Digest 6.6.2019 The State AG Report Weekly Update


California Attorney General Sues International Assistance Charity Over Allegedly Misleading Reporting Scheme and Deceptive Solicitations

  • California AG Xavier Becerra filed a lawsuit against international assistance charity Aid for Starving Children and related individuals (collectively, “ASC”) to resolve allegations that it filed misleading public reports and deceived donors about the intended use of charitable donations in violation of state laws governing reporting by charities.
  • According to the complaint, ASC—which provides food and medical supplies internationally—allegedly over-reported the value of pharmaceutical products that were purchased by other charities and donated to ASC as part of its Gift-in-Kind (“GIK”) program when it never actually had possession or control of the donated products, inaccurately claimed in its public financial reporting and on its website the percentage of contributions that provided direct aid, and misrepresented that donations would benefit starving families, when most of the funds raised were spent on fundraising and overhead expenses.
  • The complaint seeks injunctive relief, penalties, restitution, removal of ASC’s officers and directors, and attorney’s fees and costs.
  • AG Becerra has also sponsored legislation, A.B. 1181, that would increase transparency in valuation and reporting of GIK donations by requiring charities to value donations using only those markets in which the contribution is reasonably likely to be distributed or used. The bill is currently pending in the Assembly Committee on Judiciary.

Consumer Financial Protection Bureau

CFPB Settles With Mortgage Servicer Over Allegedly Inaccurate and Untimely Mortgage Servicing Transfers

  • The Consumer Financial Protection Bureau (“CFPB”) reached a settlement with mortgage servicer Servis One, Inc. d/b/a BSI Financial Services (“BSI”) to resolve allegations that it processed mortgage servicing transfers inaccurately and in an untimely manner in violation of the Real Estate Settlement Procedures Act, the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, and the Truth in Lending Act.
  • According to the consent order, BSI allegedly failed to process mortgage servicing transfers with complete and accurate loss mitigation and escrow information, failed to adequately supervise service providers, failed to timely enter interest rate adjustment loan data for adjustable rate mortgage loans, and failed to maintain an adequate document management system.
  • Under the terms of the consent order, BSI must pay $200,000 in penalties to the CFPB and at least $36,500 in restitution to consumers, ensure that it provides necessary information when servicing loans, ensure accurate and timely calculation of escrow payments and interest rate adjustment schedules, enhance oversight to identify and correct servicing errors, implement a data integrity program and information technology plan, and monitor compliance with the terms of the order.

Consumer Protection

FTC Settles With Online Marketers Over Allegedly Deceptive Free Trial Offers and Billing Practices

  • The Federal Trade Commission (“FTC”) reached settlements with Triangle Media Corp., Jasper Rain Marketing LLC, and a related individual (collectively, “Triangle & Jasper”), and Hardwire Interactive Inc., Global Northern Trading Ltd., and a related individual (collectively, “Hardwire & Global”) to resolve allegations that they deceptively advertised free trial offers and charged customers for unauthorized products and programs in violation of the FTC Act, Restore Online Shoppers’ Confidence Act, and Electronic Fund Transfer Act.
  • According to the amended complaint, the defendants allegedly advertised free trials of products such as skin creams, e-cigarettes, and dietary supplements online, but charged customers for the trials and enrolled them in negative option billing plans without their consent, failed to disclose material terms of negative option plans before obtaining customers’ billing information, failed to provide simple mechanisms for customers to cancel recurring charges, continued charging customers after cancellation, and refused refunds to some customers.
  • Under the terms of the stipulated orders, the defendants must fully disclose the terms of its “free” trials, obtain consumers’ informed consent before obtaining payments, provide a simple mechanism for consumers to cancel subscriptions, and monitor compliance with the terms of the order. Triangle & Jasper must pay $48.1 million to the FTC, which will be partially suspended after payment of $399,795 and relinquishment of assets, and Hardwire & Global must pay $123.1 million to the FTC, which will be partially suspended after payment of $3,027,388 and relinquishment of assets.

FTC Settles With Two Businesses Over Alleged Use of Non-Disparagement Provisions in Consumer Contracts

  • The Federal Trade Commission (“FTC”) reached settlements with Shore to Please Vacations LLC and its manager (collectively, “Shore to Please”) and Staffordshire Property Management, LLC and its manager (collectively, “Staffordshire”) to resolve allegations that they used non-disparagement provisions in consumer contracts in violation of the federal Consumer Review Fairness Act (“CRFA”).
  • According to the complaints, Shore to Please and Staffordshire allegedly included non-disparagement provisions barring consumers from writing or posting negative reviews online or threatening legal action if consumers post reviews in consumer form contracts used in selling their respective products and services.
  • Under the terms of the settlement orders, Shore to Please and Staffordshire must cease using non-disparagement provisions in consumer form contracts, notify consumers who signed such contracts that those provisions are non-enforceable, and file compliance reports.
  • As previously reported, the FTC reached settlements with three business to resolve similar allegations in May 2019.


Massachusetts Attorney General Sues E-Cigarette Retailer Over Allegedly Advertising and Selling E-Cigarettes to Minors

  • Massachusetts AG Maura Healey filed a lawsuit against e-cigarette retailer Eonsmoke, LLC over allegations that it failed to prevent underage individuals from purchasing its e-cigarette products in violation of the state’s Consumer Protection Act.
  • According to the complaint, Eonsmoke allegedly marketed its products on social media platforms known to attract minors using youth-oriented “influencer” personalities, misrepresented the nicotine strength and risks of addiction of its products, failed to verify online purchasers’ ages, and failed to require an adult to sign for deliveries mailed to its online customers.
  • The complaint seeks injunctive relief, restitution, civil penalties, and attorneys’ fees and costs.
  • As previously reported, AG Healey issued cease and desist letters to Eonsmoke and e-cigarette retailer Direct Eliquid LLC in July 2018, demanding that they cease similar conduct, and North Carolina AG Josh Stein filed a lawsuit against e-cigarette manufacturer JUUL Labs, Inc. over similar allegations in May 2019.


Arizona Attorney General Settles With Game Machine Company Over Allegedly Selling and Leasing Machines With Auto-Percentaging Systems

  • Arizona AG Mark Brnovich reached a settlement with merchandiser game machine company Betson Coin-Op Distributing Company, Inc. d/b/a Betson West (“Betson”) to resolve allegations that it sold and leased machines with auto-percentaging systems—which can be set to ensure that a certain number of players lose the game before the machine pays a prize—in violation of the state’s Consumer Fraud Act
  • According to the consent judgment, Betson allegedly sold and leased Sega Key Master Prize Redemption (“Key Master”) machines that were equipped with an auto-percentaging system making the machines games of chance, which are only permitted in licensed casino facilities.
  • Under the terms of the consent judgment, Betson must pay $500,000 to the state, $500,000 in costs and fees, and cease selling, leasing, or financing any Key Master machines or any game machines equipped with auto-percentaging systems in the state outside of regulated casinos, and may not form a separate entity for the purpose of engaging in these prohibited acts.