Identity Theft Tops FTC List of Consumer Complaints in 2011

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

For the 12th year in a row, identity theft complaints topped the FTC’s list of top consumer complaints received by the agency. The FTC released the list of complaints entered into its Consumer Sentinel database over the prior year on February 28.

Of more than 1.8 million complaints filed in 2011, 279,156 (15 percent) were identity theft complaints. Nearly 25 percent of the identity theft complaints concerned tax-related or wage-related fraud.

The next nine complaint categories were: debt collection (10 percent); prizes, sweepstakes, and lotteries (6 percent); shop-at-home and catalog sales (5 percent); banks and lenders (5 percent); Internet services (5 percent); auto related complaints (4 percent); imposter scams (4 percent); telephone and mobile services (4 percent); and advance-fee loans and credit protection/repair (3 percent).

The FTC’s Consumer Sentinel Network report appears here.

Facebook Agrees to Make Changes to Privacy Practices

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

Social networking website operator Facebook has agreed to settle Federal Trade Commission charges that it deceived consumers by telling them they could keep their information on Facebook private, and then repeatedly allowing the information to be shared and made public, the FTC announced today.

The proposed settlement requires Facebook to take steps to make sure it lives up to its promises in the future, including giving consumers clear and prominent notice and obtaining consumers' express consent before their information is shared beyond the privacy settings they have established.

"Facebook is obligated to keep the promises about privacy that it makes to its hundreds of millions of users," said FTC Chairman Jon Leibowitz. "Facebook's innovation does not have to come at the expense of consumer privacy. The FTC action will ensure it will not."

According to the FTC:

• Facebook changed its website so certain information that users may have designated as private was made public, without warning users of the change or getting their approval.

• Facebook represented that third-party apps that users' installed would have access only to user information that they needed to operate. In fact, the apps could access nearly all of users' personal data, including data the apps didn't need.

• Facebook told users they could restrict sharing of data to limited audiences—for example with "Friends Only." In fact, selecting "Friends Only" did not prevent their information from being shared with third-party apps their friends used.

• Facebook falsely claimed that it certified the security of participating apps, that it would not share users’ personal information with advertisers, and that it complied with the U.S.-EU Safe Harbor Framework for international data transfers.

• Contrary to promises made to users, Facebook continued to allow access to photos and videos posted by users, even after the users had deactivated or deleted their accounts.

The proposed settlement bars Facebook from making further deceptive privacy claims, requires that the company get consumers' approval before it changes the way it shares their data, and requires that Facebook obtain periodic assessments of its privacy and data protection practices by independent, third-party auditors for the next 20 years.

Facebook also would be required to prevent anyone from accessing a user's material later than 30 days after the user has deleted his or her account.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 4-0.

The agreement will be subject to public comment through December 30, 2011, after which the Commission will decide whether to make the proposed consent order final.

More information on the proposed settlement in In the Matter of Facebook, Inc., File No. 092 3184, is available here on the FTC’s website.

FTC Releases Final Version of Business Opportunities Rule

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

The Federal Trade Commission has approved changes to and released the final version of its business opportunity rule that will be effective on March 1, 2012.

The rule (16 CFR Part 437, "Disclosure Requirements and Prohibitions Concerning Business Opportunities") is intended to ensure that consumers have the information they need when considering buying a work-at-home program or any other business opportunity. The Commission vote approving the final amendments to the Business Opportunity Rule was a unanimous 4-0.

Simplified Disclosures

The changes made to the rule simplify the disclosures that business opportunity sellers must provide to prospective buyers. The simplified disclosures will help prospective purchasers assess the risks of buying a business opportunity, while minimizing compliance burdens on businesses, according to the FTC.

The final rule applies to business opportunities previously covered under the rule, as well as work-at-home offers such as envelope stuffing and craft assembly opportunities. The final rule requires business opportunity sellers to give consumers specific information to help them evaluate a business opportunity.

Sellers must disclose five key items of information in a simple, one-page document:

(1)The seller's identifying information;

(2) Whether the seller makes a claim about the purchaser's likely earnings (and, if the seller checks the "yes" box, the seller must provide information supporting any such claims);

(3) Whether the seller, its affiliates or key personnel have been involved in certain legal actions (and, if yes, a separate list of those actions);

(4) Whether the seller has a cancellation or refund policy (and, if yes, a separate document stating the material terms of such policies); and

(5) A list of persons who bought the business opportunity within the previous three years.

