While the country was busy celebrating Star Wars Day and Cinco de Mayo, the FTC took a number of actions in the consumer protection realm. The agency reported success stories in relation to a credit repair scam, a multi-level marketing scheme, and even deceptively-advertised Internet speeds. In addition, the Commission initiated its second action using the new Made in USA rule, shortly after the first one—this time against an apparel company. The agency also ordered divestment of a subsidiary in a medical device company’s acquisition in the sinus field and sought public comments on the updates to the Energy Labeling Rule. Further, the Senate may begin working to restore the FTC’s power to obtain equitable monetary relief for consumers in federal court. These stories and more after the jump.
Monday, May 2, 2022
FTC Internal Operations: Restoration of Authority to Seek Monetary Relief for Consumers
- Senate Democrat Maria Cantwell issued a report highlighting the FTC’s history of returning billions of dollars to consumers under Section 13(b) of the FTC Act and the loss of that power in the April 22, 2021 Supreme Court decision AMG Capital Management, LLC v. Federal Trade Commission. The report urges Congress to act immediately to restore the FTC’s Section 13(b) authority in order to “meaningfully protect consumers and businesses.” The report notes that from 2016 to 2020 alone, “American consumers received $11.2 billion in refunds from the FTC, most of which was a result of FTC cases under Section 13(b).” The report goes on to explain in detail how consumer fraud and deception continue to increase and includes tables showing consumer fraud reports and refund data on a state-by-state level.
Tuesday, May 3, 2022
Bureau of Consumer Protection: Credit Repair Scam
- A federal court in the Middle District of Florida issued a temporary restraining order at the FTC’s request against The Credit Game and its owners, Michael and Valerie Rando. The TRO halts the company’s operations, appoints a receiver, and freezes the defendants’ assets. Per a complaint filed shortly before the TRO, defendants have allegedly operated an unlawful credit repair business in which they charged consumers hundreds to thousands of dollars for credit repair services of little to no value. The complaint also alleges that defendants told consumers to invest their COVID-19 economic relief payments into the scheme. These allegations amount to violations of a number of laws, including the FTC Act, the Credit Repair Organizations Act, the Business Opportunity Rule, the Telemarketing Sales Rule, and the Covid Consumer Protection Act. A preliminary injunction hearing was held on May 12, 2022.
Thursday, May 5, 2022
Bureau of Consumer Protection: Multi-Level Marketing Deception
- Following an October 2019 federal complaint and a stipulated order, the FTC is returning $149 million to consumers who lost money from AdvoCare’s alleged pyramid scheme. Per the complaint, the multi-level marketing scheme recruited consumers to become “Distributors” of health and wellness products via promises of unlimited income, financial freedom, and no need to maintain traditional employment. Despite this, the vast majority of Distributors did not earn any compensation. In 2016, 72.3% of Distributors earned nothing, and another 18% earned under $250 for the year. Distributors were also required, regardless of retail demand, to make large purchases in order to participate fully in AdvoCare’s compensation plan. The Commission is issuing payments to over 224,000 consumers who lost money as a result of AdvoCare’s scheme. This case predates the FTC’s loss of its ability to obtain equitable monetary relief in federal court for consumers following an April 22, 2021 Supreme Court decision.
Bureau of Consumer Protection: Deceptively Advertised Internet Service Speeds
- The Commission unanimously voted to approve a stipulated order against internet service provider (“ISP”) Frontier Communications Corporation in relation to allegations in a complaint filed on May 19, 2021. The complaint alleges that Frontier lied about its internet speeds and charged consumers high-speed prices for slow service. The order, which is also joined by the district attorneys of Los Angeles and Riverside Counties, requires Frontier to (1) substantiate its internet speed claims on a customer-by-customer basis; (2) ensure it can provide its advertised speeds before adding new customers; (3) refrain from signing up new customers for DSL service in areas where adding users will cause congestion resulting in slower internet service; (4) notify existing customers who are receiving DSL service at lower-than-advertised speeds and allow them to cancel or change service at no charge; (5) pay $8.5 million in civil penalties and costs to the LA and Riverside DA’s offices as well as $250,000 that will be distributed to harmed California consumers; (6) discount the bills of customers who have not been notified that they are receiving slower-than-advertised DSL service; and (7) deploy fiberoptic internet service to 60,000 residential locations in California over the next four years. Commissioner Phillips filed a statement concurring with the order and noting that this is the FTC’s first case against an ISP since the FCC restored the FTC’s authority to police the practices of ISPs in 2017.
