1 00:00:13.230 --> 00:00:24.270 Steve Denis SBFA: Thanks for joining, I'm just quickly want to thank deBanked, the team at deBanked, and all the sponsors that have helped make this happen. 2 00:00:24.270 --> 00:00:30.690 Obviously, it's a crazy, crazy time in our industry, but around the country in the world. My name is Steve Dennis, I'm the Executive Director of the Small 3 00:00:30.690 --> 00:00:38.790 Business Finance Association. I really just want to appreciate Evan for joining. Evan is with the FTC, we'll get into a little detail on what he does there. 4 00:00:38.910 --> 00:00:46.050 But um, you know, even in even a time like this, I think it's extremely important that the industry continue to reach out to regulators, enforcement 5 00:00:46.050 --> 00:00:53.520 officials, because I'm sure, as everyone has seen, and we'll get into it a little bit later, but there's been some news. The FTC has made the news in our industry. 6 00:00:53.580 --> 00:01:01.680 And, you know, it's important that we continue to engage with folks like Evan, to make sure that we're telling the the positive side of our space, we're 7 00:01:01.680 --> 00:01:11.190 telling good stories, and really being there as a resource and have an open dialogue with regulators and enforcement officials. So with that being said, Evan, I 8 00:01:11.490 --> 00:01:14.550 hope you're on you can hear me, you want to just quickly introduce yourself. 9 00:01:15.830 --> 00:01:24.650 Evan Zullow, FTC: I'm Evan Zullow. I'm an Attorney in the FTC Division of Financial Practices, which is housed in our Bureau of Consumer Protection. I've been 10 00:01:24.650 --> 00:01:34.640 with the FTC for a bit over a decade, and worked on a variety of issues, including small business financing, online lending, debt collection, lead generation, 11 00:01:35.000 --> 00:01:38.960 another areas we work in, so I'm very happy to be here today. So thank you for having me. 12 00:01:39.840 --> 00:01:46.410 Steve Denis SBFA: Um, first, I just wanted to see if you could just for the audience, you know, just give a quick introduction to the FTC, you know, what is your 13 00:01:46.410 --> 00:01:49.530 mission at the FTC? What is your jurisdiction? 14 00:01:50.980 --> 00:01:58.300 Evan Zullow, FTC: Sure, sure. So I can tell you a little bit about who we are, what our statutory authority is, and how we've used that and what our role 15 00:01:58.300 --> 00:02:12.130 is in this space. And so we're the FTC, Federal Trade Commission, which is a national consumer protection agency, our main mission is to stop primarily through 16 00:02:12.130 --> 00:02:22.300 law enforcement, deceptive or unfair practices in the marketplace. We enforce a number of consumer protection statutes, but the primary one that we'll be talking 17 00:02:22.300 --> 00:02:32.200 about probably today is the FTC Act, which prohibits deception and unfairness. And I'm sure we'll be sort of talking about some examples in cases to kind of unpack 18 00:02:32.200 --> 00:02:42.040 those concepts a bit. But but most broadly speaking, deception is, you know, any claim representation or omission, is likely to mislead consumers who are acting 19 00:02:42.040 --> 00:02:53.080 reasonably under the circumstances. So you sort of take your audience and your consumers as where they reside, what they understand. Unfairness is a concept that we 20 00:02:53.080 --> 00:03:03.430 apply a little bit less often than deception, but it's an important one, including in this space. And broadly, it's conduct that's causes or is likely to cause 21 00:03:03.430 --> 00:03:12.970 substantial injury to consumers. That they can't otherwise reasonably avoid. And that isn't outweighed from by some benefit to consumers or competition. And 22 00:03:12.970 --> 00:03:21.760 so that, you know, in terms of practice, as you'll probably see, if we talked about cases, unfairness would apply to practices like unauthorized debits or 23 00:03:21.760 --> 00:03:32.680 withdrawals, you know, egregiously abusive Debt Collection Practices, like threatening people with violence, and harassing them with continuous calls. And 24 00:03:32.680 --> 00:03:43.870 some other conduct that will then we can talk about. One other point, I think that's important to touch on with respect to our jurisdiction, is that as broth, we 25 00:03:43.870 --> 00:03:51.670 have authority both kind of within financial products and services, which, of course we'll be focusing on today. But we also work outside of that and other types 26 00:03:51.670 --> 00:04:00.880 of products or services like post secondary education, auto advertising, lead generation outside of lending. So I'll probably end up invoking or talking