CURRENT MONTH (November 2023)
What Is the FTC Actually Claiming in Its Amazon Lawsuit?
By Kasia Hebda, Troutman, Pepper, Hamilton, Sanders, LLP
There has been much press about the impact of Amazon’s strategies on competition, and most recently, much of that press has been related to the lawsuit of the Federal Trade Commission (“FTC”) against Amazon. The FTC, joined by the attorney generals of seventeen states, sued Amazon in the District Court for the Western District of Washington, alleging that Amazon was engaged in unfair methods of competition in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), Section 2 of the Sherman Act, 15 U.S.C. § 2, and state competition and consumer protection laws. In the more than 150-page complaint, the FTC alleges that Amazon has engaged in anticompetitive conduct to maintain its monopoly power in two relevant markets: (1) the online superstore market that serves households; and (2) the online marketplace services market that serves sellers.
According to the FTC, Amazon’s anticompetitive tactics include punishing sellers who offer lower prices at other online stores, requiring that sellers use Amazon’s expensive fulfillment services to be Prime eligible, and effectively requiring that sellers pay advertising fees to reach customers. The complaint alleges that Amazon charges sellers an increasing set of fees, such that some sellers must pay Amazon nearly 50 percent of their sales revenues. But because Amazon disqualifies sellers that offer lower prices at other retailers from the “Buy Box” through which many customers make their purchases, buries their products in Amazon’s search results, and threatens contractual penalties, these high fees do not result in increased competition and lower prices at other online retailers. Additionally, Amazon monitors sellers’ prices at other online retailers through a surveillance network of web crawlers. Amazon’s conduct, the complaint claims, harms both shoppers and sellers.
The complaint also challenges a strategy codenamed “Project Nessie,” even though it has been dormant since 2019. Project Nessie is an algorithm used to predict products for which other online stores will follow Amazon’s price increases. The algorithm raises prices for those products and, when other stores follow suit, keeps the now-higher price in place.
The FTC requests that the court permanently enjoin Amazon from engaging in similar conduct and award equitable relief, including structural relief, that would restore fair competition and prevent Amazon from engaging in anticompetitive conduct in the future.
Amazon’s answer or motion to dismiss the Complaint is not due until December 8, 2023. In the meantime, Amazon has responded to the FTC’s allegations in a blog post written by David Zapolsky, its Senior Vice President, Global Public Policy & General Counsel. In the post, Amazon explains that its policies of highlighting low prices and matching prices at other retailers are designed to offer customers competitively priced offers to gain customer trust. Amazon also describes its fulfillment and advertising services as optional, competitively priced services that sellers choose because of the value those services provide. Finally, Amazon states that the FTC failed to properly consider Amazon’s position in a retail industry in which consumers continue to make 80 percent of their retail purchases in physical stores. According to Amazon, if the FTC’s lawsuit succeeds, it would harm consumers and sellers with higher prices, slower and less reliable Prime shipping, and a more expensive and less convenient Prime program.
FinCEN Issues Updated Beneficial Ownership Information FAQs
By Rachael Aspery, McGlinchey Stafford, PLLC
On November 16, 2023, the United States Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) updated the Beneficial Ownership Information (BOI) FAQs in response to inquiries received relating to the BOI Reporting Rule. The FAQs include new questions and information about the reporting companies, reporting company exemptions, beneficial ownership, company applicants, reporting process and requirements, and initial reports.
Beginning on January 1, 2024, many companies in the United States will have to report information about their beneficial owners—the individuals who ultimately own or control the company. Companies will be able to begin reporting beneficial ownership information to FinCEN at that time. FinCEN will continue to provide guidance on how to submit beneficial ownership information.
The FAQs are an explanatory resource and do not modify or supplement any obligations imposed by the BOI statute or regulation. FinCEN expects to publish additional guidance in the future, and questions may be submitted on FinCEN’s contact web page. More information is available at FinCEN’s BOI web page.
