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FTC Finds Broad Compliance Among Auto Dealers with Rule That Protects Consumers with Car Loans

As part of its ongoing efforts to ensure that auto dealers’ financing practices comply with federal consumer protection laws, the Federal Trade Commission has completed investigations of nearly 50 automobile dealers across the country to assess their compliance with the FTC’s Rule Concerning Preservation of Consumers’ Claims and Defenses, more commonly known as the “Holder in Due Course” Rule. The FTC’s investigations found broad compliance with the Rule among auto dealers.

The Holder in Due Course Rule protects car buyers when dealers sell the buyers’ credit contracts to other lenders. Specifically, the Rule preserves consumers’ rights to raise claims and defenses against purchasers of consumer credit contracts – with automobile sales, it protects consumers who buy cars from dealers on credit. When dealers sell credit contracts to lenders, consumers are obligated to pay the lenders instead of the dealers. Under the Rule, if a dealer engaged in fraud or made misrepresentations in selling a car on credit, a consumer could raise the dealer’s conduct as a defense to the lender’s demand for payments.

Without the Rule, consumers would not have this protection in states that preclude them from asserting against lenders the claims and defenses they have against dealers if the lenders bought the credit contracts in good faith and without knowledge of these claims and defenses.

The Rule requires dealers to include in their credit contracts a notice that lenders who buy the contracts are subject to the claims and defenses consumers may assert against dealers. It effectively makes lenders liable for dealers’ conduct, and gives them an incentive to work with reputable dealers.

In November 2010, the FTC staff asked nearly 50 franchised and independent auto dealers in 45 states, and two large online automobile dealers, for copies of consumer credit contacts executed after October 1, 2009. FTC staff’s review of these contracts found broad compliance with the Holder in Due Course Rule. Because all of the responding dealers disclosed the required Holder Notice in their finance contracts, the FTC staff is closing its investigations of them.

The Commission also reminds auto dealers that their obligations under the Holder in Due Course Rule will expand in the near future. The Rule currently does not require dealers to include the notice in credit contracts exceeding $25,000 in the amount financed. However, as a result of the Dodd-Frank Act of 2010, as of July 21, 2011, the Rule will require the notice in these contracts up to $50,000. The Commission encourages auto dealers to review their contracts to ensure that they are in compliance with the expanded scope of the Holder in Due Course Rule.

Click here for the Holder in Due Course Rule, and here for more information about the Rule.

(Holder Rule)
(FTC File No. P104811)

Operators of Online “Virtual Worlds” to Pay $3 Million to Settle FTC Charges That They Illegally Collected and Disclosed Children’s Personal Information

The operators of 20 online virtual worlds have agreed to pay $3 million to settle Federal Trade Commission charges that they violated the Children’s Online Privacy Protection Rule by illegally collecting and disclosing personal information from hundreds of thousands of children under age 13 without their parents’ prior consent. This settlement is the largest civil penalty for a violation of the FTC’s COPPA Rule.

The FTC’s complaint charged that Playdom, Inc., a leading developer of online multi-player games, and company executive Howard Marks operated 20 virtual world websites where users could access online games and other activities, including 2 Moons, 9 Dragons, and My Diva Doll. At least one of these virtual worlds, Pony Stars, was a website specifically directed to children, and the company’s other websites intended for a general audience also attracted a significant number of children. Between 2006 and 2010, approximately 403,000 children registered on the defendants’ general audience sites, and 821,000 more users registered in the Pony Stars children’s site.

The FTC’s COPPA Rule requires that website operators notify parents and obtain their consent before they collect, use, or disclose children’s personal information. The Rule also requires that website operators post a privacy policy that is clear, understandable, and complete. The FTC alleged that Playdom and Marks failed to meet these requirements.

“Let’s be clear: Whether you are a virtual world, a social network, or any other interactive site that appeals to kids, you owe it to parents and their children to provide proper notice and get proper consent,” said Jon Leibowitz, Chairman of the Federal Trade Commission. “It’s the law, it’s the right thing to do, and, as today’s settlement demonstrates, violating COPPA will not come cheap.”

According to the FTC, Playdom took ownership of the websites when it acquired the sites’ original developer, Acclaim Games, Inc., in May 2010. Marks was Acclaim’s CEO, and later served as the head of the Acclaim Studio at Playdom. Playdom and Marks continued to operate the websites in violation of the COPPA Rule after the merger, according to the Commission’s complaint. In August 2010, Playdom became a subsidiary of Disney Enterprises, Inc., a subsidiary of The Walt Disney Company.