about 27 00:04:00.880 --> 00:04:09.520 examples of cases where the principles are really the same. But you're here, the industry areas and even in financial products or services. Beyond that too, you 28 00:04:09.520 --> 00:04:21.040 know, even when we're talking about in small business financing. Unlike some other consumer protection oriented loans or agencies, our authority applies to 29 00:04:21.040 --> 00:04:30.370 small business owners and small businesses. Unlike maybe some other statutes that states enforces or even other federal agencies, and even within, you know, 30 00:04:30.370 --> 00:04:38.830 small business or lending transactions, it's important to know and we'll be, I'm sure talking about this, but our authority extends sort of throughout the lifecycle 31 00:04:39.130 --> 00:04:48.010 of credit, you know, at the front end your advertising and marketing, whether it's being done by affiliates or brokers, or lenders or providers themselves, you know, 32 00:04:48.040 --> 00:04:58.720 what's said or the conduct surrounding the offering of a loan or financing product, the servicing of the product, and even the collection of deaths associated 33 00:04:58.720 --> 00:05:02.890 with it. That's something, but I think is important, you know, to impress upon folks 34 00:05:04.000 --> 00:05:13.630 Steve Denis SBFA: In terms of, you know, an enforcement action, how does the FTC decide to take action? Um, you know, what happens when, when the FTC takes action? 35 00:05:13.990 --> 00:05:15.670 What's your sort of internal process? 36 00:05:16.590 --> 00:05:23.880 Evan Zullow, FTC: Thank you. Um, so I can talk a little bit about that, I think it'll have to be at a high level, because, you know, the factors really do depend 37 00:05:23.880 --> 00:05:34.950 on the circumstance. And sort of beyond that, as you would imagine, a lot of our sort of specific work is non public. But at a broad level, right, of course, we 38 00:05:34.950 --> 00:05:43.950 sort of start with, you know, monitoring industry areas where the FTC Act, you know, may apply, where there may be particular concerns or consumer protection issues. 39 00:05:44.460 --> 00:05:51.720 And, you know, digging into that some of the information, you know, that that we often consider relevant are, you know, of course, if you're talking 40 00:05:51.720 --> 00:06:00.930 about deceptive marketing, or advertising, it's the advertisements, or the materials that are sort of presented to or sent to consumers themselves. Consumer 41 00:06:00.930 --> 00:06:11.850 complaints are obviously going to be an important factor. And we have a hotline, toll free number, or we get, you know, hundreds of thousands of consumer 42 00:06:11.850 --> 00:06:21.450 complaints a year, I believe. On FTC.gov, people submit complaints, and so that that's an important resource. Another, which I think is important, you know, for the 43 00:06:21.450 --> 00:06:29.070 purposes of this conversation is, you know, we often get tips or information from, you know, folks like, you know, those that are probably tuning into this. 44 00:06:29.760 --> 00:06:38.940 Industry experts, trade associations, and others who are sort of, you know, working hard trying to do right by their consumers and are concerned about, you know, 45 00:06:38.940 --> 00:06:48.600 other conduct, you know, about which they have particular expertise, in particular experience. And, you know, you know, we find that very helpful. And 46 00:06:48.600 --> 00:06:58.530 then, you know, finally, an important source of information is that, you know, in many cases, when we are looking at a company or individuals concerned about 47 00:06:58.860 --> 00:07:07.680 their conduct, we can send them or serve them with what we call civil investigative demands. And those are basically administrative subpoenas that request, you 48 00:07:07.680 --> 00:07:16.800 know, written answers, data, documents and other information. So all of those are critical. So, that kind of goes to the, you know, what information do we 49 00:07:16.800 --> 00:07:25.410 consider in determining whether we would have a reason to believe that there's some sort of an enforcement action is necessary. But then, so as to your second 50 00:07:25.410 --> 00:07:34.770 question, like, what do we do? You know, with that, once we have that reason to believe? And the answer is, you know, typically we will, where we have reason to 51 00:07:34.770 --> 00:07:43.920 believe there's been deception or unfairness, we'll file law enforcement actions lawsuits, in federal district court. And when we do that, you know, 52 00:07:43.920 --> 00:07:52.770 typically we're seeking injunctive relief, which is, you know, essentially