CALIFORNIA-BASED BUSINESS CHARGED BY FTC WITH SELLING BOGUS DEBT RELIEF SERVICES

FROM:  FEDERAL TRADE COMMISSION 

FTC Charges Operation with Selling Bogus Debt Relief Services

DebtPro 123 LLC Billed Consumers as Much as $10,000, But Did Little or Nothing to Settle Their Debts

The Federal Trade Commission charged an Irvine, California-based scheme with billing consumers as much as $10,000 after making deceptive claims that it would provide legal advice, settle consumers’ debts, and repair their credit in three years or less.  Instead, the scheme often left consumers in financial ruin, the agency charged.

The FTC alleged that the DebtPro 123 LLC defendants told consumers to stop paying and communicating with their creditors. As a result, although consumers hired the defendants in hopes of improving their financial situation, their debt often increased, causing them to lose their homes, have their wages garnished, lose their retirement savings, or file for bankruptcy, according to the complaint. Although the defendants promised to refund unsatisfied customers, they rarely did.

“These defendants said they would get consumers out of debt, but instead they bilked them out of thousands of dollars, often leaving them worse off than they were before,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

Ringleader Bryan Taylor and three other individuals, along with DebtPro 123 and five other companies marketed their bogus debt relief services through telemarketing calls, website ads, promotional videos and marketing companies that acted as lead generators, according to the complaint.  Promising that in as little as 18 months consumers could “become debt free and enjoy financial independence,” the defendants claimed their “Legal Department” would “leverage their existing relationships with all of the major creditors to negotiate the best possible resolution.” The defendants claimed that consumers could reduce the amount they owed by 30 to 70 percent.

The complaint alleges that the defendants violated the Federal Trade Commission Act,  the Telemarketing Sales Rule, and the Credit Repair Organizations Act, not only through their false promises, but also by providing their affiliate marketing companies with deceptive materials to deceive consumers and by collecting an advance fee for their bogus debt relief services.

For more information about how to handle robocalls and debt relief offers, see Robocalls, and Avoiding Debt Relief Scams.

The Commission vote to file the complaint against  Bryan Taylor; Kara Taylor; Ryan Foland; Stacey Frion; DebtPro 123, LLC; BET Companies Inc.; Redwave Management Group Inc.; Allstar Debt Relief LLC (California); Allstar Debt Relief LLC (Texas); and Allstar Processing Corp. was 4-0-1, with Commissioner McSweeny not participating. The FTC filed the complaint in the U.S. District Court for the Central District of California on May 2, 2014.

NOTE:  The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

GIFT CARD TEXT SPAMMER ORDERED TO PAY $148,000.

FROM:  FEDERAL TRADE COMMISSION 

FTC Wins Default and Contempt Judgments Against Text Spammer Phil Flora

Found In Violation of Prior FTC Order; Must Pay $148,309 For Latest Scam

Phil Flora, the operator of a text message spamming operation that sent more than 29 million text messages to consumers promising “free” $1,000 Walmart and Best Buy gift cards, has been ordered to pay $148,309 for his involvement in the scam.  Flora, who resides in Orange County, California, has also been found in contempt for violating a prior Federal Trade Commission order.

“When scammers ignore court orders, they do so at their own peril,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “As this case shows, no matter how much scammers may try to hide their involvement, we will work to uncover their role and ensure they give up their ill-gotten gains.”  

In March 2013, the FTC named Flora as a defendant in one of several enforcement actions brought across the country against operators of “free” gift card text messaging scams.  In November 2013, the U.S. District Court for the Central District of California entered a final order and default judgment against Flora for his involvement in the scam.  The final order permanently bans Flora from sending spam text messages and imposes a judgment of $148,309 – an amount equivalent to the money he gained through his illegal scheme.

The court also found Flora in civil contempt because his conduct violated an order from a previous FTC case concerning highly similar illegal practices. In this 2011 case, the FTC alleged that Flora sent millions of unwanted text messages advertising bogus mortgage loan modifications.  The stipulated order settling the 2011 case permanently banned Flora from sending spam text messages.  The court found that Flora had violated this provision through the conduct that led to the FTC’s 2013 case.

AUTO LENDER SETTLES FTC CHARGES OF CONSUMER HARASSMENT BY PAYING $5,5 MILLION

FROM:  FEDERAL TRADE COMMISSION 
Auto Lender Will Pay $5.5 Million to Settle FTC Charges It Harassed Consumers, Collected Amounts They Did Not Owe

A national subprime auto lender will pay more than $5.5 million to settle Federal Trade Commission charges that the company used illegal tactics to service and collect consumers’ loans, including collecting money consumers did not owe, harassing consumers and third parties, and disclosing debts to friends, family, and employers.

Consumer Portfolio Services, Inc. (CPS), headquartered in Irvine, Calif., agreed to refund or adjust 128,000 consumers’ accounts more than $3.5 million and forebear collections on an additional 35,000 accounts to settle charges the company violated the FTC Act. CPS will pay another $2 million in civil penalties to settle FTC charges that the company violated the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA)’s Furnisher Rule.

“At the FTC, we hold loan servicers responsible for knowing their legal obligations and abiding by them,” said Jessica Rich, director, FTC’s Bureau of Consumer Protection. “The law is very clear: Loan servicers can’t charge consumers more than they owe. And they can’t threaten and harass consumers about delinquent debts.”

The order settling the charges requires CPS to change its business practices to comply with the requirements of the appropriate laws. In addition, the company is required to establish and maintain a comprehensive data integrity program to ensure the accuracy, integrity and completeness of its loan servicing processes, and the data and other information it services, collects or sells. CPS must also provide the FTC with periodic independent assessments of its data integrity program for 10 years.

According to the FTC’s complaint, CPS’ loan-servicing violations include:

Misrepresenting fees consumers owed in collection calls, monthly statements, pay-off notices, and bankruptcy filings;
Making unsubstantiated claims about the amounts consumers  owed;
Improperly assessing and collecting fees or other amounts;
Unilaterally modifying contracts by, for example, increasing principal balances;
Failing to disclose financial effects of loan extensions;
Misrepresenting that consumers must use particular payment methods requiring service fees; and
Misrepresenting that the company audits verified consumer accounts balances.
The company’s collection violations include disclosing the existence of debts to third parties; calling consumers at work when not permitted or inconvenient; calling third parties repeatedly with intent to harass; making unauthorized debits from consumer bank accounts; falsely threatening car repossession; and deceptively manipulating Caller ID. Because for many of its accounts CPS is a creditor, the complaint charges these practices violated Section 5 of the FTC Act. For those accounts where CPS is a debt collector, the complaint charges these practices violated the FDCPA.

