[Senate Hearing 117-15]
[From the U.S. Government Publishing Office]
S. Hrg. 117-15
STOPPING COVID-19 FRAUD AND PRICE GOUGING
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HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND DATA SECURITY
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 1, 2022
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available online: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
55-075 PDF WASHINGTON : 2024
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
MARIA CANTWELL, Washington, Chair
AMY KLOBUCHAR, Minnesota ROGER WICKER, Mississippi, Ranking
RICHARD BLUMENTHAL, Connecticut JOHN THUNE, South Dakota
BRIAN SCHATZ, Hawaii ROY BLUNT, Missouri
EDWARD MARKEY, Massachusetts TED CRUZ, Texas
GARY PETERS, Michigan DEB FISCHER, Nebraska
TAMMY BALDWIN, Wisconsin JERRY MORAN, Kansas
TAMMY DUCKWORTH, Illinois DAN SULLIVAN, Alaska
JON TESTER, Montana MARSHA BLACKBURN, Tennessee
KYRSTEN SINEMA, Arizona TODD YOUNG, Indiana
JACKY ROSEN, Nevada MIKE LEE, Utah
BEN RAY LUJAN, New Mexico RON JOHNSON, Wisconsin
JOHN HICKENLOOPER, Colorado SHELLEY MOORE CAPITO, West
RAPHAEL WARNOCK, Georgia Virginia
RICK SCOTT, Florida
CYNTHIA LUMMIS, Wyoming
Lila Helms, Staff Director
Melissa Porter, Deputy Staff Director
George Greenwell, Policy Coordinator and Security Manager
John Keast, Republican Staff Director
Crystal Tully, Republican Deputy Staff Director
Steven Wall, General Counsel
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SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY,
AND DATA SECURITY
RICHARD BLUMENTHAL, Connecticut, MARSHA BLACKBURN, Tennessee,
Chair Ranking
AMY KLOBUCHAR, Minnesota JOHN THUNE, South Dakota
BRIAN SCHATZ, Hawaii ROY BLUNT, Missouri
EDWARD MARKEY, Massachusetts JERRY MORAN, Kansas
TAMMY BALDWIN, Wisconsin MIKE LEE, Utah
BEN RAY LUJAN, New Mexico TODD YOUNG, Indiana
C O N T E N T S
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Page
Hearing held on February 1, 2022................................. 1
Statement of Senator Blumenthal.................................. 1
Statement of Senator Blackburn................................... 3
Statement of Senator Wicker...................................... 4
Statement of Senator Cantwell.................................... 5
Statement of Senator Klobuchar................................... 39
Statement of Senator Markey...................................... 41
Statement of Senator Thune....................................... 43
Statement of Senator Lee......................................... 45
Witnesses
Samuel A.A. Levine, Director, Bureau of Consumer Protection,
Federal Trade Commission....................................... 7
Prepared statement of the Federal Trade Commission........... 8
Teresa Murray, Consumer Watchdog Director, U.S. Public Interest
Research Group................................................. 15
Prepared statement........................................... 17
Mary K. Engle, Executive Vice President, Policy, Better Business
Bureau National Programs....................................... 25
Prepared statement........................................... 26
Todd Leatherman, Program Counsel for the National Attorneys
General Training and Research Institute, Center for Consumer
Protection, National Association of Attorneys General.......... 30
Prepared statement........................................... 32
Appendix
Response to written questions submitted by Hon. Ben Ray Lujan to:
Teresa Murray................................................ 53
Todd Leatherman.............................................. 54
STOPPING COVID-19 FRAUD
AND PRICE GOUGING
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TUESDAY, FEBRUARY 1, 2022
U.S. Senate,
Subcommittee on Consumer Protection, Product
Safety, and Data Security,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 3:05 p.m., in
room SR-253, Russell Senate Office Building, Hon. Richard
Blumenthal, presiding.
Present: Senators Blumenthal [presiding], Cantwell,
Klobuchar, Markey, Blackburn, Wicker, Thune, and Lee.
OPENING STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. The Subcommittee on Consumer Protection
of the Commerce Committee will come to order.
I want to welcome our witnesses and thank the Chair, Maria
Cantwell, and Ranking Member Roger Wicker, who is with us, and
especially my partner in this effort, Senator Blackburn, whose
leadership has been very important throughout our subcommittee
process today, no less than in our past meeting. She has played
an important role, and I want to thank our witnesses for being
here as well. Nothing could be more important right now than
protecting consumers against the spreading scourge of price
gouging and scamming on the Internet and elsewhere relating to
COVID prevention and treatment products.
Connecticut alone has received more than 800 complaints,
including one from a constituent of mine in Shelton,
Connecticut, Julius Hull, whose son tried to get a test. He
needed a test because he was potentially a danger to his older
parents. He and his son went to a walk-in test facility, waited
in line for 45 minutes before they were told no more tests.
They went to another facility, waited for 50 minutes, no more
tests, and they were told the only tests left were rapid tests
available to purchase for $60. As Mr. Hull put it to me, ``We
are being told to wear masks, get vaccinated, keep social
distances, and get tested if you have any symptoms. We have
done this and get hit with a $60 bill. I do not know who put
the price of these tests at $60 each, but I believe we are
being taken advantage of.'' Yes, Mr. Hull, you are being taken
advantage of, you are being exploited, and what is happening to
you is unconscionable. And I would say the same thing to every
one of those 800 people who have complained about similar
practices.
Sixty dollars per test is ridiculous. Taking advantage of
people by raising the cost of these lifesaving products is not
only immoral. In most states, it is a crime. State attorneys
general are stepping up, bringing cases where they can, but it
is a national challenge, and I will be very blunt. There is a
glaring lack of enforcement at the Federal level. The Federal
Government, including the Federal Trade Commission and the
Department of Justice, have few legal tools to hold price
gougers accountable. That is a glaring gap in the law that
needs to be corrected. I am deeply frustrated and disappointed
that Federal enforcers have failed to do more, and a large part
of the problem is almost certainly lack of sufficient
authority.
And that is why I will be proposing a measure that will
fill that gap. It will enable Federal enforcers to do more and
protect consumers in Connecticut from these price gougers and
scammers. We need to impose steep financial penalties and
absolutely bring criminal charges. I have said this in a
variety of other contexts. The one thing that these companies
understand is prison time and criminal charges. Profiteering
during a pandemic is reprehensible. It costs lives. It must
end.
Last year, the Subcommittee held a hearing on scams and
fraud exploiting the pandemic. We heard then that the pandemic
has created a bonanza for swindlers and con artists. The theft
continues. The FTC has received nearly 700,000 reports of fraud
since the start of the pandemic, approaching $700 million lost.
At each new phase of the pandemic, consumers have been
inundated with more sophisticated scams. Online marketplaces
are still rife with fake face masks. Sophisticated counterfeits
are still infiltrating our supply chain, putting unsuspecting
consumers and healthcare workers at risk. And social media
platforms are still a mega mall for snake oil salesmen hawking
fake cures and prevention measures.
It is not small change theft. People are going unvaccinated
because of the commercial misinformation from these snake oil
salesmen and then contracting COVID-19 and dying. So we have
seen a new trend, an entirely new paradigm of fake or deceptive
testing schemes during this recent surge. Bogus testing centers
have promised quick results and left consumers waiting for
days. In some cases, the results are not even real. Again,
these scams cost lives.
The purpose of this hearing is to sound the alarm, raise
the red flag, create awareness about the surge of scam, but it
is also to ensure that those who steal from consumers and put
them at risk are brought to justice. Our consumer protection
laws are dead letter if they are unenforced, and the Federal
Trade Commission has to do more, has to do better, has to be
more vigorous and assertive. It has failed to create deterrence
through hefty fines and strict court orders, and it must do
more. In December 2020, Congress gave the FTC new legal tools
to help bring stiff financial penalties against fraud. I want
to recognize Chair Cantwell's substantial leadership on that
law, which I was pleased to help lead. We urge the Commission
to fight harder. We gave it more funding.
Last year, the Acting Director of the Bureau of Consumer
Protection told us that it had ``cases in the pipeline,'' and
yet the FTC has brought two cases in the last 10 months since
that hearing, three in total, under the new law. However, the
FTC continues to issue warning letters that are nothing more
than a notice and not even a slap on the wrist. They do not
rise to that level. Again, this fraud, this undermining of our
pandemic response is happening because there are nearly no
consequences. The burden is falling on consumers. These bogus
testing centers, counterfeit face masks, and deceptive
marketing schemes are crimes. I expect more enforcement and so
does the American people. I expect the FTC to refer cases to
the Department of Justice and collaborate with States for
criminal prosecution. For these criminals, only prison time
will act as a deterrent.
I look forward to hearing from the witnesses about what
else can be done and should be done to protect consumers, and I
look forward to collaborating with colleagues on both sides of
the aisle to stop price gouging, hold online marketplace
scammers accountable, and ensure that our laws are enforced.