to stop the unlawful or deceptive conduct or other conduct that's sort of related to it 53 00:07:52.770 --> 00:08:03.210 or a pathway to that deception or unfairness. And then, in addition, you know, we very frequently seek monetary relief. You know, ideally, when you have a circumstance 54 00:08:03.210 --> 00:08:16.410 where money was taken from consumers unlawfully, you know, it's going to be our goal, to return that, to the extent we can. So, but even beyond enforcement actions 55 00:08:16.410 --> 00:08:26.070 to add another layer, you know, in some instances, you know, where we believe there's an ongoing harm, where there's real time sensitivities or, you know, imminent 56 00:08:26.070 --> 00:08:34.920 harms to consumers that need to be stopped. We also have the ability, and we do seek preliminary relief, like preliminary injunctions and temporary restraining 57 00:08:34.920 --> 00:08:41.190 orders from District Court. But that's sort of the, you know, how we sort of build things and where often they go. 58 00:08:42.830 --> 00:08:51.830 Steve Denis SBFA: That's very helpful. Thank you for that. You know, we we've discussed this earlier, but, um, you know, you guys have made them suddenly, I 59 00:08:51.830 --> 00:08:58.400 guess, you can consider them part of our industry, although I think, you know, some some folks think the actions taken by this company are not not part of our 60 00:08:58.400 --> 00:09:07.100 industry. But, you know, Richmond Capital and all the subsidiaries recently in the news, you guys took action against them. But, you know, just just generally, I 61 00:09:07.100 --> 00:09:15.560 know that the FTC has demonstrated a lot of interest in small business finance. I'm just curious, you know, what are you guys working on now in our space? And are 62 00:09:15.560 --> 00:09:19.400 there plans for further engagement and small business finance space? 63 00:09:21.520 --> 00:09:30.070 Evan Zullow, FTC: Yeah, thank you. And thank you for pointing out yesterday's case. You know, the flagging that in of itself provides a bit of an answer, which 64 00:09:30.070 --> 00:09:42.310 is, you know, we are very focused on this space. And our leadership, even before, you know, the current health and financial crisis, has repeatedly stressed 65 00:09:43.090 --> 00:09:51.370 that protecting small businesses from deceptive and other unlawful conduct is a very high priority for the FTC. And as you could probably imagine, that's only 66 00:09:51.370 --> 00:10:01.420 been augmented, you know, given the struggles that business owners and everyone is facing during this crisis. So you know, one example is, you know, 67 00:10:01.420 --> 00:10:12.850 literally yesterday, you know, as you pointed out, the FTC filed an action against a merchant cash advance provider between capital or RCG advances. In that case, 68 00:10:12.850 --> 00:10:21.430 you know, we talked about these two concepts of deception and unfairness. You know, yesterday's action sort of embodies some elements of both, which, you 69 00:10:21.430 --> 00:10:32.290 know, is worth unpacking for a minute. In this case, you know, against this merchant cash advance provider, we allege that the company was engaging in deception by 70 00:10:32.290 --> 00:10:41.530 misrepresenting to consumers, you know, key elements of the financing arrangements, including the existence of personal guarantees, which can become very important, 71 00:10:41.590 --> 00:10:50.560 you know, on the back end, if the consumer defaults, we allege that they misrepresented the existence of upfront fees or costs, which are obviously going to be 72 00:10:50.560 --> 00:11:02.080 very material to consumers and business owners, and also that they misrepresented how much business owners will be receiving, you know, when those upfront fees 73 00:11:02.110 --> 00:11:13.480 are taken out of the advance. So those are all deception oriented allegations in the case. They're all very important and material. But this case also raised 74 00:11:13.510 --> 00:11:22.420 issues and we made allegations associated with the concept of unfairness. And specifically, what will be alleged is, what we are alleging is that the company 75 00:11:22.900 --> 00:11:35.530 unfairly, for example, took unauthorized withdrawals or debits, from some of their consumers, we allege that they engaged in, you know, egregiously abusive, unfair 76 00:11:35.530 --> 00:11:49.000 debt collection conduct, including things like threats of violence, and the like. And finally, we alleged that they engage in unfairness by using and filing their 77 00:11:49.000 --> 00:11:59.350 confessions of judgments, or COJ's, under circumstances that the contracts didn't