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WBK Industry News - Federal Regulatory Developments

Company and Owner Ordered to Return $5.2 Million to Consumers in FTC Case

A U.S. Federal District Court recently granted summary judgment to the FTC, requiring a company and its owner to payback consumers $5.2 million for using fake rental advertisements to get consumers to sign-up for a credit monitoring service.

In an effort to market its credit monitoring service, the company and its owner hired an affiliate to refer consumers.  The affiliate asked the owner to create several websites that the affiliate could direct consumers to in order to use the service.  The affiliate also hired a second individual to assist in marketing.  This second individual posted Craigslist advertisements of rental properties that asked interested individuals to contact the “landlord.”  When consumers reached out, this second individual would write back asking the consumer to obtain a credit report in order to be eligible for a tour of the property and directed consumers to the company’s affiliate websites.  Once there, consumers could obtain a “free credit score and report.”  The website disclosed in small type that “signing up for the service would enroll the consumer in a monthly credit monitoring service for $29.94 a month.”  None of the parties involved in the case had the authority to rent the properties advertised in the Craigslist ads.

In 2017, the FTC obtained a judgment against the two affiliates in the amount of $762,000 to be paid to consumers.  In the present enforcement action, the FTC asserted a number of claims against the company and its owner, including violations of the Federal Trade Commission Act (FTCA), the Restoring Online Shoppers’ Confidence Act (ROSCA), and the Free Credit Reports (FCR) Rule, as well as injunctive and equitable relief.  The court found that the websites and craigslist advertisements contained material misrepresentations and constituted unfair or deceptive practices under the FTCA.  The Craigslist ads were deceptive because the properties didn’t exist or because the company and its affiliates had no authority to rent them and because no tour was ever given when a credit report was shown.  The websites were deceptive because the websites never explained what membership in the credit monitoring service provided, consumers expressly complained they were misled and asked for chargebacks, and the websites claimed to offer a free credit score and report rather than a membership in a credit monitoring service.

The court also found the company and its owner violated ROSCA by failing to clearly and conspicuously disclose the material terms of its negative option feature and by failing to obtain the express informed consent of the consumer.  The court was unpersuaded by the small type listing the $29.94 a month fee because, viewed in context, the court found the disclosures provided by the websites to be “designed to ensure minimal attention by the reader.”  Further, because ROSCA requires express informed consent before entering into a negative option agreement, the court did not consider the company’s welcome e-mail sent to consumers after signing up in its informed consent analysis.

The court held that the company violated the FCR Rule by failing to properly advise consumers of their right to an annual free credit report under federal law in connection with a bundled service.  The court also rejected the owner’s arguments that he believed the affiliates were acting on behalf of others in listing the rental properties and that he didn’t know the marketing was fraudulent.  Specifically, the court acknowledged that he “not only knew about the Craigslist scheme; he had power to control it.”

As a result of the violations, the court issued a permanent injunction applying to all the company’s websites because the court found there was a reasonable likelihood of future violations.  Specifically, the court banned the company and its owner from selling any credit monitoring service with a negative option feature, required the company obtain express informed consent of consumers prior to using billing information to obtain payments and issue disclosures.  The court order also imposed monitoring conditions on the defendants, including a requirement to obtain the name and location of the affiliates, advance copies of all marketing materials, and a duty to investigate complaints about its affiliate marketers and end the relationship if the affiliate breaches the order.

Finally, the court required the defendants to pay $5.2 million in equitable relief back to consumers for the damages caused by the Craigslist marketing scheme.

A copy of the court opinion can be found here.