FTC Uses Novel Theory to Seek Monetary Damages

In FTC v. RCG Advances LLC, the FTC settled allegations against the business and its principals for violations of Section 521(a) of the Gramm-Leach-Bliley Act. Section 521 was enacted to prevent scammers from stealing customer information by false pretenses. However, since the FTC’s implied authority to obtain monetary relief to redress customer injury was curtailed by the Supreme Court in AMG Capital Management LLC v. FTC, FTC Enforcement has employed Section 521 as an alternative route to monetary damages.

Section 521 prohibits:

Any person to obtain or attempt to obtain, or cause to be disclosed or attempt to cause to be disclosed to any person, customer information of a financial institution relating to another person … by making a false, fictitious, or fraudulent statement or representation to a customer of a financial institution.

In AMG Capital, the FTC alleged that defendants misrepresented that they would withdraw a specific amount of money from customer accounts and that the misrepresentation was made to obtain the businesses’ bank account information necessary to facilitate daily withdrawals under the financing agreement. Remarkably, the FTC did not claim that the products were false or fictious or that the customers had been tricked into giving their information away. In sum, a misrepresentation during a transaction, even a misrepresentation which does not relate to or result in the provision of customer financial information, can be grounds for the FTC to seek monetary damages under Section 521.

Taking the FTC’s argument to its logical extreme, the FTC could seek monetary damages against any company who makes a misrepresentation during any transaction that the customer pays by credit card or bank wire. Whether the FTC will use Section 521 to seek monetary damages in all actions going forward or will exercise discretion and only use it against industry bad actors has yet to be seen.

Take away for businesses: Careful adherence to transaction scripts is essential for businesses taking customer information over the telephone. However, understanding that the FTC may employ Section 521 broadly, businesses should invest in appropriate compliance training and monitoring to be certain that employees understand their responsibility to be truthful and transparent in all customer interactions.