even permit when consumers didn't default on when they weren't supposed to be 78 00:11:59.350 --> 00:12:11.080 doing this. Well, so appreciate you flagging the case. You know, I think it demonstrates our recent efforts. But that's even just yesterday, you know, dial it back 79 00:12:11.170 --> 00:12:22.600 in over the last couple months, we've tried to be very active, to stop deception and unfairness, since the emergence of the crisis. And so for example, back in 80 00:12:22.600 --> 00:12:31.810 mid April, we filed a case against a marketer that was doing businesses under the name SBA Loan Program. And as the name indicates, you know, we allege that they're 81 00:12:31.810 --> 00:12:41.380 misrepresenting their affiliation with the SBA. But they're misrepresenting that they could make HF Protection Program loans. And this was a case where we 82 00:12:41.380 --> 00:12:52.060 did seek and were able to get stipulated preliminary relief to stop this conduct. At the same time, around the same time, as that case, we also sent out warning 83 00:12:52.060 --> 00:13:04.960 letters to other marketers, and the generators, were making, you know, similar claims that were concerning to us. And we've also tried to be very active in our 84 00:13:04.960 --> 00:13:12.670 education staff, because we're not just I'll focus a lot on law enforcement, because that's our primary mission. But we do a lot of work. And we have an entire 85 00:13:12.700 --> 00:13:21.460 staff of educators that puts out educational information and guidance, both to consumers and to businesses like finance providers. And we've, even in 86 00:13:21.460 --> 00:13:29.740 the last several weeks been putting out blog posts and trying to provide of actionable information and guidance, particularly during these last few months. 87 00:13:31.000 --> 00:13:38.440 And that's just this just during the last few months where, you know, going back even further, you know, I think as you know, Steve, we've been working to protect 88 00:13:38.440 --> 00:13:50.710 small businesses. We had, about this time last year, a workshop where we convened experts and talked about issues associated with the emergence of online 89 00:13:50.890 --> 00:14:01.180 financing and alternative financing. And in connection with that, we produced a state of perspective paper, you know, that I think, may be particularly relevant 90 00:14:01.180 --> 00:14:11.920 for folks in this audience. And so I'm happy to sort of send along the URL to that after this event. So thank you. I think that's appreciate the question. 91 00:14:15.020 --> 00:14:22.730 Steve Denis SBFA: No, I appreciate you bringing up the staff perspective, paper that you guys produced. And the content that you guys put out on on the space after 92 00:14:22.730 --> 00:14:30.470 as a result of the the forum you had last May has been extremely helpful. I know to us as a trade association, but I think to a lot of folks in the industry. I did 93 00:14:30.470 --> 00:14:42.020 want to touch on some of the some of the conclusions that you guys came up with in the staff perspective paper. Specifically, as to when you discuss MCA 94 00:14:42.020 --> 00:14:52.010 products, the paper you suggest that providers should take steps to ensure their marketers do not engage in deception or other unlawful conduct. I was just 95 00:14:52.010 --> 00:15:00.980 curious, we kind of we kind of touched on it but if you could expand on that and you know what, what specific activities have you observed in other industries. You 96 00:15:00.980 --> 00:15:10.880 know, you could kind of give us a reference point that we could use an alternative finance, um, and then, you know, maybe a couple recommendations you have for 97 00:15:10.880 --> 00:15:15.530 providers to ensure that brokers or lead generators they work with are in compliance. 98 00:15:17.010 --> 00:15:26.040 Evan Zullow, FTC: Thank you, thank you appreciate the question, because I do think there are a number of program areas like outside of small business financing, 99 00:15:26.040 --> 00:15:34.800 or even lending, where there are underlying principles to the actions that we took that are, you know, very applicable to the space. And, you know, for the 100 00:15:34.800 --> 00:15:44.010 purposes of, you know, time and to kind of simplify things a bit. You know, I think there are maybe a half dozen or so kind of high level principles that are, you 101 00:15:44.010 --> 00:15:52.350 know, flagged in part in the staff perspective, paper, but also in other materials and actions that we've taken. So, you know, I think, the first of those, and 102 00:15:52.350 --> 00:16:00.420 perhaps it's the most obvious, but, you know, it's worth