FTC’s Final Rule Requires Reporting of Data Breaches by Non-Bank Financial Institutions
On October 27, 2023, the Federal Trade Commission (FTC) issued a final rule (Final Rule) to amend the Standards for Safeguarding Customer Information (Safeguards Rule). This amendment will require non-bank financial institutions, such as mortgage brokers, motor vehicle dealers, and payday lenders, to report certain data breaches and other security events to the FTC.
The Final Rule will require non-bank financial institutions to report to the FTC any notification event where unencrypted customer information involving five hundred or more consumers is acquired without authorization. The notification must be made to the FTC as soon as possible but no later than thirty days after discovering the security breach. The FTC has noted that the Final Rule is based on the reporting requirement in the New York Department of Financial Services cybersecurity regulations, 23 NYCRR 500. The prior version of the Final Rule, published in the Federal Register on December 9, 2021, did not include a reporting requirement. The Final Rule will become effective 180 days after publication in the Federal Register.
According to the Final Rule, the notice is required to be made electronically on a form to be located on the FTC’s website, including the following information:
- The name and contact information of the reporting financial institution
- A description of the types of information impacted
- If the information is possible to determine the date or date range
- The number of consumers affected or potentially affected
- A general description
- Whether any law enforcement official has provided a written determination that notifying the public of the breach would impede a criminal investigation or cause damage to national security
- A means for the FTC to contact the law enforcement official
Because the amendment to the Safeguards Rule will require financial institutions to notify the FTC as soon as possible, no later than thirty days, after a security breach involving unencrypted customer information of at least five hundred consumers, clients should ensure that they are equipped to identify and report such security breaches promptly to the FTC within the thirty-day timeframe.
On November 27, 2023, the Board of Governors of the Federal Reserve System (“FRB”) published a final rule in the Federal Register implementing comprehensive risk-based capital requirements for depository institution holding companies that are “significantly engaged in insurance activities.”
The FRB refers to this risk-based capital framework as the Building Block Approach, as it “adjusts and aggregates existing legal entity capital requirements to determine enterprise-wide capital requirements.” Prior to this Final Rule, savings and loan holding companies with significant insurance operations were excluded from the FRB’s banking capital rules, pending this rulemaking process, while bank holding companies with significant insurance operations have been required to comply with the FRB’s banking capital rule.
With this Final Rule, the FRB is incorporating requirements prescribed by state insurance regulators, taking into account differences between the business of insurance and banking. The Final Rule also includes provisions to comply with Section 171 of the Dodd Frank Act regarding a risk-based capital requirement excluding insurance activities, and a new reporting form FR Q–1 related to the Building Block Approach. The new rules become effective on January 1, 2024.
Ohio Legalizes Adult-Use Cannabis
On November 7, 2023, voters in Ohio approved Ohio Issue 2, the Marijuana Legalization Initiative (the Initiative), which legalizes marijuana for adult use in Ohio. Among its key provisions, the Ohio Initiative creates a new Division of Cannabis Control (DCC) within the Ohio Department of Commerce to regulate marijuana within the state. Individuals over the age of twenty-one will be permitted to purchase and possess up to 2.5 ounces of marijuana and will pay a 10 percent sales tax. Individuals will also be allowed to grow up to six plants at home, with a maximum of twelve plants allowed collectively under one roof. The Initiative takes effect on December 7, 2023.
As an initiated statute, the new law is subject to change by the Ohio legislature. Various members of the Republican-dominated legislature have commented on changes they would like to see, including changes to the sales tax rate, how sales tax revenue is allocated, and the strength of THC permitted under the Initiative.
The Initiative also provides a number of new licenses for current dispensaries, cultivators, and processors under Ohio’s existing medicinal marijuana laws, but it limits the number of licenses. Specifically, no person will be able to obtain more than eight dispensary licenses, more than one cultivator license, and more than one processor license at one time unless permitted by the DCC. In addition, the initiative creates a cannabis social equity and jobs program, requiring the Ohio Department of Development to certify program applicants based on social and economic disadvantages.
As policies develop, the Initiative may be amended, or even repealed by the Ohio legislature. However, given that voters clearly favor legalizing recreational marijuana, it seems unlikely that the legislature would completely undermine the voters. The DCC could also significantly change what adult-use marijuana legalization will look like in Ohio. With all of the uncertainty surrounding the next steps, it may be a while before adult-use marijuana is available in Ohio.
