United States: State AGs In The News - May 21st, 2015

ANTITRUST

DOJ Investigates Movie Theaters for Collusion

  • The U.S. Department of Justice is investigating claims that Regal Entertainment Group, AMC Entertainment Holdings, and Cinemark Holdings (collectively, the "Dominant Theaters") have engaged in collusive behavior regarding the allocation of first-run movies.
  • At the root of the investigation is the use of a business practice called "clearances" through which theaters seek exclusive rights from movie studios to show first-run movies within certain geographic areas or zones. Various independent movie theaters have alleged that the Dominant Theaters are using their collective market power to secure clearances for anticompetitive purposes, namely, to block smaller theaters' ability to show the "premium" first-run movies at the same time as the Dominant Theaters in order to preempt competition, and to discourage future independent theater construction in growing markets.
  • AMC stated that it is only "playing by rules that have been long established," and indicated that the clearances process is legal, and that fewer than 10 percent of AMC's 342 locations have used the process to acquire an allocated film zone.

CHARITIES

Fifty States, the District of Columbia, and the FTC Charge Cancer Charities With Massive Fraud

  • The Federal Trade Commission (FTC) and AGs from all fifty states and the District of Columbia brought a lawsuit in the U.S. District Court for the District of Arizona alleging that Cancer Fund of America, Inc.; Cancer Support Services, Inc.; Children's Cancer Fund of America, Inc.; the Breast Cancer Society, Inc.; and related officers and directors (collectively, "Defendants") violated the FTC Act, the Telemarketing Act, and numerous state laws prohibiting deceptive practices and regulating charitable organizations.
  • According to the allegations in the Complaint, Defendants portrayed themselves as legitimate charities dedicated to supporting cancer patients by providing pain medication, transportation for chemotherapy, and hospice care. In reality, Defendants allegedly spent 88 percent of donations on fund-raising events, compensation, vehicles, college tuition, luxury cruises, and loans to friends and family, among other goods and services for personal use.
  • In addition to traditional methods of seeking donations, such as telemarketing and Internet advertising, Defendants distributed materials through the Combined Federal Campaign, which targets federal employees for donations to nonprofit organizations. Defendants allegedly were able to disguise the funding actually passed on to charitable organizations through abuse of the "Gifts in Kind" accounting rules, a tactic that allowed Defendants to overvalue the products they sent to developing countries, thus boosting the amount they could report as directly contributing to program services.
  • The regulators proposed stipulated judgments against the Children's Cancer Fund of America and its executive director for $30 million, and the Breast Cancer Society and its director for $65.5 million, as well as ordering the charities to be liquidated. Litigation is ongoing against the Cancer Fund of America and Cancer Support Services.

CONSUMER FINANCIAL PROTECTION BUREAU

CFPB Settles With PayPal for "Billing Customers Later"

  • The Consumer Financial Protection Bureau (CFPB) settled with PayPal, Inc., and its wholly owned subsidiary Bill Me Later, Inc., resolving allegations that the online payments company violated the Consumer Financial Protection Act by signing consumers up for its online credit product, PayPal Credit (formerly known as Bill Me Later), without permission.
  • The Complaint alleges that PayPal enrolled consumers in PayPal Credit without proper knowledge or consent, either through inadequate disclosures embedded in online purchasing processes, or automatically when consumers opened a PayPal account. It also alleges that PayPal directed purchases on eBay (PayPal's parent company) and other online retailers toward PayPal Credit, even though consumers may have indicated a different payment method. Finally, the Complaint alleges that PayPal Credit failed to honor promotions, did not timely process payments yet still charged late fees and interest, and failed to adequately respond to billing disputes.
  • As part of the Stipulated Order, which awaits court approval in the S. District Court for the District of Maryland, PayPal must pay a $10 million civil penalty, and is required to place $15 million into a segregated account for the purpose of providing redress to affected consumers. Within 60 days, PayPal must submit a plan on how it will identify all affected consumers and how it will effectuate payment accordingly. PayPal must also build disclosure into the offering of PayPal Credit, and is prohibited from setting its credit product as a default payment method unless the consumer affirmatively consents.