CPS is also charged with failure to establish and implement reasonable written procedures and failure to reasonably investigate and respond timely to consumer disputes under the Furnisher Rule.

Under the order, the company will begin sending refunds to consumers and adjusting affected account balances within 90 days. Consumers with questions about their elgibility for a refund or account adjustment should contact CPS directly via telephone at 1-888-806-2367, email FTCsettlement@consumerportfolio.com, or visit the company’s website.

The FTC provides information for businesses regarding debt collection and the Furnisher Rule. For consumers, the FTC has resources on credit and loans and dealing with debt.

The Commission vote to authorize the staff to refer the complaint to the Department of Justice, and to approve the proposed consent decree, was 4-0-1, with Commissioner Terrell McSweeny not participating. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in the Central District of California on May 28, 2014. The proposed consent decree is subject to court approval.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. Consent decrees have the force of law when signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

FTC TESTIFIES BEFORE CONGRESSIONAL SUBCOMMITTEE ON DECEPTIVE PATENT DEMAND LETTERS

FROM:  FEDERAL TRADE COMMISSION 

FTC Testifies on Patent Assertion Entities and Legislation to Prohibit Deceptive Patent Demand Letters

The Federal Trade Commission testified on consumer protection issues involving patent demand letters, patent assertion entities (PAEs), and proposed legislation to prohibit deceptive patent demand letters.

Delivering testimony before the House Subcommittee on Commerce, Manufacturing, and Trade of the Committee on Energy and Commerce, Lois Greisman, Associate Director of the FTC’s Division of Marketing Practices at the Federal Trade Commission, provided lawmakers with comments on a draft bill regarding deceptive patent demand letters, and recognized that demand letters raise broader issues about patents and the U.S. patent system.

 “The Commission shares this Subcommittee’s goal of stopping deceptive patent demand letters while respecting the rights of patent holders to assert legitimate claims, and recognizes that achieving this goal is not easy,” the testimony states.

The testimony states that the activities of PAEs and the related issue of demand letters have been a topic of increasing interest and concern. The Commission is proceeding with a proposed study of PAE behavior, which was first announced last year.

The Commission believes that the agency’s authority under Section 5 of the FTC Act can and should be brought to bear with respect to demand letters where appropriate, the testimony states. The testimony also addresses proposed legislation that would grant the FTC civil penalty authority in this area. The Commission believes such authority would have potential benefit and may deter some bad actors. The testimony also notes potential concerns about a knowledge requirement that would apply to some violations under the proposed legislation.  The testimony further notes that the Commission is pleased that the proposed legislation would supplement, rather than replace, the Commission’s existing authority under Section 5 of the FTC Act.

The Commission vote approving the testimony and its inclusion in the formal record was 5-0.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

FTC TESTIFIES BEFORE SENATE HOMELAND SECURITY SUBCOMMITTEE REGARDING ONLINE ADVERTISING

FROM:  FEDERAL TRADE COMMISSION 

FTC Outlines Recommendations for Online Advertising In Testimony Before Senate Homeland Security Subcommittee

The Federal Trade Commission testified before Congress today on the agency’s ongoing efforts to protect consumers from emerging threats related to online advertising, as well as the Commission’s recommendations in this area.

Testifying on behalf of the Commission before the Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations, Maneesha Mithal, Associate Director of the FTC’s Division of Privacy and Identity Protection, outlined steps the agency is taking to address concerns related to online advertising through enforcement and consumer education.

The testimony highlights work by the Commission on three consumer protection issues affecting the online advertising industry: privacy, spyware and other malware, and data security.

In the area of privacy, the testimony notes the recommendations put forth in the Commission’s 2012 privacy report, which encourages businesses to provide consumers with simpler and more streamlined privacy choices about their data, through a robust universal choice mechanism for online behavioral advertising.

The testimony also addresses a number of privacy cases brought by the FTC against companies in the online advertising industry.  For example, the testimony describes the FTC’s 2012 settlement with Google, in which the company agreed to pay a $22.5 million civil penalty to resolve charges that it misrepresented to some consumers that it would not place tracking cookies or serve targeted ads to them.

The testimony also describes the FTC’s cases to combat spyware and other malware. These cases support three core principles: first, that a consumer’s computer belongs to him or her, and it must be the consumer’s choice whether to install software; second, that buried disclosures about material information necessary to correct an otherwise misleading impression are not sufficient in connection with software downloads; and third, that a consumer should be able to disable or uninstall any software they do not want on their computer.

The testimony also highlights the FTC’s extensive consumer education work aimed at helping consumers avoid and detect spyware and other malware, including its sponsorship of OnGuardOnline.gov.

On the topic of data security, the testimony underscores the Commission’s enforcement actions, noting that the agency has obtained settlements in 53 data security cases, including recent cases against the mobile app company Snapchat, as well as with Credit Karma, Fandango and home security camera maker TRENDnet.

The testimony recommends expanding efforts to educate both consumers and businesses, and also encourages industry self-regulation efforts aimed at protecting consumers from malicious online advertisements.

In addition, the testimony renews the Commission’s call for the enactment of a strong federal data security and breach notification law, noting that a national law would simplify compliance for businesses while ensuring that all consumers are protected. The testimony also notes that supplementing the Commission’s existing data security authority with the ability to seek civil penalties in appropriate circumstances would provide a deterrent to those engaging in unlawful conduct that puts consumers’ personal data at risk.

The Commission vote approving the testimony and its inclusion in the formal record was 5-0.    

FTC CHARGES GREEN COFFEE BEAN SELLERS WITH USING FAKE NEWS SITES, FICTITIOUS WEIGHT LOSS CLAIMS

FROM:  FEDERAL TRADE COMMISSION 

FTC Charges Green Coffee Bean Sellers with Deceiving Consumers through Fake News Sites and Bogus Weight Loss Claims

The Federal Trade Commission has sued a Florida-based operation that capitalized on the green coffee diet fad by using bogus weight loss claims and fake news websites to market the dietary supplement Pure Green Coffee. Popularized on the syndicated talk show The Dr. Oz Show, green coffee bean extract was touted as a potent weight loss treatment that supposedly burns fat.

The FTC alleged that weeks after green coffee was first promoted on The Dr. Oz Show, the defendants behind Pure Green Coffee – Nicholas Congleton, Paul Pascual, Bryan Walsh, and the companies they control – began selling their Pure Green Coffee extract, charging about $50 for a one-month supply. They marketed the dietary supplement through ads on their own sales websites – with names such as buypuregreencoffee.com, buygreenweightloss.com, greencoffeeweightcontrol.com. The sites featured footage from The Dr. Oz Show, supposed consumer endorsements, and purported clinical proof that dieters could lose weight rapidly without changing their diet or exercise regimens. The defendants also ran paid banner and text ads that appeared on search engines and contained phony weight loss claims.