The FTC complaint alleges that the defendants collected children’s ages and email addresses during registration and then enabled children to publicly post their full names, email addresses, instant messenger IDs, and location, among other information, on personal profile pages and in online community forums. The FTC charged that the defendants’ failure to provide proper notice or obtain parents’ prior verifiable consent before collecting or disclosing children’s personal information violated the COPPA Rule. It further charged that the defendants violated the FTC Act because Playdom’s privacy policy misrepresented that the company would prohibit children under 13 from posting personal information online.

In addition to the $3 million civil penalty, the settlement order permanently bars the defendants from violating the COPPA Rule and from misrepresenting their information practices regarding children.

The Commission vote to authorize the staff to refer the complaint to the Department of Justice, and to approve the proposed consent decree, was 5-0. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in U.S. District Court for the Central District of California, in Los Angeles on May 11, 2011. The proposed consent decree is subject to court approval.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. This consent decree is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent decrees have the force of law when signed by the District Court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. “Like” the FTC on Facebook and “follow” us on Twitter.

(playdom)

FTC Staff: Proposed Texas Legislation Likely Would Benefit Health Care Consumers; Would Allow Expanded Patient Care by Advanced Practice Registered Nurses

Federal Trade Commission staff, in response to a request from Texas State Senators Rodney Ellis and Royce West, opined that Texas health care consumers would benefit from proposals in the Texas State Legislature that would allow Advanced Practice Registered Nurses (APRNs) to practice to the full extent of their education and training.

The FTC staff comment stated that Texas Senate Bills 1260 and 1339 would eliminate unnecessary physician supervision and delegation requirements imposed on APRNs, allowing them to make diagnoses and to prescribe and order prescription drugs and medical devices. This likely would result in lower health care costs, greater access to care, and more choice among settings where health care is provided. Available evidence suggests APRNs are safe providers of health care services when consistent with the scope of their training.

“Based on current evidence, the Bills’ elimination of supervision and delegation requirements appears to be a procompetitive improvement in the law that likely will benefit Texas health care consumers, because the current laws seem to unduly restrict patient care by APRNs,” the comment stated.

The Commission vote approving the staff comment was 5-0. It was sent on May 11, 2011. (FTC File No. V11007; the staff contact is Patricia Schultheiss, Office of Policy Planning, 202-326-2877.)

(Texas Nurses)

FTC Will Record and Post for Viewing May 11 Cramming Workshop

The FTC will host a workshop on May 11, 2011, in Washington, DC, examining 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.” The workshop will be held at the FTC Conference Center, 601 New Jersey Avenue, N.W., 20001.

The workshop will not be Webcast, but it will be videotaped. Those who cannot attend, but who are interested in the agenda can log on to the FTC’s cramming site beginning Monday, May 16, 2011 to view the video of the forum in its entirety.

FTC Recovers Properties, Precious Metals, and other Assets in Case Involving Purported Work-at-Home and Mystery Shopping Opportunities

Marketers who targeted financially strapped Americans by selling a variety of supposed work-at-home and other money-making opportunities will give up their ill-gotten gains under a settlement agreement with the Federal Trade Commission. The FTC’s complaint against the defendants was part of a broader crackdown in 2010 on work-at-home scams called “Operation Bottom Dollar,” which resulted in law enforcement actions against seven operations that targeted job seekers.

The settlement order against Independent Marketing Exchange, Inc. and its principal, Wayne Verderber, II, imposes a judgment of $919,000, which will be suspended when the defendants turn over three rental properties, a Mercedes Benz, precious metals, and other assets. If it is determined that the financial information the defendants gave the FTC was untruthful, the full amount of the judgment will become due. The settlement order also bans the defendants from marketing or selling work-at-home and mystery shopping opportunities and from assisting others in doing so. They also are barred from making deceptive claims about goods and services and are required to provide proof for earnings claims they make.

The FTC’s complaint, filed on February 2, 2010, alleged that the defendants falsely represented that consumers were likely to make substantial income from work-at-home opportunities, and made other misrepresentations. The defendants also did business as National Data Management; N.D.M.; Global Mailing Services; G.M.S.; Independent Mailing Services; Independent Mailing Services, Inc.; I.M.S.; Independent Shoppers Network; Independent Shoppers; Success At Home; Success-At-Home Mailing; IMEX; IMEX, Inc.; and Continental Publishing Company; according to the complaint.