Thank you again to the Ranking Member, and I turn to her.
STATEMENT OF HON. MARSHA BLACKBURN,
U.S. SENATOR FROM TENNESSEE
Senator Blackburn. Thank you, Mr. Chairman, and I thank you
for the work and I thank your staff for the work. I appreciate
that our staffs are able to work together so well on not only
this issue, but other issues that our subcommittee is
addressing, and it is important to bring some oversight to
scams that consumers have faced. It is absolutely essential
that the Federal Government work with our State partners to
crack down on bad actors who threaten the livelihood of some of
the most vulnerable Americans.
Fraudsters have gotten quite creative with their schemes
during the pandemic. I think we have all been a little bit
amazed with some of what we have discovered that they are
doing. Whether it is through taking advantage of elderly
citizens or advertising and selling products with false medical
claims, scammers have disrupted the lives of millions of
Americans. And you mentioned the $700 million that is the cost
that the FTC estimates has come to consumers. Seven hundred
million dollars. It is unacceptable. Fortunately, our states
have leaders, like my state of Tennessee, our attorney general,
Herbert Slatery, that have taken a leading role in shutting
down these scammers. In the first consumer action brought by
any State Attorney General Office in response to COVID-19,
Tennessee closed down a price gouging operation involving two
brothers that deprived rural East Tennessee and Eastern
Kentucky of hand sanitizer. Thankfully, AG Slatery was able to
resolve the matter quickly, and the brothers agreed to donate
the supplies to a nonprofit organization in Tennessee. State
attorneys general know their consumers best, and that is why I
believe they are so well suited to lead this fight and to be
there on the front lines.
In 2020, another Tennessee company was making allegedly
deceptive and misleading claims related to its cleaning
products and services. The company claimed its products and
services were FDA and EPA approved and could eliminate COVID-19
and protect against the virus on surfaces for up to 30 days.
The company also presented the logos of major companies on
their website, even though most of the companies confirmed they
had never worked with the company or approved the use of their
logo. Following a letter from AG Slatery in May 2020, the
company continued to imply that its products and services could
protect against COVID-19. In November 2020, Attorney General
Slatery announced a settlement with the company and prevented
them from making any further deceptive or misleading claims
that products or their services were effective against COVID-
19.
Individual consumers were not the only victims of
fraudsters the Federal Government has been defrauded in
countless instances. The Paycheck Protection Program and the
Economic Injury Disaster Loan Program have saved thousands of
small businesses and kept hundreds of thousands of people on
the payroll. However, scammers immediately took advantage of
these programs when the SBA was forced to screen applicants and
approve loans quickly. According to an ABC News report dating
back to last August, SBA's Inspector General Mike Ware,
estimated that 5 percent of transactions were fraudulent, a
stunning rate that would suggest tens of billions of dollars
have been lost.
I would like to point out one last thing before the
witnesses give their opening remarks, and we do thank the
witnesses for joining us today and for their patience with our
tardiness in beginning the hearing. It is important to note
that an unprecedented amount of counterfeit PPE continues to
come through our Nation's ports. Not surprisingly, countless
amounts of these fake masks and test kits come from China.
Tomorrow, this committee is scheduled to vote on the nomination
of Mary Boyle to be a Commissioner of the Consumer Product
Safety Council, the CPSC.
Now, according to a USA Today report, in July 2021, Ms.
Boyle was a leader in last year's decision to pull inspectors
from the ports. Ms. Boyle, who agreed to pull port inspectors
during private conversations in March 2020 told Commissioners,
and I quote her, that ``The Agency could chase problem products
later through recalls.'' That is a very troubling statement,
very troubling, because by that time, the counterfeit products
are there. People have had tests that did not deliver accurate
results. They have used PPE that is counterfeit and not
effective. So I highly recommend to the White House that they
pull the nomination of Ms. Boyle and that they put forward a
candidate with a more proven background.
Thank you, Mr. Chairman. I look forward to the hearing.
Senator Blumenthal. Thanks, Senator Blackburn. Senator
Wicker, I do not know whether you have an opening statement.
Senator Wicker. I do have a brief opening statement, Mr.
Chairman, and I do thank you.
Senator Blumenthal. Please go ahead.
STATEMENT OF HON. ROGER WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. And thanks to both of you for your
leadership on this issue and for convening this very important
hearing on protecting the public from COVID-19 scams and price
gouging.
As the COVID-19 virus continues to impact the United
States, fraudsters and cyber criminals have continued
exploiting the pandemic to take advantage of consumers. These
bad actors have employed myriad scams to steal money from
Americans, including e-mail phishing schemes, government
imposter scams, price gouging, identity theft, and more. Last
month, the FTC calculated that these scams have cost Americans
over $600 million, perhaps more. To protect consumers from such
illicit activities, Congress can and should move to clarify the
FTC's authority to empower the Agency to punish and enjoin
fraudulent or improper behavior and quickly see that victims
are compensated for their losses. Congress should also give the
FTC clear authority to go after bad actors exploiting the
supply chain crisis and surging inflation to gouge consumers.
I think there is a real opportunity to craft legislation to
clarify the FTC's authority to protect consumers from price
gouging and assist State attorneys general in combating this
illegal practice. However, this effort should not distract from
addressing the reckless policies that have caused the price of
goods to spike and brought about the highest inflation numbers
in 40 years. Finally, these COVID-related scams further
underscore the need for uniform national privacy legislation to
protect consumers from identity thieves and other misuse of
their personal information. The subcommittee addressed this
topic about 10 months ago, as the Chairman has already stated.
Today's hearing presents an opportunity to learn more about the
efforts of the FTC, State and local governments, and the
private sector to protect consumers from COVID-19 scams.
So I thank the witnesses for their patience and for their
testimonies, and I thank Senators Blumenthal and Blackburn for
holding this important hearing. And I yield.
Senator Blumenthal. I will turn to the Chair of the
Commerce Committee, Senator Cantwell, if she has any opening
remarks.
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
The Chairwoman: Thank you, Chair Blumenthal, and thank you
for holding this hearing, my colleague, the Ranking Member,
Senator Wicker, and being here for this important hearing, and
the witnesses today.
Since the onset of the pandemic, consumers across the
country have been victimized by a range of scams related to
COVID-19, including fake COVID-19 tests, cures, price gouging,
phishing scams, and these are more than just an annoyance. They
put the lives of individuals really at risk. So I am sad to see
in the Seattle Times today a headline, ``COVID Testing Company
Faked Test Results, Lied to Patients,'' and that our attorney
general in the State of Washington is filing suit. The lawsuit,
which was filed yesterday, describes how an Illinois-based
company with at least 13 COVID-19 testing sites operating in
Washington, took advantage of Washington residents and
consumers, some in other parts of the country as well, at a
time when the Omicron infections were rising at a skyrocketing
rate. Consumers complained that they did not get test results,
that there were reports that companies stuffed tests into trash
bags. Reports also surfaced that employees did not wear
protective gear, or masks, or gloves, and one resident
particularly worried because he provided a copy of his driver's
license and insurance card with obviously important personal
information. Another resident visited the site, was uneasy from
the start when she entered a makeshift storefront to find an
empty office except for two folding chairs and was in--still
waiting to hear about her test results.
So I hope that the witnesses will be able to answer
important questions for the record today. The alleged fraud has
serious consequences, and I want to make sure that consumers in
Washington have confidence to go get these tests and at these
sites, so I hope that the FTC will look into this matter. There
are issues about whether the FTC will--make sure the FTC has
the proper authority. The FTC reports that since 2020, there
have been nearly 300,000 reported instances of fraud resulting
in more than $669 million in total fraud losses. So I hope that
the FTC--responding by sending warning letters, but obviously
we want and have sought for much quicker action on that. The
Commission needs to take stronger tools to find companies who
peddle fake treatment and cures and who endanger the public. So
I look forward, Mr. Chairman, to have comments from our
witnesses on that.
We passed the Consumer Protection Act, and Senator Wicker
and I were sponsors of that, yet the FTC only has brought three
civil penalty cases with this authority. So we want a strong
FTC pursuing these cases about misperceptions, fraudulent
activity as it relates to consumers in the time of a COVID
crisis. So thank you, Mr. Chairman.
Senator Blumenthal. Thanks, Senator Cantwell, and thanks
for your support in the work of our subcommittee, and most
especially your work on the December 2020 law that strengthened
the FTC in giving them additional tools on this topic. And I
want to join in thanking the witnesses for their patience. We
have ongoing votes as you know, and we are going to be moving
in and out, but we were late starting because of those votes,
and we appreciate your staying with us.
