The Federal Trade Commission’s Bureau of Consumer Protection polices unfair acts that cause substantial injury to consumers in violation of the FTC Act. Recently, the agency announced two noteworthy enforcement matters.
Settlement With Operators of Alleged Invention Promotion Scam
In 2017, the Federal Trade Commission charged the operators of an alleged invention-promotion scam with deceiving consumers and attempting to suppress criticism by using threats of criminal prosecution against dissatisfied customers.
A temporary restraining order was entered against the defendants and assets frozen pending litigation.
“This case is about protecting innovators, the engine of a thriving economy,” Acting FTC Chairman Maureen K. Ohlhausen said. “The defendants promised to promote people’s inventions and took thousands of dollars, but provided almost no service in return. Then they added insult to injury by threatening people who complained.”
According to the FTC, consumers paid the defendants thousands of dollars to patent and market their inventions based on bogus “success stories” and testimonials promoted by the defendants. According to the Commission, however, the defendants failed to deliver what they promised and, instead, many customers ended up in debt or lost their life savings.
The FTC also alleged that the defendants employed numerous unfair tactics, including intimidating threats of legal action to discourage consumers from complaining about the defendants’ services. According to the Commission, a customer who sought a refund and filed a complaint with the Better Business Bureau subsequently received a letter from the defendants’ lawyer. The Commission alleged that the letter informed the customer that seeking a refund was extortion under Florida law and, “since you used email to make your threats, you would be subject to a federal extortion charge, which carries a term of imprisonment of up to two years and potential criminal fines.”
The FTC has recently announced that the defendants have agreed to settle the charges with the Commission, terms which include a ban from the invention promotion business, and strict prohibitions against misrepresenting any good or service, and suppressing the availability of truthful negative comments or reviews by consumers. The defendants are also prohibited from profiting from consumers’ personal information collected as part of the challenged practices, and failing to dispose of it properly.
The order imposes a $25,987,192 judgment that will be partially suspended upon the transfer of designated funds to the Federal Trade Commission. Otherwise known as an “avalanche clause,” the full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.
Charges Against Mortgage Relief Operation
The FTC also recently announced that it has charged a mortgage relief operation with deceiving distressed homeowners by falsely promising to make their mortgages more affordable and prevent foreclosure.
According to the agency, the defendants claim a 99% success rate and guarantee results regardless of a consumer’s situation, and falsely state that they are affiliated with various lenders and government mortgage assistance programs. The Commission also alleges that one of the defendants falsely claims to be accredited by the Better Business Bureau, which purportedly rated it F.
As set forth in the complaint, after consumers apply for the services, the defendants misrepresent that they have been “confirmed” for payment reductions and then direct consumers to make payments of several thousands of dollars to cover “closing costs.”
According to the FTC, the defendants encourage consumers to stop paying and communicating with their lenders or servicers, while failing to inform them that, as a result, they could be jeopardizing their homes and credit ratings.
Federal law prohibits mortgage assistance providers from:
- Making deceptive marketing claims;
- Seeking or accepting payment before consumers contract with their loan holders or servicers on terms obtained by the providers;
- Misrepresenting the likelihood of success or how long it will take;
- Pretending to be affiliated with any government agency or program; and
- Misrepresenting a consumer’s obligation to make scheduled loan payments.
Mortgage assistance providers are also required to must disclose that they are not associated with the government, that their services are not approved by the government or any lender, and that consumers can cease doing business with them or reject an offer without having to pay.
In some instances, providers are also required to disclose that a lender may refuse to modify a loan, and that people who stop paying their mortgages could lose their home or damage their credit.
The defendants are charged with violating the FTC Act and the Mortgage Assistance Relief Services Rule.
Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.
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