- FTC Votes Unanimously to Approve Holder RuleM
- Federal Grand Jury Indicts Pharma Company Indivior for Fraudulent Marketing of Prescription Opioid
- Consumer Financial Protection Bureau Sues Credit Repair Companies for Deceptive Marketing and Fraud
- Westchester Pet Store Settles Deceptive Advertising Suit with NY Attorney General
FTC Votes Unanimously to Approve Holder Rule
The FTC voted earlier this month to approve the Holder Rule, which protects consumers who purchase goods or services on credit by preserving their right to make claims against any subsequent third-party creditors. The agency’s unanimous approval of the Rule came as the result of a four-year review of its efficiency, costs, benefits and impact.
The FTC reviewed the Holder Rule, officially named the “Trade Regulation Rule Concerning Preservation of Consumer Claims and Defenses,” as part of its systematic review of all current FTC rules and guides, undertaken on November 2015. Following a 5-0 vote in favor of the Holder Rule and approval and confirmation of the Rule in the federal registry, the agency stated that there is a continuing need for the Rule and nothing to warrant rejecting or modifying it.
The Holder Rule protects consumers who enter into credit contracts for the sale of goods or services by preserving their right to assert claims against subsequent holders of the contract. It preserves the right of consumers to make any claims against an assignee of a credit contract that is available against its original holder, including the right to make claims of misconduct as a defense in loan repayment suits. The Rule requires credit agreements to include conspicuous language that guarantees these rights. It was initially promulgated to prevent lenders from using financing mechanisms to defraud consumers.
In approving the rule, the FTC restated its 2012 advisory opinion that had concluded that the Holder Rule does not limit consumers’ recovery rights, thus clarifying an issue that had arisen under certain court decisions which had barred consumers from affirmative recovery under the Rule. The plain language of the Rule, the FTC said then and affirmed now, permits consumers to assert all the same claims and defenses against an assignee of a credit contract as against the original seller.
“The Commission affirms that the Rule is unambiguous, and its plain language should be applied. No additional limitations on a consumer’s right to an affirmative recovery should be read into the Rule,” read the FTC’s Advisory Opinion.
The agency also sought and received public comment during the Holder Rule review process. All nineteen comments submitted to the FTC urged preservation of the Rule. Several proposed changes to the Rule that were considered but not implemented included a proposal to add a requirement of additional notices to protect consumers, as well as a proposal to impose attorney’s fees.
The FTC has been conducting regular, systematic reviews of its rules and guides since 1992.
The unanimous vote to preserve the Holder Rule makes it clear that the FTC strongly supports and will enforce activity that violates the Rule, as it has in the past. Protection of consumers from fraudulent creditors is a strong priority for the FTC. In specifically restating its 2012 Advisory Opinion on the matter, the FTC emphasized the agency’s clear intent with respect to the Holder Rule’s protective reach.
Federal Grand Jury Indicts Pharma Company Indivior for Fraudulent Marketing of Prescription Opioid
A Virginia federal grand jury indicted pharmaceutical company Indivior, Inc. for undertaking an illegal scheme to increase prescriptions of its opioid tablet used to treat opioid addiction.
The indictment, which charges Indivior with conspiracy to commit health care fraud, mail fraud, and wire fraud, as well as one count of health care fraud, four counts of mail fraud, and twenty-four counts of wire fraud, accuses the company of fraudulently marketing its drug Suboxone Film with the aim of increasing sales. In particular, the indictment alleges that the company lied to health care providers and healthcare benefit programs—including Medicaid—by characterizing Suboxone Film as safer and less subject to abuse than other opioid-addiction treatment drugs when it had no evidence to support that claim.
Indivior made false and misleading statements in its marketing materials to health care providers and programs across the country, according to the indictment. It marketed the drug with a “disregard for the truth about its safety” and despite the drug’s “known risks of diversion and abuse,” said Assistant US Attorney General Jody Hunt. Conversely, promotional materials claimed the drug had a lower risk of diversion and abuse and made other unsubstantiated claims, including that Suboxone Film had a lower risk of child exposure, according to the Department of Justice.
Further, Indivior deceived the public about its reasons for discontinuing its drug Suboxone, which was on the verge of losing its patent protection, thus facing competition from generic drug manufacturers. After developing Suboxone Film around 2007 to replace Suboxone, Indivior discontinued Suboxone and introduced Suboxone Film on the pretense of “pediatric exposure” to Suboxone. Instead, according to the Department of Justice, Indivior’s real reason for discontinuing Suboxone was to delay approval of generic versions of the drug.
Indivior is also accused of using the “Here to Help” program connecting opioid-addicted patients and doctors in order to increase profits. The program is touted as a resource to help addicts, according to the Department of Justice, and Indivior allegedly abused that perception to boost sales of its tablet. It did so by promoting Suboxone Film to program doctors it knew tended to overprescribe the medication and deviate from medical protocol.
“The deadly opioid epidemic continues to devastate communities and families across our nation,” said Principal Deputy Associate Attorney General Jesse Panuccio of the Department of Justice. “The Department of Justice intends to hold accountable those who are in position to know the harm opioid abuse inflicts, but instead choose to profit illegally from the pain of others. Manufacturers, distributors, pharmacies, and doctors should all be on notice that they must follow the law and act responsibly.”
“As this case makes clear, our office will aggressively prosecute health care fraud cases and particularly those that target people struggling with opioid addiction,” First Assistant United States Attorney Daniel P. Bubar of the Western District of Virginia said.
