Written By ESR News Blog Editor Thomas Ahearn

The U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) have announced that a background report provider and its chief executive officer (CEO) were banned from engaging in deceptive negative option marketing and would pay $21 million to resolve allegations that they used “teaser background reports” to trick consumers and trap them in difficult-to-cancel subscription programs, according to an FTC press release.

A complaint filed in the U.S. District Court for the Central District of California in July of 2020 alleged the background report provider and its CEO claimed that the company’s background reports on particular individuals may contain arrest records, criminal records, and sex offender records – even when they did not include such information – to try to trick consumers into signing up for auto-renewing premium subscriptions.

The complaint alleged that the background report provider operated as a consumer reporting agency (CRA) and violated the federal Fair Credit Reporting Act (FCRA) that regulates CRAs by, among other things, failing to maintain reasonable procedures to verify how its reports would be used, to ensure the information was accurate, and to make sure that the information it sold would be used only for legally permissible purposes.

The complaint also alleged that the background report provider’s misleading billing practices violated the Restore Online Shoppers’ Confidence Act by, for example, failing to clearly disclose upfront charges, or that consumers’ subscription would automatically renew. The background report provider also violated the Telemarketing Sales Rule by misrepresenting its refund and cancellation policies, the complaint alleged.

As part of the settlement, the background report provider and its CEO agreed to separate judgments totaling $33.9 million. The CEO will pay a total of $5 million and the background report provider will pay a partially suspended judgment of $16 million due to the company’s inability to pay the full amount unless the company is found to have misrepresented its finances. The money will be used to provide refunds to consumers.

The background report provider and its CEO are also permanently banned from offering any product with a negative option feature and engaging in the types of deceptive conduct outlined in the complaint including implying that someone who has received a traffic violation has a criminal record. In addition, the background report provider is required to implement a monitoring program to ensure they are complying with the FCRA.

Enacted by Congress in 1970, the FCRA 15 U.S.C § 1681 promotes the accuracy, fairness, and privacy of consumer information contained in the files of CRAs, protects consumers from the willful and/or negligent inclusion of inaccurate information in their consumer reports, and regulates the collection, dissemination, and use of consumer information, including consumer credit information. A copy of the FCRA is available here.

Employment Screening Resources® (ESR) – a service offering of ClearStar, a leading provider of Human Capital Integrity℠ technology-based services, specializing in background and medical screening – offers background screening solutions that comply with the FCRA and complimentary white papers on how employers may avoid FCRA lawsuits and how CRAs may avoid FCRA lawsuits. To learn more, contact ESR today.

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