saying, because we have had to take many actions to enforce this principle is, right, you know, when 103 00:16:00.420 --> 00:16:09.270 you're talking about potentially deceptive advertising, it's important that, you know, whether you're an affiliate broker, you know, an ISO, lender, anybody 104 00:16:09.270 --> 00:16:18.330 who's providing consumer facing advertising your marketing materials, it's very important to ensure that those materials are truthful, that they're not 105 00:16:18.330 --> 00:16:27.480 misleading to reasonable consumers and your audience. And also, you know, to the extent you're making objective product claims, you know, claims about 106 00:16:27.480 --> 00:16:36.720 interest rates, average savings fees, you know, even if you are an intermediary, like a lead generator, or broker, and not, not the lender itself, you know, if 107 00:16:36.720 --> 00:16:46.650 you're going to make those objective claims, you need to have, you know, a reasonable basis and and data from your lender that supports those sorts of claims. And, 108 00:16:46.650 --> 00:16:54.780 you know, in the lack of that is a lack of substantiation, which is potentially actionable as deception. And so, you know, in our online lending 109 00:16:54.780 --> 00:17:02.130 cases, where we've had, you know, a number of actions, even in the last few years involving, you know, personal lending, but but lending non the less, we're 110 00:17:02.130 --> 00:17:09.870 the same principles apply. You know, for example, we're an active litigation against Lending Club for what we alleged to be misrepresentations they made about their 111 00:17:09.870 --> 00:17:21.690 upfront fees. I was involved with a case a couple years ago that we brought against social finance, for, we allege making false claims about the average specific 112 00:17:21.690 --> 00:17:29.880 consumer savings that consumers were getting their refinances. And we've had a number of cases, including cases against lead generators involving the 113 00:17:29.880 --> 00:17:39.540 misrepresentation of interest rates, those are the key elements, you know, are particularly important. Ensure that you're being you're being truthful, you have 114 00:17:39.540 --> 00:17:48.000 evidence to support them, if you're making them, you know, to ensure you're on the right side of the law. That's sort of principle number one. You know, number 115 00:17:48.000 --> 00:17:57.870 two, you know, it's related, I think it's worth sort of breaking out is, you know, specifically for, you know, intermediaries like lead generators, or brokers or 116 00:17:57.870 --> 00:18:07.590 affiliates. It's important, sort of given the nature of your role to be upfront with consumers, and not to mislead them about who you are, you know, in what, 117 00:18:07.620 --> 00:18:17.100 ultimately, you're going to be doing with that lead information, that web form when consumers press submit, and that you're clear with consumers about these 118 00:18:17.100 --> 00:18:28.530 things. So you know, one example right at the outset, and we're talking about our case, from April against SBA Loan Program, that's an instance where you have an 119 00:18:28.530 --> 00:18:39.510 entity, misleading consumers about their affiliation, who they are. We had a couple years ago, another relevant action against the lead generator, who's 120 00:18:39.510 --> 00:18:51.720 ultimately collecting leads for profit colleges. But their marketing websites, they use URLs like army.com, and all of the claims on their websites conveyed to 121 00:18:51.720 --> 00:19:00.810 consumers that they were recruiting for the military. But then they took all that information and sent it off to the consumers, could they be marketed by. Tools for 122 00:19:00.810 --> 00:19:10.620 educational programs. And this is an important element to to the extent that this company, which is called SunKey Publishing, revealed the true nature, you know, 123 00:19:10.620 --> 00:19:19.770 of their advertising, it just buried it in fine print. And that that is not sufficient, you know, the headline says, X, you know, you can't contradict it with Y in 124 00:19:19.770 --> 00:19:30.570 footnotes. Yeah. You know, or in a very non prominent, you know, statements and legal ease. Similarly, there's something we've seen in the broker, you know, lead gen 125 00:19:30.870 --> 00:19:42.150 type ecosystem are misleading claims. You know, about what's essentially paid play. You know, companies conveying to consumers or saying they're gonna, you 126 00:19:42.150 --> 00:19:51.060 know, rank companies or loan offers based upon objective, you know, unbiased information, what's the best match for you, when, in fact, you