Digest 05.21.2020: FTC Flags COVID-19 Fraud & Abuse | $550 Million Subprime Auto Loan Settlement | Bank Accounts for Marijuana Businesses Urged


FTC Flags for COVID-19-Related Fraud and Abuse

  • The Federal Trade Commission (“FTC”) and the Small Business Administration (“SBA”) sent joint letters to marketing company ITMedia Solutions, LLC (“ITMedia”) and its client Lendio, Inc. warning them that they may be misleading small businesses seeking COVID-19-related SBA loans by implying an affiliation with the SBA, in violation of the FTC Act. The letter to ITMedia Solutions, which operates the site, calls out claims that encourage consumers to start their Paycheck Protection Program (“PPP”) applications through the site. The letter to Lendio warns it about ITMedia’s and other lead generators’ misleading claims on Lendio’s behalf, including one lead generator’s advertised application service with a $495 application fee despite SBA’s prohibition on charging fees for PPP loan applications. Both letters demand that the companies take immediate action to remove all misleading claims from their websites and remediate any harm to small business consumers.
  • The FTC issued an alert regarding nursing homes and assisted living facilities that require residents who are Medicaid recipients to sign over their stimulus checks to the facilities. In a recent blog post, the FTC noted that states are receiving reports of facilities falsely claiming that stimulus checks count as “resources” under federal benefits programs and must be used to pay for services and advises affected consumers to contact their state AGs for help with reclaiming their stimulus funds. In another blog post, the FTC warned nursing homes and assisted living facilities that they may not seize stimulus payments from residents just because they are Medicaid recipients.

Republican Attorneys General Urge Congress to Protect Businesses from COVID-19-Related Civil Liability

  • A group of 21 Republican AGs, led by Georgia AG Chris Carr, sent a letter to Congress urging it to enact specific federal liability protections for goods and services to reduce the threat of frivolous COVID-19-related litigation.
  • In their letter, the AGs argued that there is a need for a stable and predictable legal environment as the country begins to reopen in the wake of the COVID-19 pandemic, but that without liability protections, the pandemic will likely result in a surge of litigation targeting well-meaning businesses over the COVID-19 mitigation steps they take. The AGs pointed out that 23 states have already enacted liability protections for first responders and healthcare workers.
  • The AGs noted that the federal civil liability protections should not be extended to businesses that engage in willful misconduct or the reckless or intentional infliction of harm.

2020 AG Elections

The Race for the Republican Nomination for Indiana Attorney General Gets More Crowded

  • Todd Rokita, former Indiana Secretary of State and 4th District Congressman, announced his bid for the Republican nomination for Indiana AG, seeking to unseat incumbent Republican AG Curtis Hill who is seeking reelection.
  • As previously reported, Decatur County Prosecuting Attorney Nate Harter and private practice attorney John Westercamp are also running for the Republican nomination in Indiana.

Cannabis / Marijuana

Attorneys General: Legit Marijuana Businesses Should Be Able to Have Legit Bank Accounts

  • A bipartisan group of 34 AGs, led by Colorado AG Phil Weiser and North Dakota AG Wayne Stenehjem, sent a letter to Congress urging it to allow legal marijuana-related businesses access to the federal banking system.
  • The letter noted that under existing law, federal regulations prohibit financial institutions from providing services to marijuana businesses even in states where such businesses are legal. The letter argues that the lack of access to the banking system has pushed many marijuana-related businesses into dependence on cash at a time when COVID-19 exacerbates health and safety concerns associated with cash transactions.
  • The AGs asked Congress to remedy this situation by passing such legislation as part of any upcoming COVID-19 relief legislation.
  • As previously reported, in 2019, the National Association of Attorneys General sent a similar letter, signed by a bipartisan coalition of 38 AGs, to congressional leaders urging Congress to pass legislation to protect financial institutions that provide banking services to the marijuana industry in jurisdictions that have legalized use.

Consumer Protection

Chasing Risky Subprime Auto Loans Costs Santander $550 million

  • A bipartisan coalition of 34 AGs, led by Illinois AG Kwame Raoul, reached a settlement with subprime auto financing company Santander Consumer USA Inc. (“Santander”) to resolve allegations that it knowingly exposed subprime borrowers to unnecessary risk by offering them loans with a high probability of default in violation of state consumer protection laws.
  • According to AG Raoul’s office, a multistate investigation uncovered multiple allegedly abusive practices by Santander, including offering such borrowers loans with high loan-to-value ratios, high payment-to-income ratios, and high back-end fees. In addition, Santander allegedly engaged in deceptive servicing practices, actively misled consumers about their rights, and willfully ignored dealer abuses and dealers’ use of false information to process loans.
  • Under the terms of the consent judgment, among other things, Santander will forgive approximately $433 million on defaulted loans, pay $65 million to the participating states for restitution to certain subprime borrowers, $5 million to the participating states, and up to $2 million for the settlement administrator. Santander will also be prohibited from extending financing to consumers with negative residual incomes and from requiring dealers to sell ancillary products, including vehicle service contracts.

Financial Industry

Ignoring Allegations of Unlawful Behavior Leads a Payment Processor to a $40 Million Settlement

  • The FTC reached settlements with payment processor First Data Merchant Services, LLC (“First Data”) and Chi “Vincent” Ko, who owned a company that was First Data’s independent sales agent, and who later became a First Data executive, to resolve allegations of knowingly processing credit card transactions for scams that targeted hundreds of thousands of consumers in violation of the FTC Act and the Telemarketing Sales Rule.
  • The FTC’s complaint alleged that First Data ignored repeated warnings from employees and banks that Ko was laundering payments for companies engaging in unlawful conduct, and that First Data was assisting in his laundering activity.
  • Under the terms of the proposed settlement with First Data, among other things, First Data will pay $40 million to be used for refunds to affected consumers. In addition, First Data will be required to institute screening and monitoring programs for high-risk merchant-clients, establish an oversight program to monitor its independent sales agents, and retain an independent assessor to supervise First Data’s compliance with the settlement oversight program. Under the terms of the proposed settlement with Ko, among other things, he is required to pay over $270,000 to be used for consumer refunds, and he is barred from payment processing for high-risk merchants.