Consumer Finance Law
CFPB Releases Annual Report on Fair Debt Collection Practices Act, with Focus on Medical Debt Collection
On November 16, the Consumer Financial Protection Bureau (“CFPB”) issued its annual Fair Debt Collection Practices Act (“FDCPA”) report to Congress. The FDCPA report continues the Bureau’s recent focus on medical debt issues, seen most prominently in its nascent rulemaking to prohibit consumer reporting companies from including medical debts and medical debt collection information on consumer reports.
According to the Bureau, in 2023, approximately 15 percent of all consumer complaints involving debt collection were about attempts to collect a medical bill. Common complaints included that the bills had already been paid, that the bills were not owed or were for inaccurate amounts, that collection began an unduly long time after the provision of medical services, and that medical bills were placed on consumer credit reports without the consumer being contacted first. In response, the report and the Bureau’s accompanying press release highlight that attempts to collect inaccurate amounts or medical bills that are not owed may violate the FDCPA, as well as the prohibition on unfair, deceptive, and abusive acts or practices. The Bureau also maintains that federal preemption of state law in this space is limited, and so state regulators and legislatures have opportunities to draft and enforce state laws and regulations to restrict these practices.
CFPB and 11 States Obtain Order Regarding Student Lending Practices
On November 20, 2023, the CFPB and eleven states announced a stipulated final judgement and order with Prehired, a private for-profit vocational training program. The order settles a case the Bureau and states brought in July 2023. Prehired operated a twelve-week online training program that claimed to prepare students for easily obtainable entry-level positions as software sales development representatives. Prehired also offered students loans to finance program costs. The Bureau alleges that Prehired marketed those loans as requiring payment only after the trainee obtained a job with a salary over $60,000, while deceptively burying terms that required repayment regardless of that contingency. Prehired also initiated debt collection lawsuits in Delaware, which the Bureau alleges was inconvenient to most consumers, inadequately disclosed, and not subject to negotiation.
Prehired must refund $4.2 million to student borrowers, cancel another $26 million in loans, and pay a civil money penalty of $1, which allows the Bureau to use the Civil Money Penalty Fund to compensate other Prehired borrowers. The Order requires the end of all operations at Prehired, which filed for bankruptcy in 2022.
Proposal Would Subject Digital Wallet and Payment App Providers to Bureau Supervision
On November 7, the CFPB announced a proposed rule that would impose Bureau supervision over larger nonbank digital payment application providers. The Bureau’s authority to do so derives from Section 1024 of the Consumer Financial Protection Act, which allows the Bureau to designate for supervision any “larger participant of a market for . . . consumer financial products or services,” and/or any nonbank covered person that may be “engaging . . . in conduct that poses risks to consumers with regard to the offering or provision consumer financial products or services.” 12 U.S.C. § 5514(a)(1)(B), (C). The Bureau previously used this authority to designate for supervision larger participants in the consumer reporting, consumer debt collection, student loan servicing, international remittance transfers, and automobile financing markets.
In explaining its rationale, the Bureau highlights that “76 percent of Americans have used at least one of four well-known P2P payment apps,” and that supervising larger participants in the market would “help to ensure that they are complying with applicable requirements of Federal consumer financial law,” “enable the CFPB to monitor for new risks to both consumers and the market,” and “help level the playing field between nonbanks and depository institutions.”
The proposed rule defines “larger participant[s] of the general-use digital payment market” to include any entity with an “annual covered consumer payment transaction volume” of five million transactions or more, so long as the entity is not a “small business concern” as defined in the Small Business Act. The Bureau estimates that the threshold would subject approximately seventeen entities to supervision.
Congresswoman Maxine Waters, the top Democratic representative on the House Financial Services Committee, praised the proposed rule following its release. She described the proposed rule as “another critical step in ensuring that consumers everywhere are fully protected no matter if they use a traditional bank account or digital wallet to make payments.”
Comments on the proposed rule are due on the later of January 8, 2024, or thirty days after publication in the Federal Register.