The defendants made similar claims on websites they set up to look like legitimate news sites or blogs, but were in fact advertisements, and on other “fake news” sites run by affiliate marketers whom they paid to advertise the Pure Green Coffee product, according to the complaint. The fake news sites featured mastheads of fictitious news organizations such as Women’s Health Journal and Healthy Living Reviewed, as well as logos they appropriated from actual news organizations, like CNN and MSNBC.

“Not only did these defendants trick consumers with their phony weight loss claims, they also compounded the deception by advertising on pretend news sites, making it impossible for people to know whether they were seeing news or an ad,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

The FTC charged the defendants with false and unsupported advertising claims, including:

that consumers using Pure Green Coffee can lose 20 pounds in four weeks; 16 percent of body fat in twelve weeks; and 30 pounds and four-to-six inches of belly fat in three to five months.
that studies prove Pure Green Coffee use can result in average weight loss of 17 pounds in 12 weeks or 22 weeks, weight loss of 10.5 percent, and body fat loss of 16 percent without diet or exercise.
that certain websites linked to the defendants’ sites are objective news sites with articles written by objective news reporters and that the comments following the supposed articles reflected views of independent consumers.
The FTC also charged the defendants with deceptively failing to disclose that consumers who endorsed the supplement had received it for free and were paid to provide a video testimonial.

The complaint also names as defendants the companies used by Congleton, Pascual, and Walsh to market this operation:  NPB Advertising, Inc., also doing business as Pure Green Coffee; Nationwide Ventures, LLC; Olympus Advertising, Inc.; JMD Advertising, Inc.; and Signature Group, LLC.

Consumers should carefully evaluate advertising claims for weight-loss products. For more information, see the FTC’s guidance for consumers of products and services advertised for Weight Loss & Fitness.

The Commission vote authorizing the staff to file the complaint was 4-0-1, with  Commissioner McSweeny not participating. The complaint was filed in the U.S. District Court for the Middle District of Florida, Tampa Division on May 15, 2014.

The FTC is a member of the National Prevention Council, which provides coordination and leadership at the federal level regarding prevention, wellness, and health promotion practices. This case advances the National Prevention Strategy’s goal of increasing the number of Americans who are healthy at every stage of life.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

CONSUMERS DEFRAUDED BY BOGUS '$10,000 CREDIT LINE' TO RECEIVE REFUNDS FROM FTC

FROM:  FEDERAL TRADE COMMISSION 

FTC Sends Full Refunds to Consumers Duped by Marketers of Bogus ‘$10,000 Credit Line’

The FTC is mailing checks totaling over $3.7 million to 26,176 consumers whose bank accounts were debited without their consent by EDebitPay LLC, Dale Paul Cleveland and William Wilson. The defendants deceptively offered a $10,000 credit line that was really a membership to a website where consumers could buy goods.

“The FTC strives to return as much money as possible to defrauded consumers;” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “It is particularly gratifying when we can make consumers whole again.”

In 2011, a federal district court ordered the defendants to pay more than $3.7 million after finding that the defendants were in contempt of court for violating a 2008 court order by selling a bogus “$10,000 credit line”, and a “no cost” prepaid debit card with hidden fees, to consumers who were unemployed or had poor credit.

After obtaining this judgment, the FTC collected it in full. Many affected consumers will receive more than $100; the amounts vary based upon the victim’s loss. Those who receive the checks from the FTC’s refund administrator should cash them within 60 days of the mailing date. The FTC never requires consumers to pay money or to provide information before refund checks can be cashed.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

FTC SETTLES CHARGES REGARDING DECEPTIVE AD FOR NISSAN FRONTIER TRUCK

FROM:  U.S. FEDERAL TRADE COMMISSION 

FTC Approves Final Consent Settling Charges Nissan Frontier Truck Ad Was Deceptive

Nissan North America, Inc., Advertising Agency TBWA Worldwide, Inc. Named in Case

Following a public comment period, the Federal Trade Commission has approved final consent orders settling charges that Nissan North America, Inc. and advertising agency TBWA Worldwide, Inc. deceptively advertised a Nissan Frontier truck pushing a dune buggy up a steep hill, something the truck actually cannot do.

First announced in January 2014, the settlements prohibit Nissan and TBWA Worldwide, which designed the 30-second television ad for the mid-sized truck, from misrepresenting any material quality or feature of a pickup truck through the depiction of a test, experiment, or demonstration. The orders do not prohibit the use of special effects and other production techniques as long as they do not misrepresent a material quality or feature of the pickup truck.

The Commission vote to approve the final order in this case was 4-0-1 with Commissioner McSweeny not participating.

FTC SETTLES WITH SNAPCHAT OVER ALLEGED SECURITY ISSUES AND MISREPRESENTATIONS

FROM:  U.S. FEDERAL TRADE COMMISSION 

Snapchat Settles FTC Charges That Promises of Disappearing Messages Were False

Snapchat Also Transmitted Users’ Location and Collected Their Address Books Without Notice Or Consent

Snapchat, the developer of a popular mobile messaging app, has agreed to settle Federal Trade Commission charges that it deceived consumers with promises about the disappearing nature of messages sent through the service.  The FTC case also alleged that the company deceived consumers over the amount of personal data it collected and the security measures taken to protect that data from misuse and unauthorized disclosure. In fact, the case alleges, Snapchat’s failure to secure its Find Friends feature resulted in a security breach that enabled attackers to compile a database of 4.6 million Snapchat usernames and phone numbers.

According to the FTC’s complaint, Snapchat made multiple misrepresentations to consumers about its product that stood in stark contrast to  how the app actually worked.

“If a company markets privacy and security as key selling points in pitching its service to consumers, it is critical that it keep those promises,” said FTC Chairwoman Edith Ramirez.  “Any company that makes misrepresentations to consumers about its privacy and security practices risks FTC action.”          

Touting the “ephemeral” nature of “snaps,” the term used to describe photo and video messages sent via the app, Snapchat marketed the app’s central feature as the user’s ability to send snaps that would “disappear forever" after the sender-designated time period expired.  Despite Snapchat’s claims, the complaint describes several simple ways that recipients could save snaps indefinitely.

Consumers can, for example, use third-party apps to log into the Snapchat service, according to the complaint.  Because the service’s deletion feature only functions in the official Snapchat app, recipients can use these widely available third-party apps to view and save snaps indefinitely. Indeed, such third-party apps have been downloaded millions of times.  Despite a security researcher warning the company about this possibility, the complaint alleges, Snapchat continued to misrepresent that the sender controls how long a recipient can view a snap.

