staff reports, the FTC submitted an advocacy filing in response to the CFPB’s request for information on these mobile issues, and noted its authority to regulate the mobile commerce industry.
As detailed above, the FTC’s 2014 Enforcement Report tackled violations of TILA, CLA, and EFTA across several different industries. The auto and payday lending industries seemed mired in the most settlements but with the FTC”s apparent focus on the “growing mobile marketplace,” the mobile communications industry may be where the FTC focuses next in 2015.