CFPB to Appeal Order Striking Down Discrimination-as-Unfairness Exam Manual Changes
On November 6, the CFPB filed a notice indicating that it will appeal the ruling of the U.S. District Court of the Eastern District of Texas in Chamber of Commerce et al. v. CFPB et al. As we have covered in past updates, the dispute in this case centers on changes to the Bureau’s Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) examination manual. In March 2022, the CFPB revised the manual to state that discriminatory conduct in consumer financial services could violate the Dodd-Frank Act prohibition on unfairness. The Bureau took this action notwithstanding more specific and limited antidiscrimination laws, such as the Equal Credit Opportunity Act. Soon after, trade groups sued the Bureau seeking to nullify the new antidiscrimination provisions of the manual. In September 2023, the district court entered summary judgment for the plaintiffs, invalidating the exam manual changes on Appropriations Clause and Administrative Procedures Act grounds and enjoining the Bureau from pursuing any action based on the new interpretation of its UDAAP authority. The appeal in the case will be heard by the U.S. Court of Appeals for the Fifth Circuit.
Executive Order on Artificial Intelligence Includes Directives for CFPB
On October 30, President Biden issued an executive order on the “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.” The order notes that artificial intelligence (“AI”) “holds extraordinary potential for both promise and peril,” and therefore sets out to initiate a government-wide effort to develop appropriate guardrails for AI and its applications. With regard to consumer financial services, the order focuses on protecting consumers from fraud, infringements on privacy, and discrimination. To those ends, the order encourages the CFPB to consider the following:
- Using its authority to require Bureau-regulated entities to evaluate their underwriting models for bias or disparities affecting protected groups, and to evaluate automated collateral-valuation and appraisal processes in ways that minimize bias.
- Issuing additional guidance, within 180 days, addressing the use of tenant screening systems in ways that may violate the Fair Housing Act (“FHA”), the Fair Credit Reporting Act (“FCRA”), or other relevant laws, including how the use of data (such as criminal records, eviction records, and credit information) can lead to discriminatory outcomes in violation of federal law.
- Issuing additional guidance, within 180 days, addressing how the Fair Housing Act, the Consumer Financial Protection Act, and the Equal Credit Opportunity Act apply to the advertising of housing, credit, and other real estate-related transactions through digital platforms, including those that use algorithms to facilitate advertising delivery.
Republican Senators Send Letter Urging Retraction of CFPB/DOJ Joint Statement on Lender Consideration of Immigration Status
On November 1, the eleven Republican members of the Senate Committee on Banking, Housing, and Urban Affairs sent a letter to CFPB Director Rohit Chopra and Attorney General Merrick Garland criticizing and urging retraction of the joint statement that the CFPB and Department of Justice (“DOJ”) issued on October 12.
In the joint statement, the Bureau and DOJ cautioned that “creditors should be aware that unnecessary or overbroad reliance on immigration status in the credit decisioning process . . . may run afoul of ECOA’s antidiscrimination provisions.” In particular, the joint statement explained that immigration status risks serving as a proxy for protected characteristics such as race and national origin, and so if “consideration of immigration status is not ‘necessary to ascertain the creditor’s rights and remedies regarding repayment’ and results in discrimination on a prohibited basis, it violates ECOA and Regulation B.”
The Republican senators contend that the joint statement “contradicts and rewrites decades worth of guidance from the CFPB and the federal banking regulators” without complying with the rulemaking requirements of the Administrative Procedure Act. The senators note that Regulation B explicitly permits the consideration of immigration or residency status as necessary to ascertain the rights and remedies that a creditor would have regarding repayment, and that the Bureau’s own Official Interpretation of Regulation B states that “an applicant’s immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor’s ability to obtain repayment.” In the senators’ view, “[a] borrower’s likelihood of repayment significantly falls if there is no guarantee that they will be residing in the same community,” and, therefore, “the importance of considering immigration status when assessing the potential of repayment is nothing short of common sense.” Finally, the senators contend that the statement “poses serious risks to financial stability” by encouraging lenders to ignore an important factor in their calculation of credit risk.