Misrepresentations and omissions are prohibited under the rule, and for sales conducted in languages other than English, all disclosures must be provided in the language in which the sale is conducted.

Furthermore, the rule permits earnings claims to be made by sellers of business opportunities only if the seller:

(1) Has a reasonable basis for its claim at the time the claim is made;

(2) Has in its possession written materials that substantiate its claim at the
time the claim is made;

(3) Makes the written substantiation available upon request to the prospective
purchaser and to the Commission; and

(4) Furnishes to the prospective purchaser an earnings claim statement in a required format.

The announcement of a final business opportunity rule completes the process that started on April 12, 2006, when the Commission published an Initial Notice of Proposed Rulemaking and proposed creating a business opportunity rule separate from the franchise rule.

A press release on the action appears here on the FTC website. Text of the Federal Register notice appears here.

The final version of the rule, along with its extensive Statement of Basis and Purpose, will appear in the CCH Business Franchise Guide.

“Do-Not-Track” Approach to Consumer Privacy Questioned by FTC Commissioner Rosch

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Federal Trade Commissioner J. Thomas Rosch reiterated his doubts about the viability of a “do-not-track” mechanism to protect consumer privacy in the United States, in a speech delivered at the Loyola Chicago Antitrust Institute Forum last Friday. Commissioner Rosch has called the FTC staff’s recent endorsement of such a mechanism “premature.”

A do-not-track mechanism would purportedly enable consumers to choose whether to block the tracking of their online searching and browsing activities in order to limit targeted advertising. In an FTC staff report issued in December 2010, entitled “Protecting Consumer Privacy in an Era of Rapid Change: A Proposed Framework for Businesses and Policymakers,” the staff recommended the implementation of a do-not-track mechanism.

“Serious Reservations”

Commissioner Rosch concurred in the decision to issue the staff report for comment, but expressed “serious reservations” about the do-not-track proposal advanced in it. At the time the report was released, Commissioner William E. Kovacic also questioned the wisdom of do not track. However, Commissioner Kovacic left the agency earlier this month, leaving Rosch the only member of the Commission skeptical of the staff’s recommendation.

In his remarks in Chicago, Commissioner Rosch explained how the do-not-track approach to privacy protection has “generated attention not only from the Commission and the media, but also from Congress, the online industry, and a host of consumer advocacy groups.”

While there are bills in Congress that address broader privacy concerns without providing for a specific do-not-track mechanism, two pieces of legislation have been proposed this term that instruct the FTC to develop a specific do-not-track mechanism, according to Rosch.

Proposed Federal Legislation

The proposed “Do Not Track Me Online Act” (H.R. 654) would require the FTC to issue rules: (1) establishing standards for “an online opt-out mechanism; (2) requiring mandatory disclosures regarding the collection, use, and sharing of information; and (3) allowing consumers to otherwise prohibit the collection or use of a broad array of information transmitted online.

The proposed “Do-Not-Track Online Act of 2011” (S. 913) would require the FTC to issues rules: (1) establishing a mechanism whereby consumer can simply and easily opt out of having their personal information collected online—including on mobile devices; and (2) prohibiting the collection of personal information from consumers who have opted out.

Online Industry’s Efforts

The Commissioner criticized the online industry’s efforts to implement do not track. He questioned claims that these efforts provide consumers with the choice to eliminate behavioral advertising, tracking, or targeted advertising. Specially, he mentioned the browser-related mechanisms associated with Microsoft’s Internet Explorer 9, Mozilla’s Firefox, and Google’s Chrome and the self-regulatory regime of the Digital Advertising Alliance, which uses cookies to effectuate the choice mechanism.

According to Rosch, there are four overarching shortcomings with the industry’s efforts:

(1) Some of the mechanisms only allow consumers to opt out of behavioral advertising, but not all “tracking,” and there is a failure to alert consumers to this fact.

(2) Consumers may not be fully informed about the benefits or consequences of subscribing to a do-not-track mechanism. Commissioner Rosch expressed concern that “across-the-board_ opting out by consumers might reduce the overall financing that supports free content across the Internet, and accordingly, result in a decrease in innovation.

(3) There was not much evidence that the mechanisms were really working to alert consumers about the existence of tracking and online behavioral advertising. The rates of adoption are very low.

(4) The current proposals involve well-entrenched firms that might favor barriers to consumer tracking in order to create or raise entry barriers to rivals. The firms’ intentions might not be solely to protect consumers against behavioral tracking.