Let me introduce the witnesses. Mr. Samuel Levine is the
Director of the Federal Trade Commission's Bureau of Consumer
Protection. Mr. Levine previously served as attorney advisor
for Commissioner Rohit Chopra and as a staff attorney in the
FTC's Chicago office. Teresa Murray is the Director of the
Consumer Watchdog Office at the United States Public Interest
Research Group, which looks out for consumers' health, safety,
and financial security. Previously, Ms. Murray worked on--
worked as a journalist and columnist covering consumer issues
and personal finance for 2 decades in Ohio. Ms. Mary Engle is
the Executive Vice President of Policy at the Better Business
Bureau National Programs. Prior to joining BBB, Ms. Engle
directed the FTC's Division of Advertising Practices, enforcing
truth in advertising principles for national advertising
matters. And Mr. Todd Leatherman. Mr. Leatherman is the Program
Counsel of the National Attorneys General Training and Research
Institute for the National Association of Attorneys General--
NAAG. Before joining NAAG, Mr. Leatherman worked for 23 years
with the Kentucky Attorney General's Office, Office of Consumer
Protection.
Mr. Levine, we will begin with your testimony. Thank you
for being here.
STATEMENT OF SAMUEL A.A. LEVINE, DIRECTOR, BUREAU OF CONSUMER
PROTECTION, FEDERAL TRADE COMMISSION
Mr. Levine. Thank you, Senator, and good afternoon. My name
is Samuel Levine, and I am the Director of the FTC's Bureau of
Consumer Protection. I am pleased to be speaking to you today
about the FTC's comprehensive work to detect, deter, and halt
COVID-related fraud. My written statement represents the views
of the Commission, but this opening statement represents my
views alone.
The global pandemic has caused unimaginable suffering for
millions of Americans, but it has created rich opportunities
for scammers. At the FTC, thanks to the new tools and resources
Congress gave us to fight COVID fraud, we are pursuing a
comprehensive strategy to combat this scourge. First, we are
carefully monitoring fraudulent claims. We work tirelessly to
review thousands of complaints submitted to our Sentinel data
base, and we monitor social media and other platforms which
have become fertile ground for fraud. In addition, we analyze
the complaints we receive from the public to spot emerging
trends and guide our enforcement strategy. Second, we are using
new authorities granted by Congress to target the worst forms
of COVID abuse. Thanks in part to the COVID-19 Consumer
Protection Act, we have been able to take down hundreds of
fraudulent claims through cease and desist demands, and we have
brought lawsuits to permanently shut down the worst offenders.
But there is more work to do. We recognize that removing
claims quickly from the marketplace does not help those who
have already been victimized by these scams, and we will bring
more cases to help ensure that consumers can be made whole. We
are also making unprecedented investment to consumer education,
and we are reaching out to communities across the country to
spread the word about avoiding fraud. Unfortunately, the
impacts of the pandemic on the marketplace have been so
pervasive that case-by-case enforcement and education is simply
not enough. That is why we are also taking steps to deter fraud
market-wide, particularly by triggering civil penalty
liability.
Over the last year, we initiated a rulemaking to combat
government and impersonation fraud, we revived our penalty
offense authority to crack down on false earnings and health
claims, and we worked with the CFBP to deter landlords from
violating the CDC's eviction ban. We also protected consumers
looking to buy products made in America, formally outlawing the
practice of slapping ``Made in America'' labels on imported
goods. Finally, we issued a statement on criminal referrals,
reaffirming that we would not hesitate to refer the most
egregious frauds for criminal prosecution.
I am proud of the actions we are taking, but we do face
significant headwinds. First, scammers now have a lethal weapon
to aim at struggling Americans: social media. It is no longer
the case that scammers need to cold call consumers or blast out
fraudulent mailers to defraud the public. Now they can use
powerful tools built on secret surveillance of American
consumers to target their prey with precision. The result is
that social media platforms have become hotbeds for fraud. Last
week we released data showing that 1 in 4 people who reported
losing money to fraud in 2021 said that the con started on
social media, and the number of consumers who reported losing
money to these scams has gone up 19-fold--19-fold--since 2017.
This surge is exactly why the Commission is pursuing a strategy
to effectuate deterrence market-wide, but this battle remains
uphill so long as digital platforms continue to wash their
hands of responsibility for the fraud they are facilitating.
Our second major challenge stems from the Supreme Court's
decision in AMG, which stripped the FTC of its most powerful
authority, Section 13(b), to redress consumers and hold bad
actors accountable. During the 5 years before the decision was
issued, FTC law enforcement actions resulted in the return of
more than $11 billion to injured consumers, but the AMG case
means that many lawbreakers are now able to pocket their
profits with impunity. We are grateful for everything Congress
is doing to try to restore this vital tool, and we stand ready
to assist in any way we can.
I thank you for the opportunity to speak with you today,
and I look forward to taking your questions.
[The prepared statement of The Federal Trade Commission
follows:]
Prepared Statement of The Federal Trade Commission
I. INTRODUCTION
Chairman Blumenthal, Ranking Member Blackburn, and Members of the
Subcommittee, I am Samuel Levine, Director of the Bureau of Consumer
Protection at the Federal Trade Commission (Commission or FTC).\1\ I am
pleased to appear before you today.
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\1\ This written statement presents the views of the Federal Trade
Commission. The oral statements and responses to questions reflect my
own views and do not necessarily reflect the views of the Commission or
any Commissioner.
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During the course of this pandemic, we have encountered disturbing
trends and surging complaints as Americans are being targeted by
predators large and small, with schemes including get-rich-quick
opportunities, bogus cures, false promises of economic assistance, and
counterfeit personal protective equipment (PPE). The Commission is
taking a comprehensive approach to identifying and addressing COVID-
related consumer frauds impacting American consumers and businesses.
First, the FTC is engaged in law enforcement to halt and deter COVID-
related deceptive claims. Second, we continue to collect and analyze
data in our Consumer Sentinel Network to identify consumer fraud
trends. Third, the FTC has continued its outreach and consumer
education and is proactively using social media, video streaming
conferences, and other methods to reach historically underserved
communities and people in economically and geographically diverse
communities. The Commission appreciates funds provided in the American
Rescue Plan, which we have used to bolster our efforts to address the
effects of the COVID-19 pandemic on American consumers.
The Commission recognizes that challenges remain in protecting
consumers from fraud and abuse. Returning money to defrauded consumers
has been a fundamental part of the FTC's consumer protection mission.
However, the Supreme Court in AMG Capital Mgmt., LLC v. FTC, 141 S. Ct.
1341 (Apr. 2021) held that the FTC does not have the ability to obtain
monetary relief pursuant to Section 13(b) of the FTC Act. Amidst this
devastating pandemic, restoring the FTC's ability to provide redress to
wronged consumers is critical.
II. COMBATTING COVID-RELATED FRAUD
a. Detecting COVID-19 Scams
The FTC's Consumer Sentinel Network collects millions of reports
from the public about fraud, identity theft, and other consumer
problems, and makes them available to thousands of law enforcement
users across the country. In the weeks following the first known cases
of COVID-19 in the U.S., the FTC developed systems to track and alert
the public to shifts in Sentinel reporting. On ftc.gov/exploredata, the
FTC launched public dashboards showing aggregate Sentinel data on
reports associated with COVID-19 by age, type of fraud, and geographic
location, with figures that are updated daily. Since January 2020 and
as of January 28, 2022, the FTC has received more than 292,000 such
fraud reports, reflecting $674 million in fraud losses.\2\
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\2\ The figures reflect reports in Sentinel that specifically
mention words related to the pandemic, such as COVID, stimulus, N95,
and related terms. To provide the most relevant results, some
subcategories are excluded. For more information, visit https://
public.tableau.com/profile/federal.trade.commission#!/vizhome/COVID-
19andStimulusReports/Map.
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Ensuring that the experiences of all consumers are represented in
Consumer Sentinel is critically important to the agency's work. To
expand accessibility, the FTC launched a modernized reporting website,
ReportFraud.ftc.gov, in October 2020. The updated site includes a
COVID-19 banner, providing an easy way for consumers to report COVID-
related issues. We are also grateful to more than 45 law enforcement
partners, including 25 state Attorneys General, for contributing data
to the Sentinel system. In 2021, the FTC increased the capacity of the
Consumer Sentinel Network to learn about individual instances of fraud
by adding the Social Security Administration as a data contributor.
Sentinel received nearly 2.8 million reports of fraud in 2021, with
consumers reporting a total dollar loss of $5.9 billion and an
individual median dollar loss of $500.\3\
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\3\ In 2020, Sentinel received nearly 2.3 million fraud reports and
consumers reported a total dollar loss of $3.4 billion. https://
public.tableau.com/app/profile/federal.trade.commission/viz/
ConsumerSentinel/Infographic
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FTC staff monitors and analyzes Sentinel to identify every COVID-
related fraud complaint to find potential law enforcement targets and
witnesses, and to coordinate with federal, state, and local law
enforcement partners. These reports have led to numerous law
enforcement actions.
b. COVID-19 Law Enforcement Actions
Thanks in part to new authority granted by Congress, bad actors
face severe consequences for committing COVID-related fraud. Deploying
the Commission's new authority under the COVID-19 Consumer Protection
Act of 2020 \4\ (CCPA) and its other legal authorities, the Commission
seeks emergency injunctions, asset freezes, and civil penalties of up
to $46,517 for each violation of the CCPA or other rules enforced by
the agency as necessary to ensure that the public is protected.