know, they're 127 00:19:51.060 --> 00:20:00.660 just ranking or matching companies based upon compensation. You know, we, a couple months ago, we wrote an action against a website called Lend Edu. That 128 00:20:00.660 --> 00:20:08.340 was doing this in connection with a student loan product and other financial products and services. Another deception related principle, I guess it'd be 129 00:20:08.340 --> 00:20:17.220 the third here. So moving up the chain a bit from, you know, affiliates to lead aggregators, to those, like lenders who are ultimately offering the products or 130 00:20:17.220 --> 00:20:30.210 services, is that, you know, finance providers, you know, we will hold you responsible for the conduct, if it's unlawful, and there's deceptive claims being made, 131 00:20:30.750 --> 00:20:39.720 the conduct of your lead generators, and we've done it in, in some cases. So for example, you know, I mentioned those sort of fake military recruitment 132 00:20:39.720 --> 00:20:50.910 websites. Now that lead generator called Sunkey was ultimately selling those leads to a chain of post secondary schools called CEC, that was buying, you 133 00:20:50.910 --> 00:21:01.050 know, leads and traffic from this lead generator, and from a few others who we also sued. Given those circumstances, you know, we went right up the chain. 134 00:21:01.230 --> 00:21:14.370 And we also brought an action against CEC, for ultimately profiting from so much bad traffic, that they were in a position to control or direct. A fourth 135 00:21:14.520 --> 00:21:23.160 kind of related principle, again, sort of moving through the trajectory of a transaction is to lead sales. You know, in a number of cases, in particularly 136 00:21:23.160 --> 00:21:33.240 robbing payday loans, we brought a number of actions that stands for the principle that, you know, if you're going to be selling a loan applications, with sensitive 137 00:21:33.240 --> 00:21:43.860 financial information to buyers, that you need to do some vetting for those buyers, to ensure that they are not sort of flashing, you know, warning signs or red 138 00:21:43.860 --> 00:21:53.760 flags that they might be using those leads for fraud or other illegitimate purposes. We've had a number of cases over the last few years in sort of standing for 139 00:21:53.760 --> 00:22:01.800 this proposition that it's unfair to indiscriminately sell, you know, loan applications like containing social security numbers and financial account numbers 140 00:22:01.800 --> 00:22:15.450 to buyers, you know, who are not going to be using them for loans, and are sort of flashing clear red flags to you. Another quick point over your fifth one, I know 141 00:22:15.450 --> 00:22:23.430 it's sort of outside of the realm of advertising, but I'd be remiss not to mention it, because it's important in these spaces. The FTC Act also applies to servicing 142 00:22:23.430 --> 00:22:32.460 and collections. So you know, when you're servicing relationships, you can't deceive consumers about things like, you know, true ups, or their ability to sort of 143 00:22:32.460 --> 00:22:40.470 reconcile or lower their payments, when their revenue stream goes down. If that's something you're promising, you have to follow through with those promises and keep 144 00:22:40.470 --> 00:22:47.910 them, you know, you have to avoid things like unauthorized withdrawals, or debiting, which is something we've seen in a lot of lending places, 145 00:22:48.570 --> 00:22:58.800 including outside of small business, finance, just in personal lending. And as Richmond also shows, you know, debt collection is another important area, in any 146 00:22:58.800 --> 00:23:08.580 lending space. You know, and we, as we did in Richmond, and as we've done in personal lending cases, and personal credit, you know, we will pursue debt 147 00:23:08.580 --> 00:23:24.660 collectors, for making egregious false threats against consumers, abusing them, you know, with with egregious threats and harassment. And, finally, so one important 148 00:23:26.190 --> 00:23:34.260 thing I'd like to sort of convey to this audience again, is that, to the extent that you sort of, you know, working in this area, see the types of conduct 149 00:23:34.260 --> 00:23:49.080 that we're outlining here. We really urge you and encourage you to come and you can contact me. You can provide a complaint to our hotline, which is 877-FTC- 150 00:23:49.080 --> 00:24:00.150 HELP or through our website, FTC.gov, submit the consumer complaint. But you know, I urge you contact us for some of those valuable information tips we get from 151 00:24:00.660 --> 00:24:02.970 those in industry who really have their ear to the track.