“[W]e cannot be blinded so much by our zeal to protect consumers from behavioral tracking that we lose sight of our competition mission,” Commissioner Rosch said. “There is probably nothing worse than to have firms with an anticompetitive agenda designing consumer protection initiatives.”

The text of Commissioner Rosch’s October 14 remarks, entitled “Do Not Track: Privacy in an Internet Age,” appears here.

Interagency Group Proposes Principles for Marketing Food to Children

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In an effort to combat childhood obesity, a working group of four federal agencies on April 28 released for public comment a set of proposed voluntary principles that can be used by industry as a guide for marketing food to children. The text of the interagency proposal and a related FTC statement appear at CCH Trade Regulation Reporter ¶50,266.

Congress directed the Federal Trade Commission—together with the Food and Drug Administration, the Centers for Disease Control and Prevention, and the U.S. Department of Agriculture—to establish an Interagency Working Group of federal nutrition, health, and marketing experts.

Congress tasked the Working Group with developing a set of principles to guide industry efforts to improve the nutritional profile of foods marketed directly to children ages 2-17 and to tap into the power of advertising and marketing to support healthful food choices.

The proposal is designed to encourage children, through advertising and marketing, to choose foods that:

 Make a meaningful contribution to a healthful diet; and

 Contain limited amounts of nutrients that have a negative impact on health or weight (saturated fat, trans fat, added sugars, and sodium).

Template for Uniform Principles

The proposal seeks to advance current voluntary industry efforts by providing a template for uniform principles that could dramatically improve the nutritional quality of the foods most heavily marketed to children—and the health status of the next generation.

The agencies recognize that the goals for industry are ambitious, and that adopting the principles will require phased implementation over a reasonable time. Indeed, marketing that shifts from focusing on foods of little or no nutritional value—like cookies, candy and sugar-sweetened soda—to foods that are more healthy—like whole grain cereals, low-fat yogurt, and peanut butter—can have a significant impact on public health.

The agencies believe the proposed principles can help guide the food industry in determining which foods would be appropriate and desirable to market to children to encourage a healthful diet—and which foods the industry should voluntarily refrain from marketing to children.

According to the proposal, by the year 2016, all food products within the categories most heavily marketed directly to children and adolescents ages 2-17 should meet two basic nutrition principles. As industry develops new products and reformulates existing products, it should focus its efforts on foods most heavily marketed to children. These include breakfast cereals; snack foods; candy; dairy products; baked goods; carbonated beverages; fruit juice and non-carbonated beverages; prepared foods and meals; frozen and chilled deserts; and restaurant foods.

Principle A: Meaningful Contribution to a Healthful Diet

Foods marketed to children should provide a meaningful contribution to a healthful diet, with contributions from at least one of the following food groups:

 Fruit

 Vegetables

 Whole grain

 Fat-free or low-fat (1%) milk products

 Fish

 Extra lean meat or poultry

 Eggs

 Nuts and seeds

 Beans

Principle B: Nutrients with Negative Impact on Health or Weight

Foods marketed to children should be formulated to minimize the content of nutrients that could have a negative impact on health or weight. With the exception of nutrients naturally occurring in food contributions under Principle A (for example, the saturated fat and sodium naturally occurring in low-fat milk would not be counted), foods marketed to children should not contain more than the following amounts of saturated fat, trans fat, sugar, and sodium.

 Saturated Fat: 1 g or less per Reference Amount Customarily Consumed (RACC) and 15% or less of calories

 Trans Fat: 0 g per RACC

 Added Sugars: No more than 13 g of added sugars per RACC

 Sodium: No more than 210 mg per serving

The summarized goals are for individual foods. The RACC, established by federal regulation, is not necessarily the same as the labeled serving size. The proposal includes additional recommendations for foods with a small serving size and for main dishes and meals. The proposal also calls for additional reductions in sodium by the year 2021.

FTC Statement

In an April 28 statement, the FTC expressed its belief that "voluntary industry adoption of the Working Group’s proposal will produce tangible benefits by shifting children’s food marketing away from foods of little or no nutritional value toward more healthful foods." The FTC "also believes that the voluntary approach continues to be preferable to government-imposed restrictions on food marketing to children."

FTC Chairman's Remarks

“To their credit, some of the leading companies are already reformulating products and rethinking marketing strategies to promote healthier foods to kids,” said FTC Chairman Jon Leibowitz. “But we all have more work to do before we can tip the scales to a healthier generation of children. This proposal encourages all food marketers to expand voluntary efforts to reduce kids’ waistlines.”