In addition, the complaint alleges:

 That Snapchat stored video snaps unencrypted on the recipient’s device in a location outside the app’s “sandbox,” meaning that the videos remained accessible to recipients who simply connected their device to a computer and accessed the video messages through the device’s file directory.
 That Snapchat deceptively told its users that the sender would be notified if a recipient took a screenshot of a snap. In fact, any recipient with an Apple device that has an operating system pre-dating iOS 7 can use a simple method to evade the app’s screenshot detection, and the app will not notify the sender.
 That the company misrepresented its data collection practices.  Snapchat transmitted geolocation information from users of its Android app, despite saying in its privacy policy that it did not track or access such information.  
The complaint also alleges that Snapchat collected iOS users’ contacts information from their address books without notice or consent.  During registration, the app prompted users to, “Enter your mobile number to find your friends on Snapchat!”  Snapchat’s privacy policy claimed that the app only collected the user’s email, phone number, and Facebook ID for the purpose of finding friends.  Despite these representations, when iOS users entered their phone number to find friends, Snapchat also collected the names and phone numbers of all the contacts in their mobile device address books.  Snapchat continued to collect this information without notifying or obtaining users’ consent until Apple modified its operating system to provide such notice with the introduction of iOS 6.

Finally, the FTC alleges that despite the company’s claims about taking reasonable security steps, Snapchat failed to secure its “Find Friends” feature.

For example, the complaint alleges that numerous consumers complained that they had sent snaps to someone under the false impression that they were communicating with a friend.   In fact, because Snapchat failed to verify users’ phone numbers during registration, these consumers were actually sending their personal snaps to complete strangers who had registered with phone numbers that did not belong to them.

Moreover as noted above, the complaint alleges that Snapchat’s failure to secure its Find Friends feature resulted in a security breach permitting attackers to compile a database of 4.6 million Snapchat usernames and phone numbers. According to the FTC, the exposure of this information could lead to costly spam, phishing, and other unsolicited communications.

The settlement with Snapchat is part of the FTC’s ongoing effort to ensure that companies market their apps truthfully and keep their privacy promises to consumers. Under the terms of its settlement with the FTC, Snapchat will be prohibited from misrepresenting the extent to which it maintains the privacy, security, or confidentiality of users’ information.  In addition, the company will be required to implement a comprehensive privacy program that will be monitored by an independent privacy professional for the next 20 years.

This case is part of a multi-national enforcement sweep on mobile app privacy by members of the Global Privacy Enforcement Network, a cross-border coalition of privacy enforcement authorities. The case is also coordinated with the Asia Pacific Privacy Priorities forum’s Privacy Awareness Week.

The Commission vote to accept the consent order for public comment was 5-0.

The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through June 9, 2014, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments in electronic form should be submitted online.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

FTC APPROVES AMENDMENTS TO FUR PRODUCTS LABELING ACT

FROM:  U.S. FEDERAL TRADE COMMISSION 

FTC Approves Amendments to Fur Products Labeling Act Regulations

The Federal Trade Commission has amended its Regulations under the Fur Products Labeling Act (Fur Rules) to update the Fur Products Name Guide, provide businesses with more flexibility in labeling, incorporate provisions of the Truth in Fur Labeling Act of 2010 (TFLA), and conform the Rules’ guaranty provisions to those governing textile products.

In March 2011, as required by the TFLA, the FTC began a review of the Name Guide, sought public comments on the Fur Rules, and announced upcoming changes to the Fur Rules required by Congress. In December 2011, the Commission held a public hearing on all aspects of the Name Guide, including whether the agency should modify, add or delete names for several specific species.

In September 2012, the FTC sought public comment on its proposed changes including those required by Congress under the TFLA and the FTC’s systematic review of all current FTC rules and guides. In June 2013, the agency sought public comment on proposed changes to the guaranty provisions of the Fur Rules that would align the Rules with proposed changes to the guaranty provisions of the Rules under the Textile Fiber Products Identification Act. On March 14, 2014, the Commission announced final amendments to the Textile Rules’ guaranty provisions, which are substantively the same as those announced today for the Fur Rules.

In response to comments received, the amended Fur Rules retain “Asiatic Raccoon” in the Name Guide for labeling fur products from the species nyctereutes procyonoides. They also adopt the proposals for more labeling flexibility. The rules will become effective 180 days after publication in the Federal Register.

The Commission vote approving the Federal Register Notice amending its Regulations under the Fur Products Labeling Act was 4-0-1. Commissioner McSweeny was recorded as not participating.

FTC TESTIFIES BEFORE SENATE COMMITTEE REGARDING PRECIOUS METALS INVESTMENT SCAMS

FROM:  FEDERAL TRADE COMMISSION 

FTC Testifies on Precious Metals Investment Scams Before Senate Special Committee on Aging

In testimony before Congress, the Federal Trade Commission described its efforts to stop precious metals investment scams and inform consumers how to avoid them.

Testifying on behalf of the Commission before the Senate Special Committee on Aging, Dama Brown, Director of the FTC’s Southwest Region, said the agency is committed to protecting consumers from investment schemes that swindle money from people and often prey on older Americans’ concerns about the security of their retirement savings, particularly during periods of economic uncertainty.

Following the economic downturn in 2008, the testimony states, the FTC observed a proliferation of schemes that targeted financially-distressed consumers, including telemarketers offering precious metals as purported high-profit, low-risk investments. FTC cases have alleged that, to lure consumers into purchasing these investments, telemarketers claimed that the precious metals investments were certain to rise in price and the investments were safe because they were backed by physical metal.

According to the Commission, in reality, the telemarketers offered a highly leveraged, high-risk investment. Telemarketers allegedly failed to disclose that consumers were financing most of the investments’ purchase price and they were required to pay hefty fees. The terms of the investments rendered them highly risky and largely unprofitable.

The Commission recently filed three law enforcement actions involving precious metals investment schemes, the testimony states. In addition to stopping the alleged scams, the Commission expects to return approximately $5 million to consumer victims. The testimony describes the schemes, the agency’s law enforcement actions, and its consumer education efforts, including providing information about how to avoid scams, what to know before investing in precious metals, coins, or other investments, and practical investment advice.

The Commission vote approving the testimony and its inclusion in the formal record was 4-0.

For information about investing in precious metals, read Investing in Gold, Investing in Bullion and Bullion Coins, and Investing in Collectible Coins.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them.

TELEMARKETER PERMANENTLY BANNED FROM TELEMARKETING

FROM:  FEDERAL TRADE COMMISSION 

Marketer of Robocalling Services Banned from Telemarketing

The head of an operation that enabled telemarketers to make illegal robocalls, call phone numbers on the National Do Not Call Registry, and mask Caller ID information, is permanently banned from telemarketing and robocalling under a settlement with the federal government.

