Consumer Advertising Law Blog

Proposed Consumer Financial Protection Agency: Taking Over from the FTC and a Whole Lot More

Several weeks ago, on June 17, 2009, the Obama Administration unveiled details of its proposal to reform financial regulation. The proposal, which has been highly publicized, recommends that Congress and regulatory agencies adopt a comprehensive series of changes that would increase the role of the federal government in almost every aspect of the financial services industry. For example, if adopted as proposed, the proposal would:

• Create several new federal agencies, offices, and councils, including a new Consumer Financial Protection Agency (CFPA), dedicated to policing consumer financial products and services
• Install the Federal Reserve as an overarching regulator for any type of financial firm identified as being systemically significant, giving it authority over certain entities that historically have been subjected to little or no oversight
• Impose heightened consolidated supervisory standards, including capital, liquidity, and prudential requirements, on all large interconnected financial firms
• Drastically scale back the preemption powers of federally chartered financial institutions
• Regulate the markets for over-the-counter (OTC) derivatives and impose requirements on the securitization of debt
• Require Securities and Exchange Commission (SEC) registration of advisers to hedge funds, venture capital funds, and other private investment funds

The first part of the proposal to be fleshed out was the proposed new CFPA through the release by the Administration on June 30 of proposed legislation to establish the agency. The CFPA is designed solely to regulate the offering of consumer financial products and services (except as to instruments regulated by the SEC or CFTC). Its proposed authority is very broad, with a proposed mandate to promulgate, interpret and enforce rules implementing all existing federal consumer financial services and fair lending laws. More importantly, its authority would extend not only to banks, thrifts and credit unions, but also to mortgage lenders, title insurers, money service businesses, marketers and issuers of prepaid cards or stored value, consumer reporting agencies, debt collectors, certain lessors, certain investment advisors, and those that engage in financial data processing. To do that, the proposed legislation transfers all of the authority over these products and services from the federal bank regulatory agencies and the FTC to the CFPA. While the FTC would retain some back up authority (as would the bank regulators) this will be a substantial change in the regulatory landscape.

Privacy Lawsuit Stimulates Discussion

A registered nurse has filed a class action lawsuit in the Southern District of New York claiming that certain provisions of the American Recovery and Reinvestment Act (“ARRA”) (the new stimulus legislation enacted in February) violate the privacy rules laid out in the Health Insurance Portability and Accountability Act (“HIPAA”) and the federal Privacy Act.The complaint can be found here.

Beatrice Heghmann of Durham, North Carolina claims that, pursuant to ARRA, the White House Office of Health Reform is working with the Department of Health and Human Services (“HHS”) to design a new system that would create electronic health records for millions of Americans by 2014. According to Heghmann’s complaint, this planned system poses a major threat to individual privacy: she claims individuals’ personal health information (“PHI”) could be just a “mouse click away from being accessible to an intruder.”

Heghmann takes issue with ARRA’s provision allowing HHS to determine what constitutes the “minimum necessary” amount of PHI allowed to be disclosed under HIPAA, as well as how best to implement “de-identification” of protected information. According to Heghmann’s complaint, HHS Secretary Kathleen Sebelius is “empowered to totally vitiate the privacy provisions under HIPAA and link medical information contained in Plaintiff’s personal health record directly to Plaintiff and all others similarly situated.” Heghmann argues that the $22 billion earmarked for the electronic registry is merely a vehicle to obtain access to this confidential health care information.

Heghmann is seeking certification for a class of similarly situated individuals and is requesting an injunction to prevent the government from disbursing the $22 billion budgeted for the Electronic Health Records System.

As our readers might remember, we’ve blogged before about the importance placed on the handling of PHI and HIPAA’s privacy provisions (related blog post here). In ARRA, Congress did impose significant new privacy and security requirements on HIPAA-covered entities and their business associates, precisely to protect against the kind of risks Heghmann’s complaint highlights. Whether such a complaint could create a barrier to the Administration’s goals for electronic health records will be an important question; at the very least, the complaint will like cause HHS to lean further toward strict implementation of ARRA’s privacy provisions in its forthcoming regulations.

