FTC Report Details Consumer Finance Law Violations
06/23/17 – Earlier this month, the Federal Trade Commission (FTC) sent a report to the Consumer Financial Protection Bureau (CFPB) about the FTC’s 2016 enforcement activities related to consumer financial protection laws.
According the report, the FTC took a number of enforcement actions against companies for violating Truth In Lending Act (TILA), the Consumer Leasing Act (CLA), and the Electronic Funds Transfer Act (EFTA). The CFPB also requested information about the FTC’s rulemaking activities. Although, the FTC does not have rulemaking authority for TILA, CLA, or EFTA, the FTC reported that it has been engaged in research and policy development as well as education and outreach pertaining to these laws.
Truth In Lending Act (TILA)
In 2006, the FTC engaged in six enforcement action involving violations of TILA. Two enforcement actions pertained to automobile purchases and financing. In these actions, the FTC alleged that auto dealers mislead consumers about the terms of vehicle financing. In one action, the FTC alleged that the auto dealer advertised a low monthly car payment but failed to meaningfully disclose that to obtain the low monthly payment, consumers would have to provide a large down payment and that they would be subject to a large balloon payment at the end of the loan term.
The FTC also took action against a payday lender when it advertised to consumers that it would charge only a one-time finance fee. The FTC alleged that instead of charging consumers just one finance fee, the lender charged multiple finance fees.
In two other enforcement actions, the FTC alleged that mortgage assistance relief companies were charging consumers to look over the consumer’s mortgage documents to find violations of TILA. According to the FTC, the companies falsely claimed that finding violations would give consumers leverage over their lenders and persuade the lenders to modify or cancel the loans.
Consumer Leasing Act (CLA)
The FTC issued one final administrative consent order and filed two federal lawsuits involving the CLA. In the final consent order, an auto dealership advertised low monthly car lease payments and down payments, but failed to disclose other key terms of the offer, including terms that must be disclosed under the CLA. The other two cases were discussed above, which involved auto dealerships that mislead consumer into believing that they could purchase a car for low monthly payments but did not adequately disclose the down payment and balloon payment required.
Electronic Fund Transfer Act (EFTA)
Four of the FTC’s EFTA cases involved “negative options,” where consumers were given a service for a “free” or “risk free” trial period, and if the consumers did not cancel the service within the trial period, the company would charge the consumers a recurring fee. The EFTA prohibits companies from charging consumers’ debit or credit card a recurring fee unless the consumer provides written authorization for the electronic fund transfers and the consumer is given a copy of the written authorization.
In each of the four cases, the FTC alleged that the companies provided consumers a trial period and obtained the consumers’ payment information without disclosing to the consumers that charges for the service would recur if the consumers did not cancel within a certain time period. In most of the cases, the FTC alleged that the companies enrolled consumers in recurring charges without obtaining the proper authorizations. In two of the cases, the FTC alleged that the company failed to tell consumers how to stop the automatic charges and failed to disclose material facts about the refund and cancellation policy.
Research and Outreach
The FTC does not have rulemaking authority with respect to TILA, CLA, or EFTA. However, the FTC engaged in a number of research and working groups to further policy making. The FTC developed an auto survey which was proposed and published in the Federal Register. The survey is meant to learn about consumers’ experiences in buying and financing automobiles at dealerships. The FTC also began a workshop to exploring the implications of financial technology, or FinTech, on consumers. Additionally, the FTC hosted a workshop to examine the testing and evaluation of disclosures that companies make to consumers about advertising claims, privacy practices, other information. The FTC also participated in an interagency group that coordinates with the Department of Defense on rulemaking for the Military Lending Act, which governs how loans may be made to members of the military.
In addition to conducting research, the FTC has engaged with outreach with the public. The FTC published articles on many issues pertaining to consumer protection on its blog. Some topics include auto purchasing and financing, military consumer issues, and how to avoid unauthorized charges.
The information in the report was requested by the CFPB to aid it in drafting the 2016 CFPB report to Congress.