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Stay ADvised: What's New This Week

By Marc Roth, Nancy J. Felsten, and Robert J. Driscoll
05.29.19
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Consumer Financial Protection Bureau Proposes Regulation Implementing Fair Debt Collection Practices Act

The Consumer Financial Protection Bureau (CFPB) this month issued a proposal to amend implementation of the Fair Debt Collection Practices Act (FDCPA) aimed at providing consumers with greater protection against harassment by debt collectors.

Since its passage in 1977, the FDCPA established consumer protections meant to eliminate abusive debt collection practices. However, certain interpretive questions about the FDCPA have emerged in recent years, particularly as to technology that did not exist when the FDCPA was first enacted. The CFPB issued this Notice of Proposed Rulemaking (NPRM) to clarify some of those issues.

Essentially, the goal of the currently proposed rule is to provide consumers with even stronger protection from harassment by debt collectors, as well as straightforward options to dispute debts. Among the changes proposed, the rule would set limits on the number of weekly calls debt collectors may place to consumers, clarify how collectors may communicate with debtors, and require them to provide certain additional information to consumers about their debt.

Specifically, the proposed rule would strengthen consumers’ protection against debt collectors in a number of ways. First, it would establish bright-line rules regarding telephone communication by limiting debt collectors to no more than seven weekly attempts to reach a consumer about a debt. Once they reach a consumer, debt collectors could have just one telephone conversation per week with that consumer about the debt. Second, the regulation would clarify consumer protection requirements by requiring debt collectors to send consumers certain disclosures about the debt and related consumer protections. Further, the proposed rule would clarify how debt collectors may communicate with consumers via voicemails, emails and text messages, and how consumers who don’t want to receive such communication can unsubscribe. The proposed regulation would also prohibit debt collectors from suing on debts that it knew or should have known had expired. Finally, debt collectors would be prohibited from reporting consumer debt to an agency before first informing the consumer.

“The Bureau is taking the next step in the rulemaking process to ensure we have clear rules of the road where consumers know their rights and debt collectors know their limitations,” said CFPB Director Kathleen L. Kraninger. “As the CFPB moves to modernize the legal regime for debt collection, we are keenly interested in hearing all views so that we can develop a final rule that takes into account the feedback received,” she added.

Addressing outdated financial regulations, the CFPB empowers consumers to take control of their economic lives, according to the Bureau’s website. The CFBP’s authority to issue substantive rules interpreting the FDCPA was granted to it by Congress with passage of the Dodd-Frank Act in 2010. The CFBP has proposed the rule in question based primarily on that authority to issue rules implementing the FDCPA.

The CFPB is currently reviewing public comments on the rule prior to issuing a final version. In the meantime, further details about the proposed regulation may be found by reading the text of the proposed rule.

Key Takeaways

The CFPB stated it has proposed the new rule in response to years of inconsistent court decisions and legal uncertainty regarding the interpretation of the FDCPA. Should the rule be adopted, debt collectors should expect to be subject to much more stringent standards under the FDCPA, as the rule would significantly strengthen the FDCPA.

FTC to Target Advertisers Who Use Leads from Scammers

Don’t buy data from scammers, or the FTC will come after you. That’s the message FTC Bureau of Consumer Protection Director Andrew Smith delivered recently during a speech at a New York compliance conference. The FTC, Smith said, will be cracking down on advertisers that purchase consumer data collected by online scammers.

To avoid FTC action, advertisers using data for targeted ads provided by one or more third parties must ensure the data was originally obtained with consumer consent, said Smith. Advertisers who use data obtained without consumer consent may find themselves under the FTC’s microscope.

The type of data that the FTC is targeting is collected by online scammers through deceptive ads and clickbait, said Smith. This so-called “bad traffic” often starts with a banner that reads something like “See what Honey Boo Boo looks like now,” then leads consumers down a maze of bogus gift card promises. “Before you know it, you've just answered a bunch of questions about whether you own your own home, whether you are interested in saving money on your energy bill, whether you are interested in a college degree, that kind of stuff,” said Smith.

The FTC intends to hold advertisers responsible for data that was collected using such deceptive practices. Companies must do their due diligence on businesses that generate or aggregate consumer data or leads, said Smith, who characterized the task as “primarily a vendor management challenge.” In order to comply, Smith recommended companies monitor ad traffic so they know where the data comes from and ask more questions about the companies and methods that generate the consumer data they are using. Legitimate aggregators should be able to provide this information easily, added Smith.

