United States: State AGs In The News - September 17th, 2015

Consumer Financial Protection Bureau

CFPB Takes on the World, Secures Injunctions

  • The Consumer Financial Protection Bureau (CFPB) filed a lawsuit in the Southern District of Florida against World Law Debt Services, LLC; Orion Processing, LLC; Family Capital Investment & Management, LLC; and a group of related companies and individuals (together, "World Law") for violations of the Consumer Financial Protection Act and the Telemarketing Sales Rule.
  • The complaint centered on World Law's alleged representations to provide consumers with a "team of attorneys" that would negotiate consumer debt settlements directly with creditors. The CFPB alleged that such representations were deceptive as most of the debt relief services provided were performed by non-attorneys, even when the creditor initiated debt collection litigation. The CFPB also alleged that World Law instructed consumers to stop paying their creditors directly, and instead direct the payments to World Law, which resulted in lowered credit scores, late fees, and collection suits. In addition, consumers suffered harm because World Law was generally unsuccessful in negotiating lower debt payments.
  • The CFPB also alleged that World Law violated the Telemarketing Sales Rule by charging consumers upfront fees for debt relief services. The CFPB indicated that World Law charged initial fees and monthly attorney fees, and "bundled legal service fees" ranging from 10 to 15 percent of the consumers' outstanding debt balance.
  • The CFPB secured preliminary injunctions, asset freezes, and appointment of receivers against both groups of defendants (Orion Processing and Capital Investment). The Court also granted CFPB permission to take limited expedited discovery for the purpose of locating assets, documents, and business records, and enforcing compliance with the order to enjoin defendants' business operations.

Consumer Protection

FTC Warns Against the Deceptive Use of Green Seals

  • The Federal Trade Commission (FTC) sent letters to environmental certification organizations, and to businesses using the organizations' certification seals, warning both groups that the seals were being used in a manner that was not in compliance with the FTC's Guides for the Use of Environmental Marketing Claims, and that could be misleading to consumers.
  • The main concern for the FTC is that when companies use an unqualified certification seal without stating the specific environmental benefit or attribute the product is claiming (e.g., biodegradability), the seal creates the impression that the product has a broader range of environmental benefits or attributes than it really does. The FTC indicated that unqualified green certifications can be misleading to consumers, who might view the "green" seal as an indication of compliance with all potential aspects of environmental certification.
  • The FTC did not announce any enforcement action associated with the warning letters—nor did it disclose the names of the organizations or companies involved—but it indicated the growing importance for environmentally-conscious consumers to be able to accurately rely on a company's claims regarding the "greenness" of its products. In the past, the FTC has followed previous warning letters with enforcement actions under Section 5 of the FTC Act when companies continued to make false or deceptive statements related to environmentally-conscious product claims.

New York AG Seeks Recall of "Adulterated" Devil's Claw

  • New York AG Eric Schneiderman has sent cease-and-desist letters to companies that make or distribute a dietary supplement derived from the devil's claw plant, native to the Kalahari desert and marketed for treating joint pain, contending the supplements are either adulterated or misbranded. AG Schneiderman has asked the companies to create a plan outlining how they will recall the affected shipments.
  • The AG's action is based on a study by the New York Botanical Garden, which in turn relied on a relatively new form of testing using DNA barcodes to determine that the indicated supplements claiming to contain extracts from the devil's claw plant are actually made from a cheaper, related plant species that does not contain the same array of phytochemicals. As we have noted in prior posts, the New York AG's office has placed dietary supplements under close scrutiny since an investigation in February alleged a wide discrepancy in product contents.
  • But not all botanists agree. The American Botanical Council responded that the AG's investigation is incorrect in its conclusion, arguing that "[b]oth species of devil's claw have a similar chemical profile" and "both are considered equally effective."

Data Privacy

Senators Show Continued Interest in Car Hacking

  • Senators Richard Blumenthal of Connecticut and Edward Markey of Massachusetts have sent letters to 18 car makers, asking for updated information as to how the companies are addressing the cybersecurity and privacy risks associated with automobiles' increased use of electronic controls connected through control area networks.
  • The issue has been on the Senators' agenda since 2013, but gained urgency when researchers demonstrated they could hack a car from 10 miles away and take over control of vital functions like the brakes, transmission, and engine. The two senators have co-sponsored the Security and Privacy in Your Car Act (or SPY Car Act) of 2015, which has been referred to the Committee on Commerce, Science, and Transportation.
  • In addition, Senator Markey conducted a 2014 investigation and authored a thorough report based on the findings, concluding that automakers' security and privacy practices were "alarmingly inconsistent and incomplete." Senator Markey has also indicated his desire for the National Highway Traffic Safety Administration to work with the FTC to create clear and mandatory rules to govern the automotive industry, and to rely less on voluntary agreements.

Department of Commerce Scraps First Attempt to Control Hacking Software

  • The Department of Commerce, Bureau of Industry and Security (BIS) will revisit its efforts to codify export controls on intrusion software, after its first attempt garnered a multitude of criticism. BIS action is needed in this area to implement an agreement among 41 countries intended to control the export of certain dual-use technologies (where one use is for weapons or surveillance).
  • The Proposed Rule, issued last May, sought to extend BIS authority over—and thus require a license to export—"intrusion software," or computer programs designed to allow a hacker to extract data or take control of a computer or network from an external location.
  • The problem, according to Congressman Jim Langevin and industry analysts, was that the Proposed Rule did not properly distinguish between offensive uses (bad) and defensive uses (good) of such software. Without a better distinction, the Proposed Rule could actually hamper cybersecurity research efforts and prevent multinational companies from building more robust network security processes.

False Claims Act

State Hospital System Settles False Claims Suit With DOJ

  • The U.S. Department of Justice (DOJ) has settled with North Broward Hospital District (Broward), a special division of the state of Florida that operates multiple hospitals throughout the state, over alleged violations of the U.S. Stark Law, Anti-Kickback Statute, and False Claims Act.
  • The underlying lawsuit, filed by a whistleblower in 2010, alleged that Broward violated Stark and other federal laws by providing significantly above-market salaries, based on the volume of referrals, to a group of nine doctors who allegedly made Medicare or Medicaid patient referrals to various other departments of the hospitals. Broward allegedly applied pressure to keep certain referrals within its network, even though some physicians were concerned about quality of the referred services.
  • For its part, Broward indicated that the settlement will not require a tax increase, or result in the delay of any capital projects. It specifically noted that the allegations were focused solely on "highly complicated contracts with physicians," and that the "investigation was never about patient care." Broward agreed to pay $69.5 million to settle the lawsuit, of which $12.05 million will be paid to relator Dr. Michael Reilly under the qui tam provisions of the False Claims Act.

Securities

Another Settlement Floats up From Dark Pool Investigations

  • According to news reports, Credit Suisse Group AG has reached an agreement with the Securities and Exchange Commission (SEC) and New York AG Eric Schneiderman to settle claims arising out of its use of private share trading exchanges ("dark pools") that allegedly provided an improper advantage to high frequency traders to the detriment of institutional investors.
  • Like similar cases against other banks operating private dark pool exchanges, the allegations against Credit Suisse involve deficiencies in how the bank described and disclosed to its clients the mechanism through which trades were executed.
  • Under the terms of the agreement, the Swiss bank will pay $50 million in fines and disgorgement to the SEC and $30 million to the New York AG.

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