In November 2011, on the Federal Trade Commission’s behalf, the Department of Justice filed a complaint alleging that Joseph Turpel sold services to telemarketers who were violating the FTC's Telemarketing Sales Rule.  The complaint alleged that Turpel knew, or consciously avoided knowing, that clients used his services while calling numbers on the National Do Not Call Registry, transmitting inaccurate caller ID information, and making illegal prerecorded telemarketing solicitations (robocalls).

According to the complaint, Turpel’s clients offered credit card services, home security systems, and grant procurement programs. He allegedly gave clients the means to hide their identity by transmitting inaccurate caller names, such as “SERVICE MESSAGE” or “SERVICE ANNOUNCEMENT,” on caller ID displays.

In addition to banning Turpel from telemarketing and robocalling, the settlement order imposes a $395,000 civil penalty that is suspended based on his inability to pay. The full penalty will become due immediately if Turpel is found to have misrepresented his financial condition.

The Commission vote authorizing DOJ staff to file the proposed  stipulated final order was 4-0. The final order was entered by the U.S. District Court for the Central District of California on April 15, 2014.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC CHARGES PAYDAY LENDERS WITH ATTEMPTING TO GARNISH WAGES WITHOUT COURT ORDER

FROM:  FEDERAL TRADE COMMISSION 

Payday Lenders That Used Tribal Affiliation to Illegally Garnish Wages Settle with FTC

Settlement Requires Defendants to Pay Nearly $1 Million

A South Dakota-based payday lending operation and its owner will pay $967,740 to the U.S. Treasury as part of a settlement resolving FTC charges that they used unfair and deceptive tactics to collect on payday loans and forced debt-burdened consumers to travel to South Dakota and appear before a tribal court that did not have jurisdiction over their cases.

“Debt collectors cannot garnish consumers’ wages without a court order, and they cannot sue consumers in a tribal court that doesn’t have jurisdiction over their cases,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Regardless of tribal affiliation, debt collectors must comply with federal law.”

 According to the complaint filed by the FTC, Webb and his companies offered short-term, high-fee, unsecured payday loans of $300 to $2,525 to consumers throughout the country, advertising on television and online.  The FTC charged that defendants illegally tried to garnish consumers’ wages without a court order, and sought to manipulate the legal system and force borrowers to appear before the Cheyenne River Sioux Tribal Court in South Dakota, which did not have jurisdiction over their cases.  The defendants also attempted to obtain tribal court orders to garnish consumers’ wages, according to the agency.

Under the terms of the settlement, Martin A. Webb and his companies have agreed to a $550,000 civil penalty for violating the Credit Practices Rule – which prohibits payday lenders from requiring borrowers to consent to have wages taken directly out of their paychecks in the event of a default. Following a partial judgment in favor of the FTC in September 2013, the defendants surrendered $417,740 in ill-gotten gains stemming from their prior practice of attempting to garnish consumers’ wages without court orders.  

In addition to the monetary payment imposed on the defendants, the settlement prohibits them from further unfair and deceptive practices, and bars them from suing any consumer in the course of collecting a debt, except for bringing a counter suit to defend against a suit brought by a consumer.

For consumer information regarding payday loans see: Payday Loans.

In addition to Webb, the FTC’s complaint and amended complaint named as defendants Payday Financial, LLC, Great Sky Finance, LLC, Western Sky Financial, LLC, Red Stone Financial, LLC, Financial Solutions, LLC, Management Systems, LLC, 24-7 Cash Direct, LLC, Red River Ventures, LLC, and High Country Ventures, LLC.

The Commission vote approving the settlement was 4-0.  On April 4, 2014, the U.S. District Court for the District of South Dakota approved the settlement and entered a final order and judgment.

IMMIGRATION SERVICES SCAMMERS ORDERED TO PAY REFUNDS TO CLIENTS

FROM:  FEDERAL TRADE COMMISSION 

FTC Wins Court Judgment Against Immigration Services Scam

Court Bans Baltimore-based Defendants from Providing Immigration Services
A federal court has ordered the operators of a Baltimore-based immigration services scam to pay as much as $616,000 in refunds to Spanish-speaking immigrants, who were deceived into paying the defendants for immigration services that they were not qualified or authorized to provide. The order bans the defendants from providing or promoting these services in the future.

The court found that some customers “suffered severely” for relying on the defendants. Several were deported and one was arrested and jailed for almost 11 months, according to the court.

In March 2013, the court found Manuel Alban, his wife Lola Alban, and their company, Loma International Business Group, Inc., liable for violating the FTC Act. Targeting Spanish speakers from El Salvador and Honduras, the Albans misled immigrants to believe they were authorized to provide immigration services for a fee, according to the court. Under federal regulations, except for attorneys, only authorized providers may accept money in exchange for preparing immigration forms on someone else’s behalf.

The court found that although the defendants were not authorized providers, they took in an estimated $479,000 to $753,000 from unsuspecting immigrants. The Court also noted that according to United States Citizenship and Immigration Services data, the agency denied or rejected more than 60 percent of the immigration applications handled by the Albans.

“Misleading people to steal their money and destroy their dreams crosses the line,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “The FTC is here to protect people from just these kinds of scams.”          

The court order requires Manuel Alban and his wife Lola Alban to pay the refund judgment in installments totaling up to $616,000, depending on the number of victims the FTC is able to locate to receive a refund.        

In addition to banning the defendants from providing immigration services, the order prohibits them, their employees, and others representing them from misrepresenting anything about goods or services they are promoting – including that they are qualified or authorized to provide immigration or tax preparation services.  It also requires all customer information held by the defendants to be destroyed, and all customer information held by a court-ordered monitor to be turned over to the FTC.

Consumer Information            

Spanish-speaking immigrants often are targeted by scammers who call themselves “immigration consultants” or “notarios” – or falsely claim that they are attorneys. The FTC has information in Spanish that explains how to find legitimate free or low-cost immigration advice from authorized providers, and where to report immigration services fraud. Because scammers target immigrants from around the world, the FTC’s immigration-related materials also are in Chinese, Korean, Creole, and Vietnamese.

FTC, DOJ ANTITRUST STATEMENT ON SHARING CYBERSECURITY INFORMATION

FROM:  FEDERAL TRADE COMMISSION 

FTC, DOJ Issue Antitrust Policy Statement on Sharing Cybersecurity Information

Sharing Cyber Threat Information Can Help Secure Nation’s Networks and Improve Efficiency; Properly Designed Sharing Not Likely to Raise Antitrust Concerns
The Federal Trade Commission and the Department of Justice today issued a policy statement on the sharing of cyber-security information that makes clear that properly designed cyber threat information sharing is not likely to raise antitrust concerns and can help secure the nation’s networks of information and resources. The policy statement provides the agencies’ analytical framework for information sharing among private entities and is designed to reduce uncertainty for those who want to share ways to prevent and combat cyberattacks.