Request for Comments

Interested parties may submit comments electronically or in paper form through June 13, 2011. Comments filed in electronic form should be submitted here.

Comments filed in paper form should include the appropriate reference—either “Interagency Working Group on Food Marketed to Children: Proposed Nutrition Principles: FTC Project No. P094513,” or “Interagency Working Group on Food Marketed to Children: General Comments and Proposed Marketing Definitions: FTC Project No. P094513” both in the text and on the envelope.

Submissions should be mailed or delivered to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex W), 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

FTC Would Accept Premerger Notification Filings During Government Shutdown

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Federal Trade Commission released a plan for dealing with a government shutdown that would occur if Congress fails to enact appropriations by a midnight deadline. A shutdown looked likely as budget talks appeared to have broken down early Friday morning.

As part of the FTC’s plan, the Commission’s Premerger Notification Office would remain open with very limited staff to accept new filings under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act).

The Justice Department Antitrust Division’s Premerger Notification Unit will also remain open with limited staff to accept filings.

According to the plan, the Commission will continue certain HSR investigations during the pendency of a shutdown. These investigations would be undertaken “to the extent the circumstances of a reported merger or acquisition indicate that a failure by the government to challenge the transaction before it is consummated will result in a substantial impairment of the government’s ability to secure effective relief at a later time.”

Non-Merger Investigations

Elsewhere in the FTC’s Bureau of Competition, all non-merger investigations would be suspended during the pendency of a shutdown. Staff may need to continue working on litigated matters in order to meet upcoming deadlines and protect the Commission’s interests in the litigation pending court action on motions for stays, according to the agency.

The FTC estimates that it would require up to 88 employees to staff excepted competition matters during a shutdown. That number would include staff to accept and review HSR filings, as well as the Bureau of Competition Director and three front office supervisors.

Consumer Protection Matters

In the event of a shutdown, the Commission intends to seek continuances in all Bureau of Consumer Protection (BCP) cases in which preliminary relief has been obtained.

Attorneys in those cases, or where there is no plan to seek preliminary relief, will notify opposing parties and courts of the government shutdown and request suspensions of dates for hearings and filings, according to the Commission. The Commission intends not to pursue the vast bulk of its consumer protection investigations, it was noted.

Employees “Excepted” from Furlough

The Commission estimates that it may need to except up to 120 employees from the furlough to meet upcoming deadlines and protect the Commission’s interests in consumer protection cases.

The BCP Director and three front office employees will be excepted from furlough to supervise the work. Currently, BCP staff is actively litigating approximately 65-75 cases in federal district courts throughout the country and one or two cases in administrative litigation, according to the agency.

Because Presidential appointees are excepted from furlough as a result of a shutdown, the Commission’s Chairman and its Commissioners can continue to work.

The FTC’s plan also excepts from furlough the Bureau of Economics Director, the FTC General Counsel, the Executive Director, and other high-level personnel, as well as lawyers, economists and support staff necessary to continue law enforcement actions.

FTC, Justice Department Take Aim at Business Opportunity, Employment Scams

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

The Federal Trade Commission (FTC), the Department of Justice, the Postal Inspection Service, and state law enforcement agencies announced a major law enforcement sweep and education effort aimed at targeting bogus business opportunity employment and money-making services.

At a March 2, 2011 briefing, David Vladeck, Director of the FTC’s Bureau of Consumer Protection, outlined “Operation Empty Promises,” the latest effort in an ongoing crackdown on scams that “exploit the misfortune of those who have seen their jobs disappear or their incomes shrink as a result of the economic downturn.”

Promises of Jobs, Business Opportunities

Vladeck said state and federal law enforcement agencies have brought more than 90 actions against alleged scammers targeting financially-strapped consumers with promises of jobs and opportunities to “be your own boss.”

He described one scheme perpetrated by Ivy Capital, whose telemarketers told consumers they could start their own profitable Internet business with the help of the company’s coaches and consultants.

Ivy Capital persuaded people to max out their credit cards to pay the expensive start-up fees, typically thousands of dollars, while promising that they could make between $3,000 to $10,000 per month, Vladeck explained.

Meanwhile, National Sales Group targeted people looking for work by creating a false impression that the company itself was hiring, or was recruiting or recommending employees on behalf of other companies.

“While they were promising work, they were working over their victims,” Vladeck said. The company not only failed to provide jobs, but also regularly made unauthorized charges to people’s credit cards, driving them deeper in debt, Vladeck added.