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\4\ Pub. L. No. 116-260, 134 Stat. 1182, Division FF, Title XIV,
Sec. 1401.
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Most recently, the FTC filed a lawsuit under the CCPA alleging that
a Utah-based company claimed its nasal sprays provide four-hour
protection against coronavirus and are ``an effective solution to the
pandemic.'' \5\ A few months prior, we filed the first case under the
CCPA against a chiropractor and his company who claimed their vitamin D
and zinc supplements were scientifically proven to treat or prevent
COVID-19, and that they were equally or more effective than
vaccines.\6\ We pursued and obtained a stipulated preliminary
injunction against these defendants.\7\ In addition, the agency is
seeking civil penalties under the CCPA against an online marketer that
allegedly not only failed to deliver PPE within promised timeframes,
but also falsely claimed that consumers would receive N95 respirators
certified by the FDA or NIOSH while actually providing inferior cloth
facemasks.\8\ In all three of these cases, which are still ongoing, we
are using authority granted by Congress to pursue civil penalties and
other relief. These actions are the latest in a long line of
enforcement efforts that began early in the pandemic. Even before the
enactment of the CCPA, the FTC used Section 5 to challenge deceptive
health claims \9\ and illegal practices relating to sales of PPE \10\
and sanitizing products.\11\
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\5\ Complaint, US v. Xlear, Inc., Case No. 2:21-cv-00640-RJS (D.
Utah), available at https://www.ftc.gov/system/files/documents/cases/
filed_complaint_xlear_v_jones_v.1.pdf.
\6\ Complaint, US v. Nepute, Case No. 4:21-cv-00437 (E.D. Mo.),
available at https://www
.ftc.gov/system/files/documents/cases/2023188eneputecomplaint_0.pdf.
\7\ Preliminary Injunction, US v. Nepute, Case No. 4:21-cv-00437
(E.D. Mo.), available at https://www.ftc.gov/system/files/documents/
cases/consent_order.pdf.
\8\ Complaint, FTC v. Frank Romero dba Trend Deploy, Case No. 5:21-
cv-00343 (M.D. Fla.), available at https://www.ftc.gov/system/files/
documents/cases/complaint_-_trend_deploy.pdf.
\9\ For example, the Commission sued a company that, even after
receiving a warning from the FTC, allegedly deceptively advertised a
$23,000 treatment plan as a scientifically proven way to treat COVID-
19, and recently settled with one defendant for over $100,000. FTC
Press Release, FTC Sues California Marketer of $23,000 COVID-19
``Treatment'' Plan (July 31, 2020), https://www.ftc.gov/news-events/
press-releases/2020/07/ftc-sues-california-marketer-23000-
covid-19-treatment-plan; Stipulated Order for Permanent Injunction and
Monetary Judgment as to Defendant Stephen Meis, FTC v. Golden Sunrise
Nutraceutical, Inc., Case No. 1:20-cv-00540-DAD-SKO (E.D. Cal.),
available at https://www.ftc.gov/system/files/documents/cases/052-
_gs_stipulated_order_for_permanent_injunction_and_monetary_judgment_as_t
o_defendant_step
hen_meis.pdf.
\10\ See, e.g., Complaint, FTC v. SuperGoodDeals.com, Inc., Case
No. 20-cv-3027 (E.D.N.Y.), available at https://www.ftc.gov/system/
files/documents/cases/202_3135_supergooddeals_-_complaint.pdf;
Complaint, FTC v. Am. Screening, LLC, Case No. 4:20-cv-1021 (E.D. Mo.),
available at https://www.ftc.gov/system/files/documents/cases/
202_3158_american_screening_-_complaint.pdf; Complaint, FTC v. Zaappaaz
LLC, Case No. 4:20-cv-02717 (S.D. Tex.), available at https://
www.ftc.gov/system/files/documents/cases/202_3136_zaappaaz_-
_complaint.pdf.
\11\ See, e.g., Complaint, FTC v. QYK Brands LLC, Case No. 8:20-cv-
01431-JLS-KES (C.D. Cal.), available at https://www.ftc.gov/system/
files/documents/cases/202_3147_qyk_brands_-_complaint.pdf; Complaint,
FTC v. One or More Unknown Parties Deceiving Consumers Into Making
Purchases Through: www.cleanyos.com et al., Case No. 5:20-cv-02494
(N.D. Ohio), available at https://www.ftc.gov/system/files/documents/
cases/complaint_w-a_filed.pdf. The Commission obtained a Federal court
order that, while litigation proceeds, prohibits the defendants from
making deceptive claims, suspends their deceptive websites, and bars
them from using their websites to collect money from consumers.
Preliminary Injunction, FTC v. One or More Unknown Parties Deceiving
Consumers Into Making Purchases Through: www.cleanyos.com et al., Case
No. 5:20-cv-02494 (N.D. Ohio), available at https://www.ftc.gov/system/
files/documents/cases/
ftc_v_unknown_preliminary_injunction_with_att_a.pdf.
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The FTC also has challenged schemes that exploited consumers' and
small businesses' financial distress. Most recently, the Commission
ruled against a company that deceived consumers with mailers that
featured a likeness of the Great Seal of the United States and a mock
stimulus check and promised to get them Federal COVID-19 stimulus
benefits.\12\ Rather than assisting consumers to obtain stimulus
benefits, the mailers sought to lure consumers to auto sales events.
The Commission Order banned the company and its owner from
participating in advertising, marketing, promoting, distributing, or
selling or leasing motor vehicles for 20 years.\13\ Early in the
pandemic, the FTC alleged that a company falsely claimed to be an
approved lender to induce struggling small businesses to submit
applications for the Paycheck Protection Program, administered by the
Small Business Administration (SBA). The FTC obtained a court order
permanently barring the company from misrepresenting its ability to
make or process SBA loans, as well as its affiliation with SBA.\14\ In
addition, to protect consumers attempting to replace or supplement
income during the pandemic, the Commission--along with 19 federal,
state, and local partners--led a nationwide crackdown against scams
making false promises of income and financial independence.\15\ As part
of the crackdown, the Commission sued Moda Latina, which allegedly
targeted Latina consumers with false earnings claims in Spanish
language ads.\16\ An order resolving that case bans the defendants from
selling or marketing opportunities to work from home and imposes a
judgment of over $7 million.\17\ In National Web Design, a work-from-
home scam, the Commission alleged that the defendants blasted out
millions of illegal robocalls and adjusted call messaging to capitalize
on consumers who were concerned about the health risks of working
outside the home during the pandemic.\18\ The order resolving the case
bans defendants from robocalling and selling or marketing work-from-
home opportunities and imposes a judgment of more than $2 million.\19\
In an ongoing lawsuit against Raging Bull, the FTC has alleged that the
defendants fraudulently marketed investment-related services that they
claimed would enable people to make consistent profits and beat the
market, and claimed that the pandemic was a great time to learn their
trading techniques to make profits.\20\ Instead, the FTC has alleged,
consumers--including retirees, older adults, and immigrants--lost more
than $197 million to this scheme in only the last three years.
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\12\ Opinion of the Commission, In re Traffic Jam Events, LLC,
Docket No. 9395 (FTC), available at https://www.ftc.gov/system/files/
documents/cases/d09395_commission_opinion.pdf.
\13\ Final Order, In re Traffic Jam Events, LLC, Docket No. 9395
(FTC), available at https://www.ftc.gov/system/files/documents/cases/
d09395_commission_final_order.pdf.
\14\ Stipulated Final Order, FTC v. Ponte Investments, LLC, Case
No. 1:20-cv-00177 (D.R.I.), available at https://www.ftc.gov/system/
files/documents/cases/x200042_ponte_inv_-_stipulated
_final_order.pdf.
\15\ FTC Press Release, As Scammers Leverage Pandemic Fears, FTC
and Law Enforcement Partners Crack Down on Deceptive Income Schemes
Nationwide (Dec. 14, 2020), https://www.ftc.gov/news-events/press-
releases/2020/12/scammers-leverage-pandemic-fears-ftc-law-enforcement-
partners.
\16\ Complaint, FTC v. Moda Latina BZ Inc., Case No. 2:20-cv-10832-
FMO-SK (C.D. Cal), available at https://www.ftc.gov/system/files/
documents/cases/001_complaint.pdf.
\17\ Order on Stipulation Re: Permanent Injunction and Monetary
Judgment, FTC v. Moda Latina BZ Inc., Case No. 2:20-cv-10832-FMO-SK
(C.D. Cal. March 21, 2021), available at https://www.ftc.gov/system/
files/documents/cases/056_order_on_stipulation_re_permanent_inj
_and_monetary_judgment.pdf
\18\ Complaint, FTC v. National Web Design, LLC, Case No. 2:20-cv-
00846 (D. Utah), available at https://www.ftc.gov/system/files/
documents/cases/randon_morris_complaint.pdf.