“Because of the FTC’s long experience promoting data security, we understand the serious threat posed by cyberattacks,” said FTC Chairwoman Ramirez. “This statement should help private businesses by making it clear that antitrust laws do not stand in the way of legitimate sharing of cybersecurity threat information.”

“The Department of Justice is committed to doing all it can to protect the security of our nation’s networks.  Through the FBI and the National Security and Criminal Divisions, the department plays a critical role in preventing and prosecuting cybercrime,” said Deputy Attorney General James M. Cole.  “Private parties play a critical role in mitigating and responding to cyber threats, and this policy statement should encourage them to share cybersecurity information.”

“Cyber threats are increasing in number and sophistication, and sharing information about these threats, such as incident reports, indicators and threat signatures, is something companies can do to protect their information systems and help secure our nation’s infrastructure,” said Assistant Attorney General Bill Baer in charge of the Department of Justice’s Antitrust Division. “With proper safeguards in place, cyber threat information sharing can occur without posing competitive concerns.”

In the policy statement, the federal antitrust agencies recognize that the sharing of cyber threat information has the potential to improve the security, availability, integrity and efficiency of the nation’s information systems. The policy statement also emphasizes that the legitimate sharing of cyber threat information is very different from the sharing of competitively sensitive information such as current or future prices and output or business plans, which may raise antitrust concerns. Cyber threat information is typically technical in nature and covers a limited type of information, and disseminating that information appears unlikely to raise competitive concerns.

The joint Department of Justice/Federal Trade Commission “Antitrust Guidelines for Collaborations Among Competitors” provide an overview of the agencies’ analysis of information sharing as a general matter. The agencies consider whether the relevant agreement likely harms competition by increasing the ability or incentive to raise price above or reduce output, quality, service or innovation below what likely would prevail in the absence of the relevant agreement.

Previous antitrust analysis on cyber threat information sharing was issued in October 2000, when the Antitrust Division issued specific guidance in a business review letter to Electric Power Research Institute Inc. Under the Justice Department’s business review procedure, an organization may submit a proposed action to the Antitrust Division and receive a statement as to whether the division will challenge the action under the antitrust laws. In that letter, the Antitrust Division confirmed that it had no intention of taking enforcement action against the company’s proposal to exchange certain cyber-security information, including exchanging actual real-time cyber threat and attack information. In that matter, the division concluded that as long as the information exchanged was limited to physical and cyber-security issues, the proposed interdictions on price, purchasing and future product innovation discussions should be sufficient to avoid any threats to competition. The legal analysis in that matter remains current.

"JERK.COM" OPERATORS CHARGED BY FTC WITH DECEIVING CONSUMERS, HAVESTING PERSONONAL INFORMATION

FROM:  FEDERAL TRADE COMMISSION 

FTC Charges Operators of “Jerk.com” Website With Deceiving Consumers
Company Took Information from Facebook to Label Millions a “Jerk” or “Not a Jerk”

The Federal Trade Commission charged the operators of the website “Jerk.com” with harvesting personal information from Facebook to create profiles labeling people a “Jerk” or “not a Jerk,” then falsely claiming that consumers could revise their online profiles by paying $30. According to the FTC’s complaint, between 2009 and 2013 the defendants, Jerk, LLC and the operator of the website, John Fanning, created Jerk.com profiles for more than 73 million people, including children.

In its complaint, the FTC charges that the defendants violated the FTC Act by misleading consumers that the content on Jerk.com had been created by other Jerk.com users, when in fact most of it had been harvested from Facebook; and by falsely leading consumers to believe that by paying for a Jerk.com membership, they could access “premium” features that could allow them to change their “Jerk” profile.

The FTC is seeking an order barring the defendants’ deceptive practices, prohibiting them from using the personal information they improperly obtained, and requiring them to delete the information.

 “In today’s interconnected world, people are especially concerned about their reputation online, and this deceptive scheme was a brazen attempt to exploit those concerns,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

According to the FTC’s complaint, Jerk.com profiles often appeared in search engine results when consumers searched for an individual’s name.  Upon viewing their photos on Jerk.com, many believed that someone they knew had created their Jerk.com profile. Jerk reinforced this view by representing that users created all the content on Jerk.

But in reality, the defendants created the vast majority of the profiles by misusing personal information they improperly obtained through Facebook, the FTC alleged. They registered numerous websites with Facebook and then allegedly used Facebook’s application programming interfaces to download the names and photos of millions of Facebook users, which they in turn used to create nearly all the Jerk.com profiles.

In addition to buttons that allowed users to vote on whether a person was a “Jerk” or not, Jerk profiles included fields in which users could enter personal information about the subject or post comments about them. In some cases, the complaint alleges, the profile comment fields subjected people to derisive and abusive comments, such as, “Omg I hate this kid he\’s such a loser,” and, “Nobody in their right mind would love you … not even your parents love [you].”

The profiles also included millions of photos, including photos of children and photos that consumers claim they had designated on Facebook as private, the FTC complaint alleges. Some of them featured intimate family moments, including children bathing and a mother nursing her child.

The defendants also told consumers they could “use Jerk to manage your reputation and resolve disputes with people who you are in conflict with,” according to the FTC’s complaint. They allegedly charged consumers $25 to email Jerk.com’s customer service department, and also falsely told consumers that if they paid $30 for a website subscription, they could access “premium features,” including the ability to dispute information posted on Jerk.com, and receive fast notifications and special updates. But according to the FTC, in many cases, consumers who paid the customer service or subscription fee often got nothing in return.

The Commission vote to issue the administrative complaint was 4-0. The evidentiary hearing is scheduled to begin before an administrative law judge at the FTC on January 27, 2015.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge.

FINAL ORDER APPROVED BY FTC REGARDING KIDS IN-APP PURCHASES OF APPLE PRODUCTS

FROM:  FEDERAL TRADE COMMISSION 
FTC Approves Final Order in Case About Apple Inc. Charging for Kids’ In-App Purchases Without Parental Consent

Following a public comment period, the Federal Trade Commission has approved a final order resolving FTC allegations that Apple Inc. unfairly charged consumers for in-app purchases incurred by children without their parents’ consent.

The settlement was first announced by the Commission in January. In its complaint, the agency alleged that Apple failed to notify parents that entering their password would approve a purchase and then open a 15-minute window in which unlimited charges could be made without authorization. In the complaint, the FTC cited examples of children incurring thousands of dollars in in-app purchases without their parents’ consent.