The key here is that the FTC will pursue otherwise legitimate advertising companies who purchase tainted data, not just the companies that collect and sell illegal consumer data. “We’re not just looking at the people who generate bad traffic, but looking at the people who purchase that bad traffic,” Smith said at the conference. “You’re going to see cases more frequently against advertisers in particular.”

Although advertisers argue that consumer data gathered deceptively isn’t useful or accurate, FTC analyses say otherwise, said Smith. “It just cannot be the right answer that it’s OK for a brand to be buying this bad traffic and essentially funding this ecosystem of deception on the internet, and that’s something that matters a great deal to us,” Smith said.

Smith declined to name any specific parties or upcoming actions. “We have brought some of those cases in the past and I think that you will see more of those cases in the future,” he said.

Key Takeaways

The message from the FTC is clear: Advertisers need to ensure that the data they use in their advertising is not coming from illegal sources. Otherwise, they may soon hear from the FTC; Smith couldn’t have put it more succinctly: “We’re going after everybody in the ecosystem.”

Attorneys in Fitbit Class Action Settlement Seek $7M in Fees

Attorneys for plaintiffs who settled a class action lawsuit with Fitbit, Inc. (Fitbit), claiming the activity tracker’s sleep-tracking function did not work as advertised, are seeking over seven million dollars in attorneys’ fees and costs for their efforts.

Class counsel for Fitbit customers filed a motion earlier this month asking the court to award them $7.3 million in fees plus $367,000 in costs. The motion also asks for incentive awards of $5,000 for each named plaintiff and $500 each for seven other plaintiffs in the complaint.

Fitbit manufactures wearable fitness tracking devices. Plaintiffs had accused Fitbit of falsely advertising the popular activity tracker’s sleep-tracking function. The complaint, originally filed in 2015, had alleged that the company violated California and Florida consumer protection laws by making false claims regarding the ability of its devices to track the length and quality of users’ sleep, as well as the time users are awake. According to the complaint, customers paid at least $30 more than the price of the basic Fitbit Zip for premium Fitbit devices equipped with advertised sleep-tracking mechanisms, when in reality the premium Fitbits did not accurately track sleep. The complaint cited an academic study that concluded Fitibit trackers overcount sleep by more than an hour per night compared to other sleep-measuring technologies.

In November 2017, following multiple rounds of pleadings and Fitbit’s failed motion to dismiss, the court certified Florida and California classes of customers who purchased and registered Fitbit Flex, Fitbit One or Fitbit Ultra between 2009 and October 2014.

The parties first reached a settlement in August 2018 that offered each plaintiff class member a $10 cash payment and a $5 voucher to be used on the Fitbit site, but a California federal judge struck the agreement down because of the coupon portion of the award. A revised settlement was reached and approved by the court in October 2018. Under this settlement agreement, Fitbit will pay each class member $12.50, or about 83% of the damages the class members would have been awarded in a best case scenario had the suit gone to trial.

The settlement resolved claims brought by consumers in Florida and California, as well as by consumers who purchased the products in New York, Pennsylvania, Ohio Michigan, New Jersey, Missouri, Illinois, Washington, Texas, Georgia and North Carolina during varying time periods.

Key Takeaways

It remains to be seen how the court will respond to attorneys’ motion for fees, but whether the attorneys succeed in their motion or not, the lesson for advertisers is clear—the monetary penalties for false advertising claims could be hefty even when the case is settled, especially when attorneys’ fees come into play.

NARB Recommends Eli Nutrition Discontinue TummyZen Ad Claims

The National Advertising Review Board (NARB) has a “gut” feeling that TummyZen antacid ad claims are no good. The industry self-regulatory review body recently recommended that Eli Nutrition Inc. discontinue certain advertising claims made about its TummyZen antacid dietary supplement both on product packaging and in online advertising for the product, finding that the advertised claims are not properly supported.

TummyZen is an antacid that contains calcium carbonate and zinc. Eli Nutrition’s ads claimed, among other things, that the product provides “total heartburn relief” and can “stop acid production.” The NARB found these claims misleading.

These statements were brought to the NARB’s attention after drug company GlaxoSmithKline Consumer Healthcare, L.P., which sells Tums, challenged the ads before the National Advertising Division (NAD). The NAD, the investigative unit of the advertising industry’s self-regulation system, administered by the Better Business Bureau, found the claims to be unsupported. The NARB made its current recommendation after Eli Nutrition appealed the NAD’s decision to the NARB, the NAD’s appellate arm.

