United States: State AGs In The News - May 14th, 2015


Kentucky Attorney General Sues Oil Company for Anticompetitive Pricing

  • Kentucky AG Jack Conway filed a lawsuit alleging that Marathon Petroleum Co. is using anticompetitive practices to charge higher gasoline prices in Kentucky in violation of the Kentucky Consumer Protection Law, the Sherman Act, and the Clayton Act.
  • According to the Complaint, gasoline prices in Louisville and Northern Kentucky, in particular, are significantly higher than comparable markets. The lawsuit alleges that Marathon has a dominant position through ownership of refineries that provide 90 to 95 percent of gasoline to the affected markets.
  • AG Conway alleges that Marathon is abusing its dominant position by engaging in certain practices, including:
    • entering supply agreements which require independent gas retailers to buy all of their fuel from Marathon;
    • demanding other refiners sign "exchange agreements" allegedly designed to keep out competing gasoline products; and
    • using deed restrictions to prohibit independent gasoline retailers from using their property as a gas station for 25 years unless it sold only Marathon gas.
  • Marathon responded that it "disputes the allegations" and "will defend this judicial action vigorously in court." Marathon also indicated that "the FTC has looked at [the issue] before and reviewed it in a couple of different requests."

Consumer Financial Protection Bureau

CFPB Files Lawsuit Against Mortgage Payment Company

  • The Consumer Financial Protection Bureau (CFPB) filed a lawsuit alleging that Nationwide Biweekly Administration, Inc., its subsidiary Loan Payment Administration LLC, and its owner and president Daniel Lipsky (Nationwide), violated the Consumer Financial Protection Act and the Telemarketing and Consumer Fraud and Abuse Act in attempts to market mortgage payment services.
  • Nationwide offers a biweekly mortgage payment program called the "Interest Minimizer." This program purportedly allows customers to make mortgage payments to Nationwide every two weeks, which Nationwide forwards on to the mortgage servicer, resulting in customers making one additional monthly payment per year. However, Nationwide allegedly keeps the first extra biweekly payment (up to $995) as a set-up fee, and charges consumers between $84 and $101 in processing fees each year, without expressly disclosing as much.
  • In the Complaint, the CFPB alleged that the defendants misrepresented the savings consumers would achieve, deceived consumers about the cost of switching to the Interest Minimizer, and falsely claimed to be affiliated with mortgage lenders and servicers.

Consumer Protection

Fifty States and the Federal Government Settle Cramming Charges With Sprint and Verizon

  • Fifty states (led in part by Vermont AG William Sorrell), the District of Columbia, the CFPB, and the FCC settled claims against Sprint Corporation and Cellco Partnership d/b/a Verizon Wireless regarding unauthorized charges for third-party messaging services ("cramming"). The lawsuits alleged cramming to be a violation of the Consumer Financial Protection Act, Section 201 of the Communications Act of 1934, and various state Unfair and Deceptive Practices Acts.
  • According to the Complaint, the cramming charges were typically associated with "premium" text message subscription services—such as horoscopes, trivia, flirting tips, and sports scores—offered by third parties. These services charged a monthly fee through the carrier's billing statement, typically $9.99 per month, with the carrier receiving a percentage. However, in many cases, there was no evidence that consumers had requested the services, and consumers were often unaware that they were being charged.
  • Under the terms of the consent orders, Sprint will pay $68 million and Verizon will pay $90 million, of which $50 and $70 million respectively will be used to repay affected consumers through programs overseen by the CFPB. Sprint will pay penalties of $12 million to the states and $6 million to the FCC; Verizon will pay $16 million to the states and $4 million to the FCC.
  • In addition, Sprint and Verizon will be required to implement procedures to obtain customers' express consent prior to charging for third-party services, provide a complete refund when customers are billed for unauthorized charges, inform new customers that they can block third-party charges, and create a special section in customers' bills where third-party charges are clearly distinguished.

FTC Seeks to Shed Ill-Gotten Monies From Company Alleged to Deceptively Market Weight Loss Products

  • The Federal Trade Commission (FTC) issued a complaint alleging that Lunada Biomedical, Inc., and its officers and owners, violated the FTC Act through the marketing and sale of dietary supplement Amberen.
  • The Complaint alleges that Lunada deceptively labeled, advertised, marketed, and sold Amberen through a combination of unsubstantiated efficacy claims, false proofs, false claims regarding customer satisfaction, false "risk-free" trial offers, and that they failed to disclose material connections with endorsers. Defendants allegedly also hired a marketing company to create and maintain a blog, in which the president of the marketing company described personal experiences with menopause, and endorsed Amberen, without disclosing that Lunada was paying for, and consulting on blog topics.
  • The commissioners voted 5-0 in favor of the complaint, which seeks permanent injunctive relief, along with restitution for injured consumers, refund of monies paid, and disgorgement of ill-gotten monies. The lawsuit is pending in federal court for the Central District of California.

Data Privacy

Hedge Fund Acquires RadioShack Consumer Data, Agrees to Mediate With Attorneys General

  • Standard General LP, a hedge fund that purchased hundreds of RadioShack's store leases in a prior sale, has won the auction to purchase RadioShack Corp.'s brand name and other intellectual property, as well as a vast cache of customer data, for $26.2 million.
  • Thirty-seven State AGs, led by Texas AG Ken Paxton, have objected to RadioShack's attempt to sell the data, which is reported to consist of 85 million email addresses and 67 million customer names and physical address files. AG Paxton has called the sale "not only a direct violation of the terms of [RadioShack's] own privacy policies, but also a clear violation of Texas law."
  • RadioShack agreed to mediate the issue with the objecting AGs to resolve their concerns, which include what type of information is included and how it will be used. The sale of these assets must ultimately be approved by the U.S. Bankruptcy Court for the District of Delaware, which is overseeing the bankruptcy.

For-Profit Colleges

SEC Charges For-Profit College With Multiple Violations of Securities Laws

  • The Securities and Exchange Commission (SEC) brought charges against ITT Educational Services Inc., along with ITT's chief executive officer Kevin Modany, and chief financial officer Daniel Fitzpatrick, for allegedly defrauding investors in violation of multiple sections of the Securities Act, the Exchange Act, and multiple SEC Rules.
  • The Complaint identifies numerous situations where ITT allegedly mislead investors, analysts, and auditors, including claims that ITT failed to disclose material facts, filed materially false and misleading reports, and made false certifications regarding ITT's performance from 2009 to 2012, and the potential impact of increasing defaults in the private student loan programs that ITT guaranteed.
  • The SEC is seeking injunctive relief, disgorgement, and civil penalties from ITT. It is also asking that Modany and Fitzpatrick be ordered to return all bonuses, incentive-based and equity-based compensation, as well as profits realized from the sale of ITT stock.

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