\19\ Order Granting Stipulated Motion for Permanent Injunction and
Monetary Judgment, FTC v. National Web Design, LLC, Case No. 2:20-cv-
00846 (D. Utah), available at https://www
.ftc.gov/system/files/documents/cases/38_-
_permanent_injunction_and_monetary_judgment.pdf.
\20\ Amended Complaint, FTC v. RagingBull.com, LLC, Case No. 1:20-
cv-03538-GLR (D. Md.), available at https://www.ftc.gov/system/files/
documents/cases/ragingbull.com_-_amended_com
plaint_for_permanent_injunction_and_other_equitable_relief.pdf.
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The Commission will remain vigilant in protecting the public from
harms that stem directly and indirectly from the COVID-19 pandemic. The
FTC is committed to tackling emerging threats, adjusting our strategies
wherever necessary, and working in close coordination with our law
enforcement partners at the local, state, and Federal level.
c. COVID-19 Consumer Education and Outreach
The Commission has continued to buttress its law enforcement
actions with consumer and business education. Aided by the American
Rescue Plan funds, the FTC has increased its outreach to ethnic and
immigrant communities, which have been targeted by COVID-19 scams. The
FTC has actively engaged with ethnic and community media journalists
nationwide to learn about issues affecting these communities. Later
this month, the agency will place multilingual anti-fraud messaging
into targeted print and radio markets. This messaging will reach Asian-
American, Black, Latino, and Tribal communities on topics that include
scams related to COVID-19 and other topics. The FTC also has used new
methods to reach people in economically and geographically diverse
communities. For example, the FTC conducted national radio media tours
with the National Association of Attorneys General (NAAG) focused on
scams related to vaccine passports and certificates, travel, vaccine
lotteries and giveaways, and other topics. Segments of the recorded
interview were heard more than 7.6 million times over a seven-week
period. Similarly, in November 2021, the FTC and NAAG partnered on a
national radio tour that focused on consumer finances and resiliency--
segments of which were heard more than 9 million times over five weeks.
The FTC also mailed post cards to nearly a quarter of a million people
in communities with low broadband access and delivered letters to
community health professionals in 5,000 rural and urban clinics to help
people avoid COVID-related fraud.
We have also hosted and participated in national and local events
with partners to reach a variety of audiences, including older
consumers, ethnic and community media, housing organizations, re-entry
groups, library patrons, and the military community. For example, in
June 2021, the FTC partnered with Connecticut's Department of Consumer
Protection to brief the media and public about the FTC's newly-launched
Community Advocate Center Program. This initiative provides a new way
for organizations that provide free and low-cost legal services to
report fraud and other illegal business practices directly to the FTC
on behalf of their clients--a critical new resource in fighting COVID
and other fraud. These kinds of initiatives and outreach events are the
result of strong relationships built through regular collaboration and
communication. FTC staff also participate on monthly consumer fraud
task forces or roundtables in Hawaii, Indiana, Kansas, Minnesota,
Missouri, South Dakota, and Wisconsin and hold additional quarterly
calls with consumer protection staff in Hawaii and Utah to remain
abreast of consumer fraud trends and developments in those states.
Finally, the Commission has been issuing timely alerts to warn
consumers and the business community about a wide range of evolving
COVID-related frauds since the beginning of the pandemic. To date, the
FTC has issued more than 180 relevant consumer and business alerts on
topics including free testing kits and testing scams, vaccine
verification methods, economic impact payments, health claims, online
shopping, privacy in a virtual environment, contact tracing, government
imposter scams, and job scams. In addition to posting these materials
on its public website, the FTC proactively sends its alerts, in English
and Spanish, to more than 500,000 e-mail subscribers, which include
consumers, businesses, partners, and the media. In turn, many of these
subscribers share the information with their communities, greatly
expanding the reach of the agency's message and resulting in media
pick-up at the national, regional, and local levels.
III. MARKET-WIDE INITIATIVES TO PROTECT CONSUMERS
In addition to pursuing enforcement and consumer education, the
Commission is deploying new tools and reviving old ones to try to
address emerging trends that threaten consumers. The consumer fraud
problems reported to the FTC every year help the agency not only
identify specific law enforcement targets, but more broadly understand
emerging trends in the marketplace, particularly problems causing
substantial consumer financial losses.
The pandemic required many work, school, recreation, and social
activities to transition from in-person to online. Reports in Sentinel
show that scammers have been quick to take advantage of these changes,
resulting in record reports of financial losses. These broad shifts
include soaring number of reports about business imposters,\21\
undelivered merchandise,\22\ and substantial losses stemming from
online shopping.\23\ Cryptocurrency investment scam reports have also
risen sharply during the pandemic,\24\ and in fact, reports about
income scams of all sorts increased sharply during the pandemic.\25\
Work-from-home scams, fake check scams that start with an e-mail, or
deceptive online trading offers proliferated during the pandemic.\26\
Fraud reports about medical treatments more than doubled over the
course of the pandemic, and the fraction of these that related to COVID
also increased substantially in the last year.\27\
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\21\ The FTC received 106,727 business imposter reports in 2019,
and 394,743 in 2021. FTC Consumer Sentinel Data (on file with the FTC).
\22\ Emma Fletcher, Pandemic Purchases Lead to Record Reports of
Unreceived Goods, FTC Consumer Protection Data Spotlight (Jul 1, 2020),
available at https://www.ftc.gov/news-events/blogs/data-spotlight/
archive/202007.
\23\ Emma Fletcher, Amazon tops list of impersonated businesses,
FTC Consumer Protection Data Spotlight (Oct. 20, 2021), available at
https://www.ftc.gov/news-events/blogs/data-spotlight/2021/10/amazon-
tops-list-impersonated-businesses.
\24\ Emma Fletcher, Cryptocurrency Buzz Drives Record Investment
Scam Losses, FTC Consumer Protection Data Spotlight (May 17, 2021),
available at https://www.ftc.gov/news-events/blogs/data-spotlight/2021/
05/cryptocurrency-buzz-drives-record-investment-scam-losses.
\25\ FTC Consumer Sentinel Data (current through Jan. 28, 2022) (on
file with the FTC) .
\26\ Emma Fletcher, Income Scams: Big Promises, Big Losses, FTC
Consumer Protection Data Spotlight (Dec. 10, 2020), available at
https://www.ftc.gov/news-events/blogs/data-spotlight/2020/12/income-
scams-big-promises-big-losses.
\27\ FTC Consumer Sentinel Data (on file with the FTC) (based on
reports about health care issues, such as medical treatments and cures,
drug-OTC/prescription, and dietary supplements/herbal remedies).
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Scammers have reportedly increased their use of social media to
target consumers.\28\ More than one in four people who reported losing
money to a scam in 2021 said that the scam started with a contact on
social media. What's more, these reports have increased nineteen-fold
since 2017.\29\ The Commission has been examining these issues. In
December 2020, the Commission ordered social media and video streaming
companies to provide data on how they collect, use, and present
personal information, their advertising and user engagement practices,
whether they apply algorithms or data analytics to personal
information, and how their practices affect children and teens.\30\
This study may provide critical information on the business practices
at issue.
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\28\ Emma Fletcher, Social Media A Gold Mine for Scammers in 2021,
FTC Consumer Protection Data Spotlight (Jan. 25, 2022), available at
https://www.ftc.gov/news-events/blogs/data-spotlight/2022/01/social-
media-gold-mine-scammers-2021.
\29\ Id.
\30\ FTC Press Release, FTC Issues Orders to Nine Social Media and
Video Streaming Services Seeking Data About How They Collect, Use, and
Present Information (Dec. 14, 2020), available at https://www.ftc.gov/
news-events/press-releases/2020/12/ftc-issues-orders-nine-social-media-
video-streaming-services. Commissioner Phillips dissented, Dissenting
Statement of Commissioner Noah Joshua Phillips Social Media Service
Providers Privacy 6(b) (Dec. 14, 2020), available at https://
www.ftc.gov/system/files/documents/public_statements/1584154/dissenting
_statement_of_commissioner_noah_joshua_phillips_regarding_social_media_a
nd_video_streaming
.pdf.
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a. Impersonator Fraud
For years, scammers have falsely claimed that they are calling from
the IRS, the Social Security Administration, or other offices or
businesses to steal data and money from hard-working Americans.
Consumer financial losses to business imposter scams are substantial,
topping $451 million in 2021 alone.\31\ In fact, business imposter
reports from consumers more than tripled between 2019 and 2021, and
were largely driven by scammers pretending to be an online retailer,
like Amazon.\32\ Government imposter scams--a perennial top category of
fraud--have similarly capitalized on the pandemic.\33\ Impersonators
use all methods of communication to trick their targets into trusting
that they are the government or an established business and then trade
on this trust to steal their identity or money.