The NARB, agreeing with the NAD, recommended that a number of Eli Nutrition’s claims about TummyZen be discontinued, including claims that the product provides “total heartburn relief.” The NARB noted that the “total heartburn relief” claim is not supported since it makes it appear that the product provides benefits beyond those of occasional heartburn relief remedies. The NARB also recommended that Eli Nutrition discontinue the claim “long lasting”, unless it is used when directly comparing the product to certain other marketed acid-neutralizing products. The panel’s final recommendation was that the company stop asserting in ads that TummyZen “halts the secretion of chloride ions in your parietal cells to regulate the release of acid in your stomach” unless modified to specifically refer to the ingredient zinc and communicated with more qualified messaging.

However, the NARB found that the company’s claim that the zinc used in the product helps reduce stomach acid, which had also been challenged, is supported. The NARB did not recommend that Eli Nutrition cease advertising that with respect to the product “zinc inhibits acid secretion” and “zinc supports the stomach lining.” It concluded as much based on the totality of the company’s supporting evidence, including the company’s research, literature references supporting zinc’s soothing effect on the stomach, the advertiser’s expert declaration, and data from clinical trials.

Following the NARB’s decision, Eli Nutrition said it would comply with the organization’s recommendations and alter its advertising claims accordingly. An NARB or NAD recommendation is not a finding of wrongdoing, and a decision to comply with the organization’s recommendation is not an admission of fault.

Key Takeaways

The NARB’s decision provides guidance to all drug companies on the types of advertising claims that require support. In this case, both the NARB and NAD considered the full extent of evidence available on the product advertising claims and packaging. Of key importance in this case, NARB made its determination about the supportability of the advertising claims by comparing TummyZen results side by side with promotional claims made by other similar heartburn relief products on the market.

TV Ads for Drugs Must Include Prices, Per New HHS, CMS Rule

Consumers will soon be able to see the price of certain drugs featured alongside potential drug side effects in direct-to-consumer television advertising. A new rule promulgated by the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) will require drug makers to include pricing in television ads for certain Medicare and Medicaid drugs.

The rule, which goes into effect on July 9, 2019, will apply to drugs that have a list price that is $35 or more for a month’s supply or the full course of therapy. The top ten drugs currently advertised on television have list prices starting at $488, so it is likely drug prices will appear on many drug ads.

Although the new rule does not specify exactly how pricing should be displayed in ads, it does require that the information be provided in written form at the end of the ad and be easily legible. No other types of media such as print or radio will be subject to the rule, which only applies to ads on television, which include cable, streaming and satellite.

The rule is intended to drive down drug prices by increasing transparency about the cost of medications and allowing consumers “to make informed decisions and demand value from pharmaceutical companies,” CMS Administrator Seema Verma said.

However, the rule, by design, provides no HHS enforcement mechanism. Enforcement is expected to come from drug company actions under the Lanham Act for unfair trade practices, according to HHS Secretary Alex Azar. HHS will keep a public list of ads that do not comply with the rule, presumably to assist competitors wishing to pursue redress. Further, the rule will preempt any state law based claims on pricing statements. “There are very large legal practices built on pharma companies suing each other,” Azar said.

The HHS deliberately did not send the rule through the Federal Drug Administration (FDA), which regulates certain direct-to-consumer ads. “We decided that our authority with the Social Security Act with Medicare and Medicaid provided the strongest platform and enforcement with the Lanham Act rather than having FDA inject itself into list pricing considerations,” Azar said.

Not everyone is cheering this new development. A representative for the drug maker trade group Pharmaceutical Research and Manufacturers of America recently expressed concern that the rule “could be confusing for patients and may discourage them from seeking needed medical care.” Drug companies claim the rule would confuse consumers, because the list price doesn’t take into account insurance coverages, discounts or rebates. They also aver that the rule may infringe on first amendment rights, an argument that has been successfully made by advertisers in the context of drug ads in the past.

Key Takeaways

It remains to be seen the extent to which drug companies will comply with the new rule given the lack of a regulatory enforcement mechanism. If drug companies do comply, Medicare and Medicaid consumers may see more transparency in certain drug prices, and the rule may test whether transparency has the intended effect of driving down drug prices.

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