Under the settlement, by March 31, 2014, Apple must change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for in-app purchases.

Apple also must provide full refunds, totaling a minimum of $32.5 million, to consumers who were billed for in-app purchases that were incurred by children and were either accidental or not authorized by the consumer. Should Apple issue less than $32.5 million in refunds to consumers within the 12 months after the settlement becomes final, the company must remit the balance to the Commission. By April 15, 2014, Apple must notify all consumers charged for in-app purchases with instructions on how to obtain a refund for unauthorized purchases by kids.

The Commission vote approving the final order and letters to members of the public was 3-1, with Commissioner Wright voting in the negative. (FTC File No. 112-3108, the staff contacts in the Bureau of Consumer Protection are Duane Pozza, 202-326-2042; Jason Adler, 202-326-3231; and Miya Rahamim, 202-326-2351.)

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC SETTLES WITH COMPANIES ACCUSED OF FAILING TO KEEP SENSITIVE PERSONAL INFORMATION SECURE

FROM:  FEDERAL TRADE COMMISSION 
Fandango, Credit Karma Settle FTC Charges that They Deceived Consumers By Failing to Securely Transmit Sensitive Personal Information
Mobile Apps Placed Credit Card Details, Credit Report Data, Social Security Numbers at Risk

Two companies have agreed to settle Federal Trade Commission charges that they misrepresented the security of their mobile apps and failed to secure the transmission of millions of consumers’ sensitive personal information from their mobile apps.

The FTC alleged that, despite their security promises, Fandango and Credit Karma failed to take reasonable steps to secure their mobile apps, leaving consumers’ sensitive personal information at risk. Among other things, the complaints charge that Fandango and Credit Karma disabled a critical default process, known as SSL certificate validation, which would have verified that the apps’ communications were secure.

As a result, the companies’ applications were vulnerable to “man-in-the-middle” attacks, which would allow an attacker to intercept any of the information the apps sent or received. This type of attack is especially dangerous on public Wi-Fi networks such as those at coffee shops, airports and shopping centers.

“Consumers are increasingly using mobile apps for sensitive transactions. Yet research suggests that many companies, like Fandango and Credit Karma, have failed to properly implement SSL encryption,” said FTC Chairwoman Edith Ramirez. “Our cases against Fandango and Credit Karma should remind app developers of the need to make data security central to how they design their apps.”

To help secure sensitive transactions, mobile operating systems, including iOS and Android, provide app developers with tools to implement an industry standard known as Secure Sockets Layer, or SSL. If properly implemented, SSL secures an app’s communications and ensures that an attacker cannot intercept the sensitive personal information a consumer submits through an app.

By overriding the default validation process, Fandango undermined the security of ticket purchases made through its iOS app, exposing consumers’ credit card details, including card number, security code, zip code, and expiration date, as well as consumers’ email addresses and passwords. Similarly, Credit Karma’s apps for iOS and Android disabled the default validation process, exposing consumers’ Social Security Numbers, names, dates of birth, home addresses, phone numbers, email addresses and passwords, credit scores, and other credit report details such as account names and balances.  

The settlements with Fandango and Credit Karma are part of the FTC’s ongoing effort to ensure that companies secure the applications they develop and keep their privacy promises to consumers. The FTC has also created a guide to help consumers understand how to stay secure when using public WiFi connections.

Fandango

The Fandango Movies app for iOS allows consumers to purchase movie tickets and view show times, trailers, and reviews. According to the FTC’s complaint, the Fandango Movies app assured consumers, during checkout, that their credit card information was stored and transmitted securely. Despite this promise, for almost four years – from March 2009 until February 2013 – the company disabled SSL certificate validation and left consumers that used its app to make mobile ticket purchases vulnerable to man-in-the-middle attacks.

The complaint alleges that Fandango could have easily tested for and prevented the vulnerability, but failed to perform the basic security checks that would have caught the issue. In addition, the complaint charges that Fandango failed to have an adequate process for receiving vulnerability reports from security researchers and other third parties, and as a result, missed opportunities to fix the vulnerability.

Credit Karma

The Credit Karma Mobile app for iOS and Android allows consumers to monitor and evaluate their credit and financial status.  In its complaint, the FTC alleges that Credit Karma assured consumers that the company followed “industry-leading security precautions,” including the use of SSL to secure consumers’ information. Despite these promises, the company disabled SSL certificate validation and left consumers that used its credit-monitoring app vulnerable to man-in-the-middle attacks.

According to the FTC, Credit Karma could have easily prevented the vulnerability with basic tests, but did not perform an adequate security review of its iOS app before release. Even after a user warned Credit Karma about the vulnerability in its iOS app, the company failed to test its Android app before launch. As a result, one month after receiving a warning about the issue, the company released its Android app with the very same vulnerability. The complaint charges that Credit Karma failed to appropriately test or audit its apps’ security and failed to oversee the security practices of its application development firm.

Settlements

The settlements require Fandango and Credit Karma to establish comprehensive security programs designed to address security risks during the development of their applications and to undergo independent security assessments every other year for the next 20 years. The settlements also prohibit Fandango and Credit Karma from misrepresenting the level of privacy or security of their products and services.

The Commission vote to accept the consent agreement packages containing the proposed consent orders for public comment was 4-0. The FTC will publish a description of the consent agreement packages in the Federal Register shortly. The agreements will be subject to public comment for 30 days, beginning today and continuing through April 28, 2014, after which the Commission will decide whether to make the proposed consent orders final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments can be submitted electronically by following the instructions on the web-based form. [Submit comment on Fandango settlement | Submit comment on Credit Karma settlement] Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

FTC STUDY RELEASED ON ALCOHOL ADVERTISING AND UNDERAGE AUDIENCES

FROM:  FEDERAL TRADE COMMISSION 
FTC Releases Fourth Major Study on Alcohol Advertising and Industry Efforts to Reduce Marketing to Underage Audiences
Study Shows Over 93 Percent Compliance with Placement Guidelines

The Federal Trade Commission released its fourth major study on alcohol industry compliance with self-regulatory guidelines, including those designed to address concerns about youth access to alcohol marketing.

For the study, the FTC ordered 14 major alcohol companies to provide information on advertising and marketing expenditures from the 2011 calendar year, and advertising placement data (including audience data) for the first six months of 2011.   For the first time, the agency obtained substantial information on Internet and digital marketing and data collection and use practices.