CONSUMER PROTECTION

States Reach Agreement With Credit Reporting Agencies

  • Ohio AG Mike DeWine led a group of 31 AGs in resolving a multi-year investigation into the practices of the three national credit reporting agencies: Equifax Information Services LLC, Experian Information Solutions Inc., and TransUnion LLC.
  • The investigation was initiated due to an increasing number of consumers reporting difficulty in correcting errors in their credit reports through the procedures previously offered, as well as to increasingly inaccurate data reporting by credit furnishers with no real oversight by the reporting agencies.
  • Under the Assurance of Voluntary Compliance, the credit reporting agencies will pay $6 million to the participating states. In addition, the credit reporting agencies will adopt a series of new procedures, including:

    • Maintaining information on problematic data furnishers;
    • Limits on marketing credit monitoring products to consumers calling to dispute information on their credit report;
    • Improved process for handling complicated disputes, such as those involving identity theft, fraud, or files with mixed consumers' information;
    • Enhanced limits on what can be placed on consumers records, including waiting periods for medical debt; and
    • Better consumer education, including information on how to challenge the outcome of a dispute investigation with other agencies.

Michigan Reaches Settlement With Online Lenders Over "Sky-High" Interest Rates

  • Michigan AG Bill Schuette reached a settlement with South Dakota-based Western Sky Financial, LLC, and California-based CashCall, Inc., (Lenders) to resolve claims that the Lenders made unlicensed loans over the internet to Michigan consumers at illegally high interest rates.
  • The Lenders charged interest on Internet-based loans at annual percentage rates that ranged from 89 to 350 percent, exceeding both the 7 percent cap for unlicensed lenders and the 25 percent cap for licensed lenders. They also charged excessive processing fees. A consumer who borrowed $1,000 under these terms would repay over $4,000 during the loan's two-year term.
  • The settlement requires the Lenders to establish a $2.2 million settlement fund to be distributed pro rata to eligible consumers and to reduce the interest on all loans still under payment to 7 percent annually on the loan's then-outstanding balance of principal. It also precludes Lenders from selling or assigning loans made to Michigan residents to any unaffiliated third-party and from making negative reports to credit reporting bureaus on any implicated loans.

FALSE CLAIMS ACT

New Jersey AG Resolves False Claims Act Allegations With With UPS Over Billing Practices

  • New Jersey AG John Hoffman reached an agreement with United Parcel Service, Inc., (UPS) to resolve allegations that the package delivery company violated the New Jersey False Claims Act by charging the state for Next Day Air service when the packages arrived late.
  • UPS allegedly used an inapplicable "exception code" to register late deliveries that were charged to state accounts, without disclosing to the state that such deliveries were late and without refunding the difference in price between Next Day Air and regular delivery services. The New Jersey investigation began when a UPS employee filed a whistleblower lawsuit in Virginia, providing a detailed account of the practice.
  • Under the Settlement Agreement, UPS admits no fault, but agrees to pay $740,000 to the state to resolve the claims. This marks the largest False Claims Act settlement outside of the Medicaid context by the state since the New Jersey False Claims Act took effect in 2008.

STATES v. FEDERAL GOVERNMENT

North Carolina Petitions Fourth Circuit to Overturn FCC Order on Municipal Broadband

  • North Carolina has filed an appeal to the Fourth Circuit, asking it to overturn a March 12, 2015, Order by the Federal Communications Commission (FCC), in which the FCC preempted certain state laws that regulate the manner in which municipalities can offer broadband services.
  • North Carolina law prevents publicly owned broadband Internet service providers—in this case, the City of Wilson—from offering services outside of county boundaries. The FCC found the state law to conflict with Section 706 of the Telecommunications Act of 1996, which requires the FCC to encourage the deployment of broadband through "measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment."
  • North Carolina argues that the FCC's actions disrupt the balance in the U.S. Constitution between state and federal power, are outside the FCC's authority, and are arbitrary and capricious under the Administrative Procedures Act and related case law.

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