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\31\ FTC Consumer Sentinel Data (on file with the FTC).
\32\ FTC Consumer Sentinel Data (on file with the FTC). .
\33\ See Trade Regulation Rule on Impersonation of Government and
Businesses, 86 Fed. Reg. 72901, 72902 (Dec. 23, 2021) (``Since the
pandemic began, COVID-specific scam reports have included 12,491
complaints of government impersonation and 8,794 complaints of business
impersonation.''), available at https://www.federalregister.gov/
documents/2021/12/23/2021-27731/trade-regulation-rule-on-impersonation-
of-government-and-businesses.
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The Commission is considering deploying its rulemaking authority to
prohibit these impersonation frauds. In December, the agency launched
an advanced notice of proposed rulemaking to combat government and
business impersonation fraud.\34\ If a rule is ultimately promulgated,
it would enable the Commission to seek refunds for consumers under its
Section 19 authority, in addition to civil penalties. The FTC will
continue to use all of its tools, including any new tools granted by
Congress, to protect consumers and ensure a fair marketplace.
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\34\ FTC Press Release, FTC Launches Rulemaking to Combat Sharp
Spike in Impersonation Fraud (Dec. 16, 2021), available at https://
www.ftc.gov/news-events/press-releases/2021/12/ftc-launches-rulemaking-
combat-sharp-spike-impersonation-fraud.
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b. False Educational and Earnings Claims
As noted above, scams promising income have proliferated during the
pandemic.\35\ The economic disruption caused by the pandemic led many
consumers to pursue new opportunities to earn a living, including
through multilevel marketers, ``gig'' employers, and vocational
schools. Unfortunately, bad actors are preying on Americans' economic
insecurity by making false claims about the income they can earn from
jobs, and the training and opportunities they can receive from
vocational schools. Consumers who are lured into these schemes can be
driven deeply into debt and can be deprived of better
opportunities.\36\
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\35\ Emma Fletcher, Income Scams: Big Promises, Big Losses, FTC
Consumer Protection Data Spotlight (Dec. 10, 2020), available at
https://www.ftc.gov/news-events/blogs/data-spotlight/2020/12/income-
scams-big-promises-big-losses.
\36\ See, e.g., Quarterly Report on Household Debt and Credit;
Federal Reserve Bank of New York (Nov. 2021) (showing that student loan
debt accounted for approximately 10 percent of total household debt in
the third quarter of 2021), available at https://www.newyorkfed.org/
medialibrary/interactives/householdcredit/data/pdf/HHDC_2021Q3.pdf; see
also COVID-19 Adds to Economic Hardship of Those Most Likely to Have
Student Loans, U.S. Census Bureau (Aug. 18, 2021) (stating that
``student loans are among the largest contributors to household
debt''), available at https://www.census.gov/library/stories/2021/08/
student-debt-weighed-heavily-on-millions-even-before-pandemic.html.
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The Commission has long worked to protect consumers from deception
in this area, but this is becoming more challenging. For example, this
past November, the FTC returned nearly $60 million to more than 140,000
Amazon Flex drivers who allegedly had their tips deceptively
withheld.\37\ Achieving similar results in future cases could be
hindered by the Supreme Court's decision in AMG.
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\37\ Decision and Order, FTC v. Amazon.com, Inc., Docket No.C-4746
(requiring Amazon to return all of the money it allegedly withheld from
drivers deceptively), available at https://www.ftc.gov/system/files/
documents/cases/1923123c4746amazonflexorder1.pdf. See also Stipulated
Order, FTC v. University of Phoenix, Inc., Case No. 2:19-cv-05772 (D.
AZ) (requiring the University of Phoenix and its parent company to pay
$191 million to resolve allegations that they deceptively touted job
opportunities), available at https://www.ftc.gov/system/files/
documents/cases/
de_15_stipulated_order_for_permanent_injunction_and_monetary_judgment.pd
f; Stipulated Order, FTC v. Career Education Corp., Case No. 1:19-cv-
05739 (E.D. Ill) (providing $30 million in redress to consumers
deceived by post-secondary and vocational schools' use of alleged
deceptive lead generators), available at https://www.ftc.gov/system/
files/documents/cases/de_11_-
_stipulated_order_for_permanent_injunction.pdf.
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The Commission has also launched an initiative to use its Penalty
Offense Authority to deter unfair and deceptive practices on a market-
wide basis and to protect consumers from scams that prey on economic
precarity.\38\ This past October, the Commission sent Notice of Penalty
Offenses \39\ to more than 1,100 businesses regarding deceptive or
misleading earnings claims and fake reviews and other misleading
endorsements,\40\ and to 70 for-profit colleges regarding deceptive or
misleading job and earning prospects.\41\ The goal of putting these
industries on notice is to deter wrongful conduct by triggering the
possibility of civil penalties.
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\38\ The Penalty Offense Authority empowers the Commission to seek
civil penalties of up to $46,517 per violation from a company if it
knowingly engages in acts or practices that the Commission has
determined to be unfair or deceptive in a prior administrative order,
other than a consent. 15 U.S.C. Sec. 45(m)(1)(B). To trigger this
authority, the FTC can send a company a Notice of Penalty Offenses
outlining conduct that the Commission has determined is unlawful.
\39\ The agency also sent Notices of Penalty Offenses to more than
700 advertisers and consumer product companies regarding fake reviews
and other misleading endorsements. FTC Press Release, FTC Puts Hundreds
of Businesses on Notice about Fake Reviews and Other Misleading
Endorsements (Oct. 13, 2021), available at https://www.ftc.gov/news-
events/press-releases/2021/10/ftc-puts-hundreds-businesses-notice-
about-fake-reviews-other.
\40\ FTC Press Release, FTC Puts Businesses on Notice that False
Money-Making Claims Could Lead to Big Penalties (Oct. 26, 2021),
available at https://www.ftc.gov/news-events/press-releases/2021/10/
ftc-puts-businesses-notice-false-money-making-claims-could-lead.
\41\ FTC Press Release, FTC Targets False Claims by For-Profit
Colleges Oct. 6, 2021), available at https://www.ftc.gov/news-events/
press-releases/2021/10/ftc-targets-false-claims-profit-colleges.
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c. Deceptive Health Claims
Fraud reports about medical treatments more than doubled during the
course of the pandemic, and in the last year, those related to COVID
increased persistently.\42\ Market-wide deterrence is especially
important with respect to deceptive health claims, which can lead
consumers to turn to bogus cures and forgo legitimate treatments. To
achieve this deterrence, the Commission is placing market actors on
notice that they can face stiff civil penalties if they cheat consumers
with false claims.
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\42\ See note 27.
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Starting in March 2020, the FTC launched a campaign to challenge
companies' deceptive COVID-19 claims--directing the companies to cure
violations and pursuing enforcement actions if problematic claims were
not quickly removed. To date, the FTC has issued more than 425 cease
and desist demands, many in conjunction with the Food and Drug
Administration (FDA), to sellers and marketers that claimed that their
products could treat or prevent COVID-19.\43\ Twenty of those cease and
desist demands were directed to multi-level marketing companies (MLMs)
regarding deceptive earnings claims and COVID-19 prevention or
treatment claims made by the MLM or its business opportunity
participants.\44\ The agency also issued cease and desist demands with
the SBA regarding small business relief \45\ and joint demand letters
with the Federal Communications Commission (FCC) to Voice Over Internet
Protocol service providers and others who may have been ``assisting and
facilitating'' illegal telemarketing calls, including calls making
fraudulent offers of COVID-19 home testing kits.\46\ These cease and
desist demands lay the groundwork for ensuring that bad actors can face
civil penalties of $46,517 and other relief under the CCPA, the
Commission's Penalty Offense Authority, and other laws.\47\ These
demands can be issued quickly, distributed broadly, and monitored
closely.
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\43\ Copies of all of the FTC's COVID-19 related cease and desist
demands are available here: https://www.ftc.gov/coronavirus/
enforcement/warning-letters.
\44\ See Press Release, FTC Sends Warning Letters to Multi-Level
Marketers Regarding Health and Earnings Claims They or Their
Participants are Making Related to Coronavirus (Apr. 24, 2020),
available at https://www.ftc.gov/news-events/press-releases/2020/04/
ftc-sends-warning-letters-multi-level-marketers-regarding-health; Press
Release, FTC Sends Second Round of Warning Letters to Multi-Level
Marketers Regarding Coronavirus Related Health and Earnings Claims
(June 5, 2020), available at https://www.ftc.gov/news-events/press-
releases/2020/06/second-round-warning-letters-to-mlms-regarding-
coronavirus; Press Release, With Omicron Variant on the Rise, FTC
Orders More Marketers to Stop Falsely Claiming Their Products Can
Effectively Prevent or Treat COVID-19 (Jan. 19, 2022), available at
https://www.ftc.gov/news-events/press-releases/2022/01/omicron-variant-
rise-ftc-orders-more-marketers-stop-falsely.