Increase in Complaints

North Carolina Attorney General Roy Cooper noted that complaints to his office about business opportunity, work-at-home schemes, and other employment related scams were up 11 percent last year. “We’re looking closely at business opportunities that seem to offer false hopes, and also reaching out to educate consumers on how to recognize and avoid fraud,” he said.

FTC to Hold Public Forum on “Cramming”

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC announced that it will host a public forum in Washington, D.C. on May 11, 2011, to examine how the government, businesses, and consumer protection organizations can work together to prevent consumers from being hit with unauthorized third-party charges on their phone bills—a practice known as "cramming."

Despite its ongoing enforcement efforts, the agency noted, cramming continues to harm individuals and small businesses. Therefore, it is holding this forum to determine what more can be done to prevent it.

Government agencies, consumer advocates, and industry representatives are invited to participate in the forum to discuss ways to reduce cramming through business practices, law enforcement, and possible legislation.

Participants will be asked to take up specific ideas such as allowing consumers to request a block on all third-party billing, and requiring third parties to get written approval from consumers before placing charges on their phone bills.

Other issues forum participants will discuss include:

(1) How telephone bill cramming harms individual consumers and small businesses;

(2) How consumers and competition can benefit from third-party billing on telephone bills for products and services such as voicemail, developing or hosting websites, or other enhanced services;

(3) The steps that billing companies and telephone carriers currently take to detect, monitor, and prevent cramming;

(4) Best practices being used by the industry to reduce cramming, such as improving disclosure of third-party charges to consumers; and

(5) The types of goods and services charged on telephone bills, and the difference between landline and wireless billing practices.

Persons interested in being panelists may submit requests by sending an e-mail by March 4 to: crammingforum@ftc.gov. Requests should include a statement detailing any relevant expertise in working on or studying cramming, especially the topics specified above, and complete contact information. Panelists selected to participate will be notified by April 8, 2011.

The FTC also invites the public to submit comments online on any of the topics mentioned above, using the form available here.

Congress Passes Bill Limiting Application of FTC “Red Flags Rule”

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

This January, lawyers, doctors, and small businesses will most likely not have to comply with a Federal Trade Commission regulation, known as the "Red Flags Rule," which will require certain businesses to develop written identity theft prevention programs.

Yesterday, Congress passed legislation that will limit the application of the rule to financial institutions and creditors that regularly use consumer reports or furnish information to consumer reporting agencies.

The proposed "Red Flag Program Clarification Act of 2010" (S. 3987) now awaits the President's signature.

The FTC's Red Flags Rule (16 CFR Part 681) was promulgated under the Fair and Accurate Credit Transactions Act (FACTA). The rule, which is set to take effect on January 1, 2011, will require certain businesses and organizations to develop a written program that identifies and detects identity theft warning signs or "red flags."

As written, the FTC rule would apply to small businesses—such as health care providers—that do not require full payment at the time of service. However, the Red Flag Program Clarification Act of 2010 would amend the Fair Credit Reporting Act to prevent the application of the rule to entities that advance funds for expenses incidental to services provided.

FTC Chair's Statement

In a statement issued today, FTC Chair Jon Leibowitz said that he was "pleased that Congress clarified its law, which was clearly overbroad."

The chairman's statement went on to say that the rule gives businesses the flexibility to tailor their written ID theft detection program to the nature of the business and the risks it faces.

Businesses with a high risk for identity theft may need more robust procedures—like using other information sources to confirm the identity of new customers or incorporating fraud detection software. Groups with a low risk for identity theft may have a more streamlined program—for example, simply having a plan for how they’ll respond if they find out there has been an incident of identity theft involving their business.

The effective date for the Red Flags Rule has been delayed a number of times, as the agency awaited clarification from Congress or the courts. Most recently, the FTC postponed enforcement until December 31, 2010.

Reaction from Professional Associations

The American Bar Association lauded Congress for clarifying how the FTC should apply the Red Flags Rule. The ABA had sued the FTC to block the rules. The federal district court in Washington, D.C. last year ruled that the FTC lacked authority to apply its Red Flags Rules to attorneys (2009-2 Trade Cases ¶76,825).

"At last, the American legal profession has clear and final relief from attempts to solve a non-existent problem that would have created paper-pushing and raised legal costs," said ABA Chair Stephen Zack in a December 7 statement.

The American Medical Association also issued a statement on December 7, saying that "the bill will help eliminate the current confusion about the rule’s application to physicians."