In light of the national opioid epidemic, the Department of Justice is aggressively pursuing drug companies that commit opioid-related health care fraud. The Department of Justice emphasized in its press release that Indivior’s abuse is particularly egregious in light of the government’s recent push to destigmatize programs assisting opioid addicts. Pharmaceutical companies that utilize fraudulent and deceptive marketing tactics to increase sales should take note that the Justice Department is watching.
Consumer Financial Protection Bureau Sues Credit Repair Companies for Deceptive Marketing and Fraud
The FTC is not the only federal agency targeting deceptive marketing these days. The Consumer Financial Protection Bureau (CFPB), a federal agency tasked with protecting consumers from financial companies, has filed a lawsuit alleging that large credit repair companies violated federal consumer protection and telemarketing laws by fraudulently marketing their products.
The complaint, filed in the U.S. District Court for the District of Utah, accuses Progrexion, doing business as Creditrepair.com and Lexington Law, of violating the Telemarketing Sales Rule (TSR) by accepting upfront payment from consumers for credit repair services. The lawsuit further alleges that Progrexion violated the Consumer Financial Protection Act by making false statements in marketing materials. Creditrepair.com and Lexington Law provide credit repair services to consumers, such as offering to remove negative information from credit reports in order to improve credit scores.
The complaint alleges that in order to generate sales, Progrexion used online affiliate companies to promote its credit repair services with deceptive marketing and bait and switch tactics, while Creditrepair.com and Lexington Law failed to deliver on advertised promises. The ads, according to the complaint, would entice consumers to visit the credit repair sites and purchase the service with promises of granting loans regardless of bad credit, when in reality these companies did not provide any loans.
The complaint also avers that telephone affiliate marketing partners used by Progrexion to promote its products made misrepresentations to customers to generate sales of the credit repair services, all with Progrexion’s knowledge. These deceptions included “fake real estate ads, fake rent-to-own housing opportunities, fake relationships with lenders, false credit guarantees, and false and unsubstantiated statements about past consumer outcomes … and statements about consumers’ likelihood of success in obtaining products and services such as rent to-own housing contracts, mortgages, or personal loans,” according to the complaint.
Progrexion also charged upfront payment for credit repair services, in violation of the TSR, which makes it unlawful for credit repair companies to charge fees without first providing a results report, which may only occur six months after results are achieved. According to the CFPB, the defendants charged consumers for credit repair services as soon as they signed up and every month thereafter—prior to achieving any results.
The complaint seeks injunctive and monetary relief against Progrexion and the other named defendants.
Federal agencies continue to aggressively pursue companies that prey on vulnerable populations. With this action, financial services companies, especially credit repair providers, should take note that the CFPB takes seriously its mission to enforce federal consumer protection laws.
Westchester Pet Store Settles Deceptive Advertising Suit with NY Attorney General
Marketing has gone to the dogs, or so it appears, in an investigation by the New York Attorney General’s office into alleged deceptive marketing practices of Westchester County, NY pet store Puppies & Kittens. The parties have settled the investigation, according to a press release published by the Attorney General’s office earlier this month, resulting in the storeowners paying fines and agreeing to change its business practices.
The settlement concludes an investigation into the store’s practices initiated in 2018, during which Attorney General Letitia James accused Puppies & Kittens and its owner Deborah Koehler of lying about the breeding of its dogs with claims that the dogs were “home-raised” and “from certified breeders” when the pups actually came from large-scale commercial dog mills.
The Attorney General’s office began investigating the pet store after receiving over thirty complaints from Puppies & Kittens customers whose animals displayed illnesses associated with animals bred in puppy mills.
The Attorney General’s office uncovered a range of deceptive marketing tactics, concluding that, although Puppies & Kittens claimed that it “specializes in the sale of healthy puppies and kittens from certified breeders,” it did nothing of the sort. Instead, the pet store falsely promoted “home-raised” dogs from “certified breeders” on its website and on social media, according to the AG’s Office. The investigation also uncovered that store employees had misrepresented the breeding of the store’s animals, leading customers to believe that Puppies & Kittens animals were healthier than those from other pet stores. In fact, in one case, the AG’s office found, a breeder utilized by the store had been cited by USDA inspectors for unsanitary conditions.
The terms of the settlement prohibit Koehler from making any false representations about the quality of the store’s breeders and kennels. Koehler must also pay a fine of $7,500.
Westchester Puppies & Kittens has also removed from its website and social media handles claims that it sells “home-raised” animals from “certified breeders,” according to the New York AG’s press release on the settlement.
This investigation is not the first legal trouble settled by the pet store. Prior to the settlement, Puppies & Kittens agreed to pay a Scarsdale, NY couple $14,675 to settle a suit seeking compensation from the store for the death of a puppy 20 days after purchase.
The settlement continues the Attorney General’s enforcement under the Animal Protection Initiative, aimed at ensuring compliance with New York’s Pet Lemon Law. The Initiative helps consumers crack down on animal cruelty and is aimed at ensuring the good health of animals sold as pets.
"Deceptive marketing and advertising will never be tolerated, including for the sale of animals,” said Attorney General James. “Not only were consumers lied to about the origins of their pets, but also the health and wellness of the beloved animals they were bringing into their homes. We will continue to crack down on any and every abuse of animals.”
New York Attorney General James pursues claims of deceptive advertising big and small. Local and small businesses should take note that they must promote their products in a truthful and legal manner. The Attorney General has prioritized claims of harm to animal welfare since the passing of the Animal Protection Initiative in 2013. Businesses marketing animals should note the New York Attorney General will pursue claims against those who violate the Animal Protection Initiative and the Pet Lemon