\45\ FTC Press Release, FTC and SBA Warn Operator of SBA.com and
Lead Generator Lendio to Stop Potentially Misleading Coronavirus Relief
Loan Marketing (May 18, 2020), available at https://www.ftc.gov/news-
events/press-releases/2020/05/ftc-sba-warn-operator-sbacom-lead-
generator-lendio-stop; Press Release, FTC and SBA Warn Six Companies to
Stop Potentially Misleading Marketing Aimed at Small Businesses Seeking
Coronavirus Relief Loans (June 24, 2020), available at https://
www.ftc.gov/news-events/press-releases/2020/06/ftc-sba-warn-six-
companies-stop-potentially-misleading-marketing.
\46\ FTC Press Release, FTC and FCC Send Joint Letters to VoIP
Service Providers Warning against `Routing and Transmitting' Illegal
Coronavirus-related Robocalls (Apr. 3, 2020), available at https://
www.ftc.gov/news-events/press-releases/2020/04/ftc-fcc-send-joint-
letters-voip-service-providers-warning-against; FTC Press Release, FTC
and FCC Send Joint Letters to Additional VoIP Providers Warning against
`Routing and Transmitting' Illegal Coronavirus-related Robocalls (May
20, 2020), available at https://www.ftc.gov/news-events/press-releases/
2020/05/ftc-fcc-send-joint-letters-additional-voip-providers-warning.
The FTC also independently sent letters to nine VoIP service providers
in March 2020 regarding illegal calls regarding COVID. FTC Press
Release, FTC Warns Nine VoIP Service Providers and Other Companies
against `Assisting and Facilitating' Illegal Coronavirus-related
Telemarketing Calls (March 27, 2020), available at https://www.ftc.gov/
news-events/press-releases/2020/03/ftc-warns-nine-voip-service-
providers-other-companies-against.
\47\ In coordination with FDA, the FTC has issued cease and desist
demands pursuant to the FTC's Penalty Offense Authority on other health
fraud such as diabetes and infertility. See, e.g., FTC Press Release,
FTC Sends Cease and Desist Demands to 10 Companies Suspected of Making
Diabetes Treatment Claims without the Required Scientific Evidence
(Sept. 9, 2021), available at https://www.ftc.gov/news-events/press-
releases/2021/09/ftc-sends-cease-desist-demands
-10-companies-suspected-making; FTC Press Release, Federal Trade
Commission, FDA Warn Five Companies That May Be Illegally Selling
Dietary Supplements Claiming to Treat Infertility (May 26, 2021),
available at https://www.ftc.gov/news-events/press-releases/2021/05/
federal-trade-commission-fda-warn-five-companies-may-be-illegally.
---------------------------------------------------------------------------
In response to these cease and desist demands, the vast majority of
recipients take down their claims. This allows the Commission to
preserve its scarce law enforcement resources to pursue the most
hardened scammers, and to seek every remedy available to halt their
wrongdoing, ban them from further abuses, and make them pay.
IV. LEGAL CHALLENGES
Returning money to consumers harmed by scammers has been a
cornerstone of the FTC's law enforcement actions. In Fiscal Year 2021,
FTC law enforcement actions resulted in more than $403 million in
redress to harmed consumers.\48\ These payments help ensure that
consumers can be compensated for their losses, and that wrongdoers
cannot pocket their illegal gains. And these payments are especially
critical during this pandemic. In AMG Capital Mgmt., LLC v. FTC, 141 S.
Ct. 1341 (Apr. 2021), the Supreme Court held that the Commission cannot
obtain monetary relief pursuant to Section 13(b) of the FTC Act. The
Commission requests legislation to restore its ability to return money
to consumers harmed by illegal conduct.
---------------------------------------------------------------------------
\48\ For more information visit https://public.tableau.com/app/
profile/federal.trade.commis
sion/viz/Refunds_15797958402020/RefundsbyDate
---------------------------------------------------------------------------
V. CONCLUSION
For nearly two years, the Commission has worked tirelessly to stop
bad actors from exploiting the pandemic. But the Commission's work is
far from over. COVID-related scams are likely to persist as the country
continues to grapple with this pandemic. Combatting these scams remain
a top priority for the Commission, and we will use every weapon in our
arsenal to do so.
We look forward to continuing to work with the Subcommittee and
Congress, and I am happy to answer your questions.
Senator Blumenthal. Thanks very much, Mr. Levine.
We will now hear from, in succession, Ms. Murray, then Ms.
Engle, and Todd Leatherman. I am going to be voting, but I have
read your testimony, so I will be back to ask questions by the
time you are done with your testimony. And in the meantime,
Senator Blackburn will preside. Thank you.
Ms. Murray, you can go ahead.
STATEMENT OF TERESA MURRAY, CONSUMER WATCHDOG DIRECTOR, U.S.
PUBLIC INTEREST RESEARCH GROUP
Ms. Murray. Good afternoon, Chairman Blumenthal, Ranking
Member Blackburn, and members of the Subcommittee. I am Teresa
Murray, Director of the Consumer Watchdog Program with U.S.
Public Interest Public Research Group. We are an independent
nonpartisan group that works for consumers and for the public
interest. Thank you for the opportunity to talk about two big
challenges consumers have faced during the pandemic:
counterfeit products and price gouging.
Counterfeit or substandard products started infecting the
marketplace in February 2020. We saw massive amounts of
substandard and even dangerous hand sanitizer filling store
shelves and retailers' websites. People were terrified and
desperate and bought almost anything to protect themselves.
Some hand sanitizer actually contain methanol or other toxic
substances. Since July 2020, the FDA has recalled 273 brands of
hand sanitizer because they were dangerous or ineffective, and
a year ago, it issued an import alert on hand sanitizers from
Mexico. And this is still a problem. The most recent
recommended product recall was 2 weeks ago.
Many COVID-related products are counterfeit or do not do
what they claim. We appreciate the work the FTC has done to try
and keep us safe, but recently, we have seen a surge in
counterfeit masks. During 2020 and 2021, Customs and Border
Protection seized some 34 million counterfeit masks, half from
China. We know some counterfeits slip through. The CDC found
that 60 percent of KN95 masks sold in the U.S. during 2020 and
2021 did not meet safety standards. Counterfeit masks have been
a particular problem the last couple of months as Omicron
surged. The biggest issue with substandard masks is consumers
and healthcare workers think they are protected, but they are
not.
We are also seeing fake COVID test sites. The sites look
real with people in hazmat suits. You may get charged for a
test that is supposed to be free, or your information is used
to steal your identity, and, oh, you do not get test results.
The FTC is also seeing a surge in unauthorized home COVID tests
fueled by the test shortage. Senators Blumenthal and Markey
asked the FTC to investigate fraudulent tests and price gouging
of home tests. This cannot happen quickly enough.
Price gouging also started early in the pandemic. In spring
2020, U.S. PIRG researched 90 types of face masks and hand
sanitizers on Amazon. We found price increases of at least 50
percent on more than half the products compared with 3 months
earlier. In January 2021, we researched 750 products, such as
face masks and cough syrup, and for each, we looked at the
price in December 2019 and in December 2020. And out of the 750
listings on Amazon, 409 saw price increases of more than 20
percent, and 136 at least doubled in price.
Recently, we have seen huge price spikes on home tests and
N95 and KN95 masks. For example, 90 days ago, a 2-pack of On/Go
home tests was selling for an average of $29.07 on Amazon, but
at least one Amazon seller offered it for $39.99. Also,
Saturday, I pulled up the top three listings on Amazon for N95
masks. One brand is Benehal. The 20-pack was selling for $16.78
2 months ago, and then health officials recommended higher-
quality masks. So 17 days ago, this same box of Benehal masks
was selling for as much as $69.98. How is this acceptable? In a
2020 letter to PIRG, Amazon vowed to do more to get rid of
exorbitant prices. It is not working, and it is not just
Amazon.
In conclusion, our recommendations are: Customs and Border
Protection must do more to stop counterfeit products from
entering the U.S. Regulators should proactively investigate
what is for sale in stores and online, including products that
falsely offer miracle cures. State attorneys general should
aggressively investigate price gouging. Thirty-seven states
have price gouging laws, but it is a patchwork of confusion and
inconsistency. We need meaningful price gouging legislation in
every state and at the Federal level. Congress should pass the
bipartisan INFORM Act to help squash the sale of counterfeits.
Businesses should not sell substandard products. Social media
platforms should not--they should eliminate harmful content and
advertising, including false promises of miracle cures.
Congress should give the FDA more authority to crack down on
and punish mask counterfeiters. The bipartisan Protecting
Patients From Counterfeit Medical Devices Act could help. We
all need to do all need to do better. We all need to do more.
Thank you again for the opportunity to address this
committee. I look forward to your questions.