Presented in an aggregate, anonymous fashion, the findings include:

How Companies Allocate Marketing Dollars: 31.9 percent of expenditures were directed to advertising in traditional media such as television, radio, magazine, and newspaper advertising.  The study found that 28.6 percent of expenditures were used to help wholesalers and retailers promote alcohol; 17.8 percent were allocated to sponsorships (sports and non-sports) and public entertainment; 7.9 percent were directed to online and other digital marketing – almost a four-fold increase from the 2 percent reported in the 2008 study; and 6.8 percent were directed to outdoor and transit marketing efforts.

Meeting Industry Standards on Ad Placement.  In the first half of 2011, 93.1 percent of all measured media combined (including traditional media and online/other digital) met the alcohol industry’s placement standard at the time, which required that 70 percent or more of the audience viewing the ads be 21 years old or older, based on reliable data.  Further, because compliance shortfalls were primarily in media with smaller audiences (such as local radio), over 97 percent of individual consumer exposures to alcohol ads were from placements meeting the 70 percent standard.  The industry has since adopted a new ad placement standard requiring that 71.6 percent of the audience viewing alcohol ads be 21 years old or older.

Ad Placement on Online and Other Digital Media. In the first half of 2011, 99.5 percent of alcohol ads that advertisers placed on sites owned by others – such as news, entertainment, and sports sites – met the alcohol industry’s 70 percent placement standard.  The alcohol companies’ web sites and social media pages are “age gated,” meaning that a consumer must either enter a date of birth that shows him or her to be 21 years old or older, or must certify to being over 21 to enter the site.

Privacy Concerns on Online and Other Digital Media. The report stated that alcohol industry members appear to have considered privacy impacts in the marketing of their products.  It appears that, at least in the context of online registration opportunities, alcohol companies generally advise consumers how their information will be used and that they require consumers to opt-in to receive marketing information and consumers can readily opt-out when they want to stop receiving such information.  Use of cookies and tracking tools on brand websites appears to be limited to those needed to ensure that only consumers who have stated they are 21 or older can re-enter the site.

Product Placements.  Product placement in movies, television shows, and other entertainment media accounted for a very small portion – about one-tenth of one percent – of expenditures.   Most product placements involve the provision of props (such as bottles and signs) rather than money.

Outside Review of Complaints.  The report found that all three major alcohol industry trade groups – the Beer Institute, the Distilled Spirits Council of the United States, and the Wine Institute – have procedures for external review of complaints regarding alcohol advertising, but only the Distilled Spirits Council received any complaints between January 2009 and December 2012.  In the majority of cases (including all cases involving Council members), the advertiser agreed to comply with the decision of the Council’s review board.
The report’s key recommendations include:

When placement compliance levels fall below 90 percent for a brand in a particular media, and lack of compliance is due to wide fluctuations in measured audience composition due to small sample size, the company should consider using a higher audience composition threshold at the time of placement, to increase the likelihood of meeting the standard at the time the ad actually appears.
Because audience demographic data for radio is now available for larger markets showing all audience members age 6 and older, the companies should review this more comprehensive data when making placements.

Companies should take advantage of age-gating technologies offered by social media, including YouTube, and age gates on company websites should require consumers to enter their date of birth, rather than simply asking them to certify that they are of legal drinking age.

Companies should improve posted privacy policies to make them brief, transparent regarding data collection and use, and understandable to ordinary consumers.

Regarding user-generated content, companies should use blocking technologies and engage in frequent monitoring to reduce the potential for violations of the voluntary advertising and marketing codes established by the Beer Institute, the Distilled Spirits Council of the United States, and the Wine Institute.
Alcohol companies and the industry as a whole should continue their efforts to facilitate compliance with the voluntary codes, including staff training and cross-company identification of best practices.

State regulatory authorities, consumer advocacy organizations, and others who are concerned about alcohol marketing should participate in the industry’s external complaint review system when they see advertising that appears to violate the voluntary codes.

Industry and others concerned with reducing underage access to alcohol are encouraged to use the free “We Don’t Serve Teens” alcohol education materials available on DontServeTeens.gov.

The FTC released previous studies in 1999, 2003, and 2008.  Recommendations from past reports have resulted in agreements by the Beer Institute, the Distilled Spirits Council of the United States, and the Wine Institute, to adopt improved voluntary advertising placement standards; buying guidelines for placing ads on radio, in print, on television, and on the Internet; a requirement that suppliers conduct periodic internal audits of past placements; and systems for external review of complaints about compliance.

The Commission vote to authorize release of the report was 4 - 0.

DEFENDANTS SETTLE CHARGES IN "WORK-AT-HOME" OPPORTUNITY SCAM

FROM:  FEDERAL TRADE COMMISSION 
Defendants Behind ‘Online Entrepreneur’ Work-at-Home Scheme Settle FTC Charges

The operators of a business opportunity scheme have agreed to settle Federal Trade Commission charges that they defrauded consumers through the sale of a work-at-home program that purportedly provided consumers with their own websites that would enable them to earn a significant income by affiliate marketing with websites of well-known companies such as Prada, Sony, Louis Vuitton, and Verizon.

The settlement is part of a federal-state crackdown on scams that falsely promise jobs and opportunities to “be your own boss” to people who are unemployed or underemployed. Under the settlement, the defendants behind the operation, The Online Entrepreneur, will be banned from selling business and work-at-home opportunities.

According to an FTC complaint filed in November 2012, the defendants sold the “Six Figure Program” to consumers as a purportedly no-risk, money-back guaranteed opportunity to make money via their own website, falsely claiming that, for a $27 fee, they would enable consumers to affiliate with well-known companies’ websites and earn commissions. After purchasing the program, consumers learned that they had to pay $100 or more in additional costs just to set up their websites. The court subsequently halted the allegedly deceptive practices, froze the defendants’ assets, and put the companies into receivership pending a court hearing.

The settlement order announced today permanently prohibits The Online Entrepreneur Inc., Ben and Dave’s Consulting Associates, Inc., and David Clabeaux from selling business and work-at-home opportunities, misrepresenting that consumers are likely to earn money and misrepresenting any material fact about a product or service. They also are barred from failing to clearly disclose the terms of any offer before consumers provide billing information, and making a representation unless it is true and the defendants have competent and reliable evidence to substantiate the claim. In addition, the order prohibits these defendants from selling or otherwise benefitting from consumers’ personal information, and failing to properly dispose of customer information.

The order imposes a judgment of more than $2.9 million, which will be suspended when Clabeaux has surrendered real estate, personal property, and bank and investment accounts. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition. Litigation continues against the remaining defendant, Benjamin Moskel.

The Commission vote authorizing the staff to file the proposed consent judgment was 4-0. The consent judgment was entered by the U.S. District Court for the Middle District of Florida on March 13, 2014.

NOTE:  Consent judgments have the force of law when approved and signed by the District Court judge.