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February 28, 2010

ControlScan, a Privacy and Security Certification Service and its Founder Settle with FTC

On February 25, 2010, the FTC announced two separate settlements.  One is a Stipulated Final Judgment and Order to settle a complaint, without trial, filed in the U.S. District Court, Northern District of Georgia.  This settlement is with ControlScan, a company that provides privacy and data security certification to online retailers and other Web sites.  Based on the same facts, Richard Stanton, the founder and former chief executive officer of ControlScan also agreed to settle charges pursued by the FTC at the Federal Trade Commission.  The FTC charged that ControlScan misled consumers about how often ControlScan monitored the sites and the steps it took to verify the privacy and security practices of the sites that had ControlScan certificates. The settlements bars future misrepresentations. Mr. Stanton's settlement requires him to give up $102,000 in "ill-gotten gains". The Stipulated Final Judgment and Order specifies that the complaint which it settles states a claim upon which relief may be granted against ControlScan under Sections 5(a)(1) and 13(b) of the FTC Act.  A judgment against ControlScan of $750,000 is suspended, based on ControlScan’s inability to pay, but if the court finds that ControlScan misrepresented its financial condition, the entire amount will be payable immediately, less any amounts paid by Stanton.

More information can be found at http://www.ftc.gov/opa/2010/02/controlscan.shtm.

February 26, 2010

FTC Appeals Judge Walton's Decision on Red Flags Rule

Yesterday, February 25, 2010, the Federal Trade Commission filed notice of appeal to the DC Circuit Court of Appeals to attempt to reverse Judge Walton’s ruling late last year that the FTC cannot require practicing lawyers to comply with the Red Flags Rule.  In August 2009, the American Bar Association challenged the applicability of the Red Flags Rule to lawyers, arguing that it would impose a serious burden on law firms.  At that time, the ABA sought an injunction and declaratory judgment finding that lawyers were not covered. The FTC replied that lawyers should be covered because billing practices, such as charging clients on a monthly basis rather than upfront, made them “creditors” under the plain language of the Red Flags Rule. Judge Walton ruled from the bench in late October and issued his Order and Memorandum Opinion in December.  

In the Memorandum Opinion, citing to Chevron, Judge Walton determined that the FTC's application of the Red Flags Rule was not entitle to deference, and stated that "[e]ven a cursory review of the language of these Acts [Equal Credit Opportunity Act and FACTA] and the purposes underlying their enactment leads the Court to the conclusion that it was not 'the unambiguously expressed intent of Congress,' Chevron, 467 U.S. at 842-43, to bring attorneys within the purview of the FACT Act and thus subject them to regulation by the Commission's Red Flags Rule."  Judge Walton goes on to state that the FTC's position that attorneys regularly extend or arrange for credit is unsupported by either legislative or administrative findings.  Likewise, Judge Walton was not persuaded by the FTC's reliance on the Federal Reserve Board's staff notes to Regulation B of the Equal Credit Opportunity Act. 

The Court then discussed the lack of any record in the FTC's rulemaking process to support a determination that existing regulation of attorneys did not address identity theft, the arbitrary selection of monthly invoicing as the activity to regulate, the failure to put attorneys on notice that the rule would apply to them, the balance between state and federal regulation and the effect that the Red Flags Rule rule would have on the attorney client relationship. Considering all of these factors, the Court rejected the FTC’s position, ruling that the Commission's interpretation of its Red Flags Rule applying to practicing attorneys is both plainly erroneous and inconsistent with the purpose underlying the FACT Act.

February 24, 2010

FTC Releases Report of Top Consumer Complaints

On February 24, 2010, the Federal Trade Commission (“FTC”) released the “Consumer Sentinel Network Data Book” (“Report”).  This Report includes a listing of the top consumer complaints reported in 2009 to the FTC. 

 

The top ten complaints for 2009 are:

 

Rank

Category

No. of Complaints

1

Identity Theft

278,078

2

Third Party and Creditor Debt Collection

119,549

3

Internet Services

83,067

4

Shop-at-Home and Catalog Sales

74,581

5

Foreign Money Offers & Counterfeit Check Scams

61,736

6

Internet Auction

57,821

7

Credit Cards

45,203

8

Prizes, Sweepstakes and Lotteries

41,763

9

Advance-Fee Loans and Credit Protection/Repair

41,448

10

Banks and Lenders

32,443

February 22, 2010

Federal Trade Commission to Host Third Roundtable on Privacy

The Federal Trade Commission (“FTC”) is preparing for the third and final roundtable discussion on privacy.  The first roundtable was held in December 2009 in Washington, DC, to explore privacy implications of developing technology and business practices that collect and use of consumer data.  This event was followed by a second roundtable in Berkley, CA in January 2010.  The discussion in Berkley focused on benefits and risks created by technology and the privacy implications of social networking, cloud computing, and mobile marketing. 

 

The third roundtable will be held on March 17, 2010 in Washington, DC.  At this event, panelists will discuss the collection and use of “sensitive” information.  In preparation for this roundtable, the FTC has requested comments on the following issues:

 

  • How can we best achieve accountability for best practices or standards for commercial handling of consumer data?  Can consumer access to and correction of their data be made cost effective?  Are there specific accountability or enforcement regimes that are particularly effective? 
  • What potential benefits and concerns are raised by emerging business models built around the collection and use of consumer health information?  What, if any, legal protections do consumers expect apply to their personal health information when they conduct online searches, respond to surveys or quizzes, seek medical advice online, participate in chat groups or health networks, or otherwise?
  • Should “sensitive” information be treated or handled differently than other consumer information?  How do we determine what information is “sensitive”?  What standards should apply to the collection and uses of such information?  Should information about children and teenagers be subject to different standards and, if so, what should they be? 

 

For those who cannot join the discussion in person, a live webcast of this conference will be available at the FTC's website

House Energy and Commerce Subcommittees to Hold a Hearing the Commercial Uses of Location Information

On February 24, 2010, the House Energy and Commerce Subcommittee on Commerce, Trade, and Consumer Protection and Subcommittee on Communications, Technology, and the Internet will hold a joint hearing on the collection and use of location information for commercial purposes.  This joint hearing is the third on privacy held by these two subcommittees this Congress.  A joint hearing was held in June 2009 to learn about online behavioral advertising practices and to consider whether federal privacy legislation is necessary to address concerns associated with these practices.  A second hearing was held in November 2009 on the online and offline collection and commercial use of consumer information.

 

The scheduled witnesses for Wednesday’s hearing are:

 

Lorrie Cranor

Associate Professor

Computer Science and Engineering & Public Policy

Carnegie Mellon University

 

Mike Altschul

Senior Vice President and General Counsel

CTIA – The Wireless Association

 

John B. Morris, Jr.

General Counsel

Center for Democracy and Technology

 

Anne Collier

Connect Safely

 

Jerry King

Chief Operating Officer
uLocate Communications, Inc.

 

Tony Bernard
VP/GM
Useful Networks


These hearings are being held in preparation for introducing privacy legislation.  Rep. Boucher (D-VA), the Chairman of the Subcommittee on Communications, Technology, and the Internet, has stated that he intends to introduce a bill to regulate online collection and use of consumer information.  Privacy legislation is expected soon.