This alleged scam and others in the Operation Bottom Dollar Sweep harmed consumers nationwide. The Operation Bottom Dollar defendants held out false promises that consumers would get help finding jobs in the federal government, as movie extras, or as mystery shoppers, or that they could make money from home by stuffing envelopes or assembling ornaments.

The Commission vote approving the proposed consent judgment was 5-0. The FTC filed the proposed consent judgment in the U.S. District Court for the District of New Jersey, and it was signed by the judge on April 11, 2011.

NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant that the law has been violated. Consent judgments have the force of law when approved and signed by the District Court judge.

Copies of the complaint and stipulated final judgment and order are available from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics.

(FTC File No. X100034; Civil Action No. 1: 10-cv-00568-NLH-KMW)
(Independent Marketing Exchange NR)

FTC Testifies on Protecting Consumers’ Privacy on Mobile Devices

The Federal Trade Commission today told Congress that “the Commission is committed to protecting consumers’ privacy in the mobile sphere” by bringing enforcement actions where appropriate and “by working with industry and consumer groups to develop workable solutions that protect consumers while allowing innovation in this growing marketplace.”

In Commission testimony before the Senate Judiciary Committee Subcommittee for Privacy, Technology and the Law, Jessica Rich, Deputy Director in the FTC’s Bureau of Consumer Protection said the FTC has been examining mobile and wireless issues since 2000, when the agency hosted a workshop on emerging wireless Internet and data technologies and the privacy, security, and consumer protection issues they raise. The FTC also hosted a technology forum in 2006 that featured mobile issues, two Town Halls to explore the use of radio frequency identification technology and its integration into mobile devices, and a forum in 2008 examining consumer protection issues in the mobile sphere.

In addition, the FTC has taken law enforcement actions against companies that fail to protect the privacy and security of consumer information. The testimony highlighted four recent cases that illustrate how the FTC’s authority applies to the mobile arena.

The FTC’s case against Google alleges that the company deceived consumers by using information collected from Gmail users to generate and populate a new social network, Google Buzz, without users’ consent. As part of the proposed settlement order, Google must protect the privacy of all of its customers – including mobile users.

In an FTC case against social networking service Twitter, the FTC charged that serious lapses in the company’s data security allowed hackers to obtain access to private “tweets” and non- public data, and hijack user accounts, including then-President-elect Obama’s account, the testimony states.

In August 2010, the FTC charged Reverb Communications, Inc., a public relations agency hired to promote video games, with deceptively endorsing mobile gaming applications in the iTunes store. And earlier this year, the FTC filed a complaint alleging that a spammer named Philip Flora used 32 pre-paid cell phones to send over 5 million unsolicited text messages – almost a million a week – to the mobile phones of U.S. consumers. The Commission charged that Flora violated the law by sending unsolicited text messages, the testimony states.

The Commission has “a number of active investigations into privacy issues associated with mobile devices, including children’s privacy,” the testimony notes.

According to the testimony the “rapid growth of mobile technologies has led to the development of many new business models involving mobile services.” The innovations offer benefits to both businesses and consumers. “On the other hand, they facilitate unprecedented levels of data collection, which are often invisible to consumers.”

In 2009 and 2010, the Commission held a series of three roundtables “to examine how changes in the marketplace have affected consumer privacy and whether current privacy laws and frameworks have kept pace with these changes,” the testimony states.

The data that emerged from those roundtable discussions formed the basis of a preliminary staff report which has recommended:

that companies should adopt a ‘privacy by design’ approach by building privacy protections into their everyday business practices, such as not collecting or retaining more data than they need to provide a requested service or transaction;
that privacy options offered to consumers should be simplified and easily accessible on small screens such as those on smartphones; and
steps companies should take to make their data collection and sharing practices more transparent to consumers.

The FTC staff is now reviewing more than 450 comments received in response to the preliminary report, according to the testimony, including many that address mobile device privacy issues. The comments received will inform the final staff report, which will be released later this year.