- Nancy Perkins

FTC Helps Vulnerable Consumers Declare Independence From Fraud

Several articles recently have addressed how mainstream advertisers have become more aggressive as they compete for a shrinking pool of consumer dollars.  The same is true it appears for outright fraud where there were some enforcement fireworks this week.  On July 1st, the four FTC Commissioners voted to put their John Hancocks on a series of enforcement actions (15 FTC cases, 44 actions initiated by the Department of Justice, and the involvement of 13 other states and the District of Columbia) given the codename "Operation Short Change."

The enforcement actions cover a wide variety of allegedly fraudulent activity.  Several companies and individuals have been accused of marketing get-rich-quick schemes and false job opportunities.  Additionally, several other companies are accused of conning unsuspecting individuals by offering alleged opportunities to get the government to give them lots of Franklins, Washingtons, Jeffersons, Hamiltons and Madisons.  Finally, the FTC has targeted a debt reduction scam that uses the Google brand to convince people to divulge personal financial information and then takes liberty with that information after they have purchased cheap consumer goods.

Expect more aggressive and quick action by the FTC in coming days.  And, ever wonder about some of those opportunities that pop up or spam you and Blockbuster happens to be all out of copies of Born on the Fourth of July?  You can check out this classy  FTC video which flags some common warning signs and gives an insider look at Get Rich Quick schemes.

Happy Independence Day!

NAD Referees Dell-Apple Battle Over Green Claims

NAD recently issued a decision regarding Dell’s complaints about Apple’s green claims for its MacBook computers (the press release can be found here). The decision came after Dell instigated a battle with Apple, first in the blogosphere, then in the more formal forum of NAD. Dell’s complaint centered around Apple’s claims of having “the world’s greenest family of notebooks” and being the “world’s greenest.” Dell also had an issue with Apple using EPEAT ratings as the basis for their claims.

NAD issued a “halvsies” decision for both Dell and Apple. NAD acknowledged EPEAT as “recognized industry methodology” and that the information Apple touted should be freely communicated to consumers.

In a win for the Dell team, NAD did suggest that Apple alter its “world’s greenest family of notebooks” claim to make clearer that the basis of the comparison is between MacBooks and competitors’ notebooks rather than a comparison of entire product lines. Additionally, NAD suggested that Apple stop calling itself the “world’s greenest,” gently noting that the Toshiba Portégé notebooks actually have higher EPEAT ratings than the MacBooks. The NAD's decision once again demonstrates how difficult it can be to substantiate broad environmental claims.

The complaint by Dell comes on the heels of several green issues making headlines. A recent House subcommittee hearing entitled “It’s Too Easy Being Green” sought to address the onslaught of environmental marketing. At the hearing, FTC Bureau of Consumer Protection’s enforcement director James Kohm cautioned that, while there are plenty of valid, substantiated green claims out there, there is also a whole group of greenwashing bad apples.

FDIC Cranking Up the Consumer Credit Crack Down on Unfair and Deceptive Practices

The FDIC has stepped up its enforcement efforts of state-chartered institutions alleged to be engaged in unfair and deceptive practices in connection with credit card solicitations, recently announcing the issuance of two cease and desist orders - one against American Express Centurion Bank and the other against Advanta Bank Corp.

The order issued against American Express Centurion Bank alleged that the bank failed to provide timely notices to card-holders that their credit lines were being reduced at the same time that the bank sent the card holders convenience checks (the press release can be found here). Consequently, when consumers tried to use the checks, believing they had credit limit room, they were dishonored, resulting in the consumers incurring bounced check fees, which the FDIC alleged was an unfair practice under Section 5 of the FTC Act. The bank agreed to make restitution of $160 per dishonored check, or an aggregate of approximately $3 million, as well as to implement new procedures for reviewing credit limits and notifying consumers of changes to their limit. The bank also agreed to implement procedures whereby a customer could obtain preauthorization to use a convenience check for a specified dollar amount for a specified time period. In addition, the bank was ordered to pay a civil money penalty of $250,000.

The order issued against Advanta Bank Corp. (which ceased issuing cards in May 2009) alleged that the bank marketed a cash back reward feature on its business credit card accounts (the press release can be found here). Due to the tiered structure of the cash back payments, however, the FDIC alleged that the advertised percentage cash back was not available for all purchases, and indeed, the agency alleged that it was effectively impossible to earn the stated percentage of cash back reward payments. The FDIC thus concluded that the Bank's solicitations were likely to mislead a reasonable customer and that the representations were material and that therefore, the Bank engaged in a pattern of deceptive acts or practices in violation of Section 5 of the FTC Act.