FTC Update - Online Lenders Alliance

April 8, 2015 Andrew Smith Morrison & Foerster LLP

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FTC Update

Personnel Changes at FTC • New Chairman • FTC Commissioner Edith Ramirez

• New Commissioners • Prof. Joshua Wright • taught law & economics at GMU Law School • Terrell McSweeny (nominated) • Longtime aide to VP Biden

• New Senior Staff • Jessica Rich, Director, Bureau of Consumer Protection • Reilly Dolan, Associate Director for Financial Practices

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Small-Dollar Lending Cases • PLS Financial Services • Storefront lender • Data security: allegedly tossed sensitive consumer financial information in a dumpster • Privacy notices: required that annual GLBA notices be signed by customers and kept in files

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Small-Dollar Lending Cases • Vantage Funding • • • •

falsely promised “cash in an hour” and 80% approval rate Charged $30 fee via a remotely-created check Allegedly purchased information as well “According to the trade group that represents online lenders, legitimate participants in this industry do not charge an application or processing fee.“

• Ideal Financial Solutions • Billed w/o authorization (said it was fee for payday loan) • May have purchased consumer information

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Internet Lending Litigation • Western Sky • MTD denied: • Limited to fairness of the contract’s forum selection clause • Favorable language re: a non-resident internet borrower • “The proper focus is on the Borrower's ‘activities’ or ‘conduct,’ not solely the Borrower's physical location.”

• AMG Services • MTD Ruling • Tribally owned and chartered companies can be subject to the FTC’s jurisdiction under the FTC Act • Defendant tribal corporations may not be subject to the FTC’s jurisdiction, if not operated for private profit. • Partial settlement • Debt collection claims • Reg E claims 5

Payment Processor Enforcement • Pro Credit Group LLC & Sanders Legal Group (9/13) • Alleged “phantom debt collection” scam • Used processing relationship to collect payments for phantom collectors • Alleged interest rate reduction scam • Robocalls from “Rachel” at “cardholder services”

• Automated Electronic Checking, Inc. (3/13) • First Bank of Delaware follow-on • Telemarketers, RCPOs, and return rates as high as 80%

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Payment Processor Enforcement • Independent Resources Network Corp. (6/13) • debt relief, TSR, credit cards (10% to 40%)

• Newtek Merchant Solutions (6/13) • Treasure your Success (interest rate reduction) • Credit cards, MC watch list

• CFPB payment processor case • • • •

Meracord LLC (10/13) Debt settlement TSR “assisting and facilitating” “Covered person” liability for UDAAP 7

FTC Payments Rulemaking • Proposed TSR Amendment • would prohibit telemarketers and sellers • in both inbound and outbound telemarketing calls • from accepting or requesting • remotely created checks, • remotely created payment orders, • cash-to-cash transfers, or • cash reload mechanisms.

• ABA Response • The FTC should focus on addressing deceptive and abusive actions by telemarketers, rather than “blame this payment mechanism for creating the harm.”

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