Eleventh Circuit Holds a Showing of Actual Damages Is Not Required to Recover Statutory Damages under the FCRA
By Aimee Guidry Szygenda, McGlinchey Stafford, PLLC
In Santos v. Healthcare Recovery Group, LLC, Plaintiffs Omar Santos and Amanda Clements sued Experian for allegedly willfully violating the FCRA by failing to follow reasonable procedures to ensure the accurate preparation of consumer credit reports when it allowed credit reports to reflect allegedly inaccurate status data. The Plaintiffs, seeking class certification, sued Experian for alleged willful violations of the Fair Credit Reporting Act (“FCRA”).
The Plaintiffs sought only statutory damages under § 1681n(a)(1)(A). In opposing the Plaintiffs’ motion for class certification, Experian argued that the predominance requirement could not be met because “section 1681n(a)(1)(A) required that the putative class members prove they were injured by a consumer reporting agency’s willful violation of the Act,” and “each class member’s individual proof of damages would predominate over common questions.” The district court denied the Plaintiffs’ motion, and the Plaintiffs appealed to the Eleventh Circuit. On November 6, 2023, the Eleventh Circuit vacated and remanded the district court’s denial of the Plaintiffs’ motion for class certification.
The Eleventh Circuit, joining every other circuit court to address this issue, held that a consumer does not have to prove actual damages under the FCRA to recover statutory damages under § 1681n(a)(1)(A). Specifically, the Seventh, Eighth, Ninth, and Tenth Circuit Courts have all held the same. In so holding, the Eleventh Circuit provided a statutory analysis of § 1681n(a)(1)(A). In answering the question of whether § 1681n(a)(1)(A) allows recovery of statutory damages without proving actual damages, the Eleventh Circuit looked to the “ordinary meaning” of “damages” and looked to the plain meaning of the statute. First, the Eleventh Circuit looked at the different language used in the FCRA for recovery of actual damages instead of statutory damages. Second, the Eleventh Circuit looked to the use of “or” between the provision allowing for recovery of actual damages and the provision allowing for recovery of statutory damages. Third, the Eleventh Circuit compared the language in § 1681n(a)(1)(A) to the rest of the FCRA. Fourth, the Eleventh Circuit looked to the title of § 1681n(a)(1)(A) that was added in 1996, and finally the Eleventh Circuit considered how it had read similar language from other federal statutes.
Labor & Employment Law
Fifth Circuit Finds NLRB Exceeded Its Authority in Ruling Tesla’s Uniform Policy Infringes on Employees’ Right to Unionize under the NLRA
By Steven Garrett, Boulette Golden & Marin L.L.P.
Tesla requires employees on its production lines to wear uniforms and, when those employees reported for work in union t-shirts instead, Tesla threatened to send them home for violating its uniform policy. Unions filed an unfair labor practice charge with the National Labor Relations Board (“NLRB”), which overruled its own precedent reducing scrutiny of facially neutral rules in Wal-Mart Stores, Inc., 368 N.L.R.B. No. 146 (2019) and sided with the unions, finding: “when an employer interferes in any way with its employees’ right to display union insignia, the employer must prove special circumstances that justify its interference.” Following Tesla’s petition for review of the NLRB’s order, and the NLRB’s cross application for enforcement, the Fifth Circuit ruled against the NLRB in its November 14 opinion denying the NLRB’s application for enforcement, vacating the NLRB’s decision, and reinstating Wal-Mart Stores, Inc.
Tesla’s “production associates,” who install parts on Tesla vehicles, must wear Tesla-provided black uniforms both to minimize damage to freshly manufactured vehicles while the paint cures and to distinguish production associates from other production employees wearing different colors. When production associates began wearing black cotton t-shirts bearing union insignia in the spring of 2017, Tesla initially elected not to strictly enforce its uniform policy. Tesla changed tack to strict uniform policy enforcement in August 2017 after discovering “several mutilations” on its vehicles. Tesla did permit union stickers on its uniforms, however.