FTC Internal Operations: Chair Khan Outreach to Senate
- FTC Chair Lina Khan submitted a letter to four Senators on the Committee on Commerce, Science, and Transportation in support of their May 5, 2022 hearing entitled “Ensuring Fairness and Transparency in the Market for Prescription Drugs.” Chair Khan noted that pharmacy benefit managers (“PBMs”) play a critical role in the pricing and availability of prescription drugs, and she highlighted the agency’s recent efforts to study and collect public comments about PBM practices. Chair Khan expressed her hope for “legislative action on PBMs, including efforts to ensure that these intermediaries are serving the interests of American patients and contributing to a fair and accountable prescription drug system.”
Tuesday, May 10, 2022
Bureau of Competition: Heath Care Competition and Merger
- The Commission ordered Medtronic, Inc. to divest a subsidiary of Intersect ENT, Inc. as a condition of Medtronic’s proposed acquisition, so as to protect patients relying on medical instruments in sinus procedures. The subsidiary, Fiagon, which makes ear, nose, and throat navigation systems and balloon sinus dilation products, will be sold to Hemostasis, LLC to prevent concentration and ultimately harm to patients. As part of FTC’s efforts to combat the issue of rising healthcare costs, Medtronic, a dominant provider of ENT navigation systems, is required to divest Fiagon because “the deal would otherwise lead to higher prices and reduced innovation in this important medical care market,” said Holly Vedova, Director of the Bureau of Competition. Further, Medtronic and Intersect must obtain prior approval from the FTC for 10 years before buying ENT navigation systems and balloon sinus dilation assets to address any future attempts to consolidate these important markets. Similarly, divestiture buyer Hemostasis must obtain prior approval for three years before transferring any of the divested assets to any buyer, and for seven additional years before transferring any divested assets to a buyer that manufactures and sells ENT navigation systems or balloon sinus dilation products.
Wednesday, May 11, 2022
Bureau of Consumer Protection: Deceptive Advertising and Marketing
- Less than a month after its first strike, the Commission used its new Made in USA rule again and filed a complaint against apparel company Lions Not Sheep Products, LLC, and its owner Sean Whalen for falsely claiming that its imported apparel is Made in USA. The company and the owner make extensive Made in USA claims online and on product labels, including “Made in the USA,” “Made in America,” “Are your products USA Made?” “100% AMERICAN MADE,” and “BEST DAMN AMERICAN MADE GEAR ON THE PLANET,” while the products consist of wholly imported shirts and hats with limited finishing work performed in the United States. Even worse, the company, as admitted by the owner in a video published to his own social media accounts, ripped out the original tags and replaced them with tags stating that the merchandise was made in the United States. The owner said, by doing that, he could conceal the fact that his shirts are made in China. The proposed order settling the complaint requires Lions Not Sheep and Sean Whalen to stop all claims that its products are made in the United States and to pay $211,335 in civil penalties.
FTC Internal Operations: Chair Khan’s Statement on the Confirmation of Alvaro Bedoya to Serve as a Commissioner
- Chair Lina Khan issued the following statement regarding the Senate confirmation of Alvaro Bedoya to serve as an FTC Commissioner: “Alvaro’s knowledge, experience, and energy will be a great asset to the FTC as we pursue our critical work. I’m excited to begin working with him, along with our other Commissioners, once his appointment is made final by President Biden.”
Thursday, May 12, 2022
FTC Internal Operations: Tentative Agenda for May 19 Open Commission Meeting
- Chair Lina Khan announced that an open meeting of the Commission will be held virtually on Thursday, May 19, 2022, at 1:00 PM ET. The Commission will vote on a Policy Statement on Education Technology and COPPA and Request for Public Comment on Amendments to the Endorsement Guides. The Policy Statement announces the agency’s prioritization of the enforcement of the Children’s Online Privacy Protection Act (“COPPA”) as it applies to the use of education technology. In particular, the Statement makes it clear that there must be no requirements to parents and schools to sign up for surveillance as a condition of access to educational tools. The proposed revisions to the Endorsement Guides will focus on fake reviews and the suppression of negative reviews.
Friday, May 13, 2022
Bureau of Consumer Protection: Seeking Comments on Updates to Energy Labeling Rule
- The FTC proposes routine updates to comparability range information on Energy Guide labels for major home appliances and other consumer products in the Energy Labeling Rule. The Rule issued in 1979 to help consumers compare the energy usage and costs of competing models, anticipate energy costs and avoid costly surprises. It also prohibits retailers from removing or altering these labels. The current updates focus on three disclosures for most covered products: 1) estimated annual operating cost, 2) a “comparability range” showing the highest and lowest energy consumption or efficiencies for all similar models, and 3) the product’s energy consumption or energy efficiency rating. Once the relevant notice has been published in the Federal Register, consumers can submit comments electronically. Consumers also may submit comments in writing by following the instructions in the “Supplementary Information” section of the notice.
For further information, please contact:
Fan Cheng, Crowell & Moring