e-Commerce Notes

FTC Issues over $12 Million
In Redress Checks to Victims
Of '90 Credit Fraud

The Federal Trade Commission (“FTC”) announced last month that it had, through its claims administrator, mailed more than 400,000 checks totaling more than $12 million to consumers identified as victims of an illegal credit-card billing scam operated by J.K. Publications and other defendants.

The payments follow a 2000 ruling that the defendants allegedly made millions of dollars worth of illegal charges to credit and debit cards for subscriptions to Web sites, in part by accessing consumers' personal financial information through a database to which the companies subscribed.

The federal court for the Northern District of California found in 2000 that the defendants had racked up $37,566,577 ' minus legitimate or unaccounted-for alleged charges exceeding $43 million ' and ordered the FTC to provide restitution to the injured consumers in the most feasible manner.

The FTC says the redress checks are the result of a lawsuit the FTC filed in 1999. The defendants' records obtained during litigation contained only credit and debit card numbers. Under instructions from the court, credit reporting agencies and banks provided the FTC with the names and addresses associated with the card numbers as of the date of the charges. The FTC's claims administrator mailed checks to those consumers.

Most of the illegal billing dates back to 1998, the government says in a posting on the FTC's Web site (www.ftc.gov). Substantial time passed between the court's judgment and the issuance of these checks because the defendants moved millions of dollars of their ill-gotten funds offshore, and it took significant time and effort to locate and repatriate the fraudulently obtained money, the FTC says.

As part of its ongoing effort to educate the public on consumer-protection matters, the FTC states in its press release on the payments that recipients of the consumer-redress checks can cash them directly. The FTC emphasizes that it never requires payment of money up front, or the provision of additional information, before consumers cash redress checks issued to them.

The Federal Trade Commission (“FTC”) last month described its comprehensive efforts to combat identity theft before the U.S. House Subcommittee on Information Policy, Census, and National Archives of the Committee on Oversight and Government Reform.

The FTC also recommended legislative remedies to enhance the effectiveness of these efforts, according to a news release on the agency's Web site (www.ftc.gov).

The testimony, presented by Betsy Broder, assistant director of the FTC's Division of Privacy and Identity Protection, highlighted the agency's leadership role in developing a national strategy to combat identity theft as part of the President's Identity Theft Task Force.

The Task Force issued 31 recommendations that promoted an enhanced data-security culture in the public and private sectors, launched victim assistance initiatives, and improved law enforcement's ability to pursue and punish identity thieves.

The FTC's testimony recommended that to help prevent identity theft, Congress should establish data-security standards across the private sector requiring all organizations that hold sensitive consumer data to take reasonable measures to safeguard it, and to notify consumers when the security of their information has been breached. In addition, the Commission has asked Congress for authority to seek civil penalties in data-security cases and for legislation that would help reduce the unnecessary use and display of Social Security numbers.

The FTC testimony described the agency's efforts to keep sensitive information out of the hands of identity thieves by working to ensure that those who maintain such information adequately protect it.

The agency told the Subcommittee that since 2001, the FTC has brought 26 law-enforcement actions against businesses that failed to implement reasonable security measures to protect sensitive consumer data.

The Commission says its enforcers believe that these aggressive law-enforcement efforts have helped make the business sector sensitive to the importance of data security and motivated business owners to devote more attention and resources to protecting consumers' data.

The agency notes, too, that it shares consumer complaints with more than 1,700 law-enforcement agencies through the Consumer Sentinel Network to facilitate criminal prosecution of identity thieves.

The testimony also discussed the Commission's direct assistance to ID-theft victims, such as online resources at www.ftc.gov/idtheft, and a toll-free hotline for victims, 1-877-IDTHEFT, which assisted more than 300,000 victims in 2008 alone.

The testimony outlined how these resources guide victims to limit the damage and restore their identities.

According to the FTC testimony, the agency's efforts to educate consumers also include:

• Disseminating English- and Spanish-language materials directly to consumers;
• Working with organizations to help inform their members, constituencies, and employees; and
• Creating a multimedia Web site, OnGuard Online, with tips on safe online computing. For businesses ' especially small businesses ' the Commission has created a brochure and online tutorial on information security and has hosted regional data-security workshops.

The Commission also has worked to implement the identity-theft
provisions of the Fair and Accurate Credit Transactions Act (“FACT Act”). For example, the FACT Act gives consumers the right to receive free annual credit reports so that they can spot signs of identity theft. The FTC has enforced this right by bringing two actions against companies offering so-called “free” credit reports that were tied to the purchase of a credit-monitoring service.

The Commission vote authorizing presentation of the testimony was 4-0.

As part of its mission to keep subscribing counsel informed about laws that have bearing on e-commerce or consumer access to business via the Internet, e-Commerce Law & Strategy offers the information below on legal resources critically important to the Federal Trade Commission's primary missions of regulating business competition and protecting consumers from fraud.