FTC Staff Finds Sanofi-Aventis, Watson Pharmaceuticals, and Synthon Holding B.V. Failed to Report Drug Patent Agreements as Required by Law

The Federal Trade Commission’s Bureau of Competition has notified Sanofi-Aventis U.S. LLC, Watson Pharmaceuticals, Inc., and Synthon Holding B.V., that it believes the companies violated federal law by failing to inform antitrust authorities about drug patent agreements involving Sanofi’s insomnia drug Ambien CR. However, the FTC staff told the companies that it decided not to recommend enforcement action for several reasons, including its finding that the violation does not appear to have harmed consumers or competition, nor benefitted the companies. To help ensure future compliance, the FTC staff provided public guidance to the pharmaceutical industry.

In advisory letters sent to Sanofi, Watson, and Synthon, FTC Bureau of Competition Director Richard Feinstein stated that the Bureau believes that by failing to notify authorities about the agreements in connection with patent infringement lawsuits concerning the drug Ambien CR, the companies violated the reporting requirements of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).

The MMA requires that brand name and generic drug companies file drug patent agreements with the FTC and U.S. Department of Justice within 10 business days when the agreement involves a drug for which the generic has submitted the Abbreviated New Drug Application containing a “Paragraph IV” certification. A Paragraph IV certification would state that a patent asserted to cover the brand drug is either invalid or not infringed by the generic applicant. The failure to file timely drug patent agreements may result in a civil penalty of up to $11,000 for each day that a required filing has not been made.

In this case, the Bureau decided to issue the advisory letters instead of recommending that the Commission take enforcement action. The Bureau listed three key reasons for the decision:

the companies’ failure to file does not appear to have harmed consumers or competition, nor benefitted the companies;
the failure to file does not appear to have been a deliberate effort on the part of the companies to evade the requirements of the MMA; and
guidance to the industry via the advisory letters may serve a broader enforcement purpose.

“The Bureau of Competition recognizes the importance of clear guidance concerning the types of agreements that are subject to the MMA filing requirement,” said Feinstein. “We expect that these companies, and the pharmaceutical industry more broadly, will closely consider the contents of these advisory letters in connection with future agreements that may be subject to the MMA. We will consider enforcement recommendations, including appropriate penalties, in the future when the MMA filing requirements have not been met.”

(Sanofi.final)

Interagency Working Group on Food Marketed to Children To Hold Forum for Comment on Proposed Voluntary Principles on May 24

The Federal Trade Commission, the Food and Drug Administration, the Centers for Disease Control and Prevention, and the U.S. Department of Agriculture last month released for public comment a set of proposed voluntary principles for use by industry as a guide for marketing food to children. The four agencies’ Interagency Working Group, will host a half-day public forum in Washington, D.C. on May 24 to allow interested parties to make brief statements on the proposed voluntary principles. Due to limited seating and security considerations, all attendees must pre-register.

In an effort to combat childhood obesity and promote children’s health, Congress directed the agencies to establish the working group and develop recommendations for the nutritional quality of food marketed to children and adolescents.

In response to several requests from industry stakeholders, the deadline for written comment on the proposed principles has been extended an additional 30 days to July 14, 2011. Instructions for submitting written comments are set out in the proposed voluntary principles.

TO PRE-REGISTER:	Those who plan to attend the forum must pre-register by e-mailing their name and affiliation to [email protected] no later than 5 p.m. EDT on May 20, 2011. Those wishing to provide an oral statement must pre-register no later than 5 p.m. EDT on May 18, 2011, and should indicate whether the statement will relate primarily to the proposed nutrition principles or to the proposed marketing definitions.
WHERE:	Department of Health and Human Services Hubert H. Humphrey Building 200 Independence Avenue, S.W. Washington, D.C. 20201
WHEN:	May 24, from 11:00 a.m. to 3:00 p.m. (All attendees should allow additional time for security screening.)
A draft agenda and related information about the forum are available here. For those who plan to register for this event and have privacy concerns, see the FTC’s Privacy Policy.
PRESS CONTACT:	Office of Public Affairs 202-326-2180

FTC Settlement Order Bars Texas Doctors’ Group from Joint Price Negotiations

An association representing 900 physicians in the Amarillo, Texas, area has agreed to a Federal Trade Commission order barring it from jointly negotiating the prices it charges insurance providers. The FTC alleged in a complaint filed with the order that the association, Southwest Health Alliances, Inc., d/b/a BSA Provider Network, has violated federal law since 2000 by fixing the prices its member doctors would charge insurers. This led to higher prices for consumers and businesses.