An administrative law judge found Tesla’s uniform policy violated the National Labor Relations Act’s (NLRA) prohibition on inference, restraint, or coercion of employees in their exercise of their right to unionize and that no special circumstances to maintain production or discipline justified the uniform policy under Republic Aviation Corp. v. NLRB, 324 U.S. 794 (1945). 29 U.S.C. § 158 (a)(1). Tesla filed exceptions, noting the facial neutrality of its uniform policy and the employee’s ability under the policy to display union insignia on their uniforms. The NLRB nonetheless voted 3–2 to affirm the administrative law judge’s findings, characterizing Wal-Mart’s presumption of lawfulness attaching to facially neutral, nondiscriminatory dress codes allowing display of union insignia as unworkable, overly vague, and irrelevant to the determination of lawfulness, and rejecting dress codes as unrelated to employers’ interests.
The Fifth Circuit held the NLRB failed to balance the employee’s rights and the employer’s legitimate interests. Resolving to be more than a rubber stamp, the Fifth Circuit determined the NLRB exceeded its statutory authority. “This extremely broad rule would make all company uniforms presumptively unlawful, whether for white-collar workers or blue. Congress likely would not have intended to permit such a major decision without clearer statutory indication.” Because the Fifth Circuit found the NLRB failed to apply Republic Aviation’s balancing test of employer’s interests vs. employee rights to Tesla’s uniform policy and policies allowing display of union insignia on uniforms, the NLRB’s Tesla ruling rested on erroneous legal foundations and was therefore irrational.
Ultimately, the Tesla Court’s reasoning demonstrates an employer’s facially neutral, nondiscriminatory uniform policy—especially one that preserves employees’ ability to display union insignia—will be examined on balance between the employer’s interest on one hand in fostering discipline, promoting uniformity, encouraging espirit de corps, increasing readiness, and encouraging the subordination of personal preferences and identities in favor of the employer’s group mission; and the employee’s rights on the other to unionize, including meaningful opportunities to display union insignia.
NLRB Decision: Telsa, Inc., 371 N.L.R.B. No. 131 (2022).
Fifth Circuit Opinion: Telsa, Inc., v. NLRB, No. 22-60493, –F.4th– (5th Cir. Nov. 14, 2023).
IRS Issues Proposed Regulations on Long-Term, Part-Time Employees and § 401(k) Plans
By Timothy M. Todd, Associate Dean for Faculty Development & Scholarship
Professor of Law, Liberty University School of Law
Because of statutory changes made by the SECURE Act and SECURE 2.0 Act, the Internal Revenue Service (IRS) issued proposed regulations that amend the requirements for cash or deferred arrangements under § 401(k) concerning long-term, part-time employees. A cash or deferred arrangement (CODA) is the statutory mechanism that allows for elective contributions under various employer-provided retirement plans. CODAs must meet various requirements for them to be qualified and thereby not cause a plan to fail the § 401(a) requirements. Historically, one of the requirements for a qualified CODA regarded the period of service employers could have to participate in the plan (such as at least 1,000 hours in a twelve-month period). The SECURE Act and SECURE 2.0 Act amended the rules concerning long-term, part-time employees. In short, after SECURE 2.0, the amendments regard employees who work two consecutive twelve-month periods of which the employee is credited with at least five hundred hours of service.
IRS Further Delays Form 1099-K Reporting Changes
By Timothy M. Todd, Associate Dean for Faculty Development & Scholarship
Professor of Law, Liberty University School of Law
In Notice 2023-74, the IRS further delayed the implementation of the amendments to information reporting requirements for third party settlement organizations (TPSOs). Section 6050W of the Internal Revenue Code requires payment settlement entities to file information returns about reportable payment transactions; the required information includes, among other things, information about the payee and the gross amount of reportable payment transactions, and it is reported on Form 1099-K.
The American Rescue Plan Act of 2021 amended § 6050W to provide that TPSOs had to file information returns for the 2022 and later calendar years if the payee exceeded $600 in aggregate payments; however, this was delayed by the IRS in Notice 2023-10 until calendar year 2023. The new IRS Notice, however, provides that calendar year 2023 will be regarded as a further transition period for purposes of enforcement and administration. Consequently, the IRS notes that a TPSO is not required to report unless the $20,000 aggregate payments and two hundred transactions thresholds are met, which was the earlier requirement.