The FTC order settling the charges prohibits Southwest Health from similar conduct in the future. The association also is settling similar charges brought by the Office of the Texas Attorney General.

Southwest Health is an independent practice association (IPA) consisting of multiple, independent medical practices with approximately 900 physician members – 300 of whom provide primary care services – in the Amarillo area. According to the FTC’s complaint, since at least 2000, the network has restrained competition by entering into and implementing agreements to fix the prices and terms at which it would contract with health plans, and has collectively negotiated the terms and conditions under which it would deal with health plans.

The FTC contends that the agreements eliminated competition and harmed consumers by increasing prices for physician services. Collective price negotiation and agreements between IPAs and health care providers may be justified under some circumstances. For example, if an IPA clinically or financially integrates its members’ practices, this may create efficiencies that justify joint price negotiations. However, because Southwest Health’s doctors undertook no such integration, the agreements produced no beneficial efficiencies for consumers.

The proposed order settling the FTC’s complaint is designed to stop Southwest Health’s allegedly anticompetitive conduct, while allowing it to continue to engage in legitimate joint conduct. To do this, the FTC order bars Southwest Health from entering into or facilitating agreements among physicians: 1) to negotiate on behalf of any physician with any insurer; 2) to negotiate with any physician as an insurer; 3) to deal, refuse to deal, or threaten to refuse to deal with any insurer; and 4) not to deal individually with any insurer, or not to deal with any insurer, except through Southwest Health.

In addition, the proposed order prohibits Southwest Health from facilitating the exchange of information between physicians concerning the terms on which they will contract with insurers. These terms are similar to those found in other FTC cases of this type.

The proposed order does not preclude Southwest Health from engaging in conduct that is reasonably necessary to form or participate in legitimate “qualified risk-sharing” or “qualified clinically integrated” arrangements, as defined in the order. It also does not prohibit agreements that only involve doctors who are part of the same medical practice.

Finally, the proposed order contains notification provisions that will allow the FTC to monitor Southwest Health’s compliance with its terms, and will allow insurers to terminate any contracts, without penalty, entered into with the network since its alleged restraint of trade began in 2000. The proposed order will expire in 20 years.

The Commission vote approving the complaint and proposed settlement order was 5-0. The order will be published in the Federal Register subject to public comment for 30 days, until June 10, 2011, after which the Commission will decide whether to make it final. Comments can be submitted electronically here.

The FTC thanks the Office of the Texas Attorney General for its exemplary work and coordination on this matter.

NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

Copies of the complaint, consent order, and an analysis to aid public comment are available from the FTC’s website at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. “Like” the FTC on Facebook and “follow” us on Twitter.

(FTC File No. 091-0013)
(Southwest Health.final)

FTC to Host Public Forum on Competition Issues in Standard-Setting

The Federal Trade Commission will host a public workshop on June 21, 2011, in Washington, D.C., as part of a project to examine the legal and policy issues surrounding the competition problem of “hold-up” when patented technologies are included in collaborative standards. The workshop will be free and open to the public.

When industry-wide standards incorporate technologies that are protected by intellectual property rights, they raise the potential for “hold-up” by a patent owner – a demand for higher royalties or other more-costly or burdensome licensing terms after the standard is implemented than could have been obtained before the standard was chosen. Hold-up can subvert the competitive process of choosing among technologies during standard-setting and can undermine the integrity of those activities. Consumers can be harmed if manufacturers are able to pass on higher costs resulting from hold-up.

The FTC workshop will examine three ways to try to prevent hold-up: 1) patent disclosure rules of standard-setting organizations; 2) commitments given by patent holders that they will license users of the standard on reasonable and non-discriminatory (RAND) terms; and 3) disclosure of licensing terms by patent holders before the standard is adopted. The Commission intends to examine these issues from practical, economic and legal perspectives, and under antitrust, contract and patent law. The FTC also will consider whether certain conduct by patent holders is deceptive or unfair.

In a Federal Register notice to be published shortly, the FTC seeks the views of consumers and the legal, academic, and business communities on the issues to be explored in this project

Comments may be filed until July 8, 2011 in electronic form using the following weblink: (https://secure.commentworks.com/ftc/standardsproject) and following the instructions on the web-based form. Comments will be publicly available.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call
1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. “Like” the FTC on Facebook and “follow” us on Twitter.

(standard setting)

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