[The prepared statement of Ms. Murray follows:]
Prepared Statement of Teresa Murray, Consumer Watchdog Director,
U.S. Public Interest Research Group
Good afternoon Chairman Blumenthal, Ranking Member Blackburn and
members of the Consumer Protection Subcommittee. I'm Teresa Murray and
I'm the director of the Consumer Watchdog program with the U.S. Public
Interest Research Group. U.S. PIRG is an independent, non-partisan
group that works for consumers and the public interest. Thank you for
the opportunity to talk today about challenges facing consumers as they
continue trying to keep themselves safe from COVID.
I'd like to talk today about two of the biggest consumer issues
during this pandemic: First, counterfeit products and other scams.
Second, price-gouging of legitimate products.
Counterfeit or substandard products started infecting the
marketplace in the earliest days, in February 2020. We saw massive
amounts of substandard and even dangerous hand sanitizer filling store
shelves and retailers' websites. People were terrified and desperate
and they'd buy almost anything in hopes of protecting themselves and
their families. Some of the items peddled as hand sanitizer actually
contained methanol and other dangerous substances. Since July of 2020,
the Food and Drug Administration has recalled 273 different brands of
hand sanitizer because they were dangerous or ineffective and a year
ago issued an import alert on all alcohol-based hand sanitizers from
Mexico\1\; the most recent recommended recall was less than two weeks
ago, on Jan. 20, 2022.\2\ All sorts of other COVID-related products
have surfaced that are counterfeits or knockoffs or simply don't do
what they say. Most recently, we've seen a surge in counterfeit masks.
---------------------------------------------------------------------------
\1\ https://www.fda.gov/news-events/press-announcements/
coronavirus-covid-19-update-fda-
takes-action-place-all-alcohol-based-hand-sanitizers-mexico-import
\2\ https://www.fda.gov/drugs/drug-safety-and-availability/fda-
updates-hand-sanitizers-consu-
mers-should-not-use#products
---------------------------------------------------------------------------
The FDA is working with other government offices to squash the
surge in counterfeits. It has issued import alerts for fraudulent
products.\3\ It also has been working with customs officials to stop
banned imports. During 2020 and 2021, agents with Customs and Border
Protection seized some 34 million counterfeit masks, half of them from
China, according to the New York Times.\4\ Those are just the ones that
got confiscated. Those are the ones we know about. We know that other
counterfeit and substandard products do slip through and are purchased
by unsuspecting consumers or provided to healthcare workers because
they look genuine.\5\ For example, last February, the Department of
Homeland Security said it had confiscated 10 million counterfeit 3M N95
masks, some of which were reportedly being shipped to hospitals.\6\
---------------------------------------------------------------------------
\3\ https://www.accessdata.fda.gov/ cms_ia/importalert_1165.html
\4\ https://www.nytimes.com/2021/11/30/ health/covid-masks-
counterfeit-fake.html
\5\ See appendix 4 for a photo of a counterfeit mask that looks
legitimate.
\6\ https://abcnews.go.com/Politics/senators-aim-fraudsters-
flooding-market-fake-masks/story
?id=81778809
---------------------------------------------------------------------------
Meanwhile, data from the Centers for Disease Control and Prevention
shows that 60 percent of KN95 masks sold in the U.S. during 2020 and
2021 failed to meet safety standards.\7\
---------------------------------------------------------------------------
\7\ https://www.cdc.gov/niosh/npptl/respirators/testing/
NonNIOSHresults.html
---------------------------------------------------------------------------
Counterfeit masks have been a particular problem the last couple of
months, as omicron surged and people wanted better protection.
Of course the biggest issue with counterfeit masks is people have a
false sense of security. These substandard masks aren't providing
someone with the protection they think they're getting.
We're also seeing fake COVID test sites, according to the Federal
Trade Commission.\8\ The test sites look real with people in hazmat
suits. But you get charged for a free test. Sometimes your information
is used to steal your identity. And you of course don't get any test
results.
---------------------------------------------------------------------------
\8\ https://www.consumer.ftc.gov/blog/2022/01/dont-assume-every-
covid-19-test-site-legit
---------------------------------------------------------------------------
The FTC says we're also seeing a surge in unauthorized home test
kits, fueled by the shortage of COVID test kits.\9\ \10\
---------------------------------------------------------------------------
\9\ https://www.cnbc.com/2022/01/06/fake-covid-testing-kits-are-
everywhereheres-how-to-avoid
-them.html
\10\ https://www.consumer.ftc.gov/blog/2022/01/ how-avoid-buying-
fake-covid-tests-online
---------------------------------------------------------------------------
Sen. Richard Blumenthal and Sen. Ed Markey have asked the FTC to
investigate fraudulent test kits and price gouging of home test kits.
This can't happen quickly enough.\11\
---------------------------------------------------------------------------
\11\ U.S. PIRG has worked closely with the Federal Trade Commission
on issues including scams, data privacy, Big Tech oversight and the
right to repair. We support, among other improvements to help the FTC,
increased funding for this chronically under-funded agency,
reinstatement of its 13(b) authority to impose restitution orders and
granting the FTC new authority to impose civil penalties for first-time
violations of the FTC Act. We also urge the Senate to confirm President
Biden's well-qualified nominee to the commission, Alvaro Bedoya, as
soon as possible.
---------------------------------------------------------------------------
On price gouging, like with counterfeit products, we saw this at
the very beginning of the pandemic. In spring of 2020, U.S PIRG
researched more than 90 types of face masks and hand sanitizers and
used a price-tracking tool to compare current prices with the three-
month average leading up to the pandemic. We found price increases of
at least 50 percent on more than half of the products.
In January 2021, we did another report. We researched 750 products
such as face masks, disinfecting wipes, oral thermometers and cough
syrup. For each product, we looked at the price of the listing on Dec.
1, 2019--before the pandemic--and the price again on Dec. 1, 2020. Out
of the 750 listings, 409 saw price increases of more than 20 percent,
and 136 at least doubled in price.\12\
---------------------------------------------------------------------------
\12\ https://uspirg.org/sites/pirg/files/reports/1%20Year%20Later-
%20Comparing%20Pre-Pan
demic%20Prices%20to%20Today%27s%20on%20Amazon%20%281%29.pdf
---------------------------------------------------------------------------
In the last couple of months, we've seen huge price spikes on home
COVID tests and on N95 and KN95 masks. For example, 90 days ago, ON/GO
home COVID rapid antigen tests were selling for an average of $29.07 on
Amazon. But three months ago, at least one merchant was selling the
two-pack test kit for 38 percent more--at a price of $39.99. As of last
Saturday, Jan. 29, 2022, the price was down to $24.\13\
---------------------------------------------------------------------------
\13\ Per Keepa. See screenshots in appendix 2.
---------------------------------------------------------------------------
Also Saturday, I pulled up information for top 3 listings on Amazon
for N95 masks. One is the Benehal NIOSH Approved N95 Mask particulate
respirators, pack of 20 individually wrapped, which is one of the masks
recommended by Project N95. The 20-pack was selling for as low as
$16.78 two months ago. But then Federal health officials recommended
higher quality masks than simple cloth masks. And 17 days ago, this
same box of Benehal masks was selling for as much as $69.98.\14\ How is
this an acceptable business practice? For its part, Amazon vowed in an
April 2020 letter to U.S. PIRG that it was committed to fair pricing
and would work harder to rid the site of exorbitant prices.\15\ It's
not working. And it's certainly not just Amazon.
---------------------------------------------------------------------------
\14\ Per Keepa. See screenshots in appendix 3.
\15\ See appendix 1, Amazon Response--U.S. PIRG
---------------------------------------------------------------------------
In December, New York Attorney General Letitia James issued a
consumer alert regarding price gouging after consumers filed complaints
about at-home tests being sold at double or triple their normal prices.
Some that you could buy in November for maybe $20 were selling for as
much as $70 per package at New York stores.\16\ This is outrageous.
---------------------------------------------------------------------------
\16\ https://ag.ny.gov/press-release/2021/consumer-alert-attorney-
general-james-asks-consumers
-report-price-gouging-home
---------------------------------------------------------------------------
My 103-year-old grandmother just died of COVID a few weeks ago.
It's personal for me, as I suspect it is for many of you. She did not
contract COVID because of counterfeit masks or highly priced COVID
tests. But it infuriates me to think the pain of this pandemic could be
prolonged by even one day or one more person might get sick because of
counterfeit masks or home COVID tests marked up three times their
normal price.
Recommendations:
1. Customs and Border Patrol needs to do as much as possible to stop
counterfeit and unauthorized products from entering this
country. Regulators need to proactively investigate what's for
sale at retailers and especially online, including products
that falsely offer miracle cures.
2. Authorities including state attorneys general need to investigate
reports of price gouging and prosecute any business that tries
to take advantage of a public emergency or natural disaster by
dramatically increasing its prices.
3. The chronically under-funded FTC needs help, including increased
funding, reinstatement of its 13(b) authority to impose
restitution orders \17\ and new authority to impose civil
penalties for first-time violations of the FTC Act.\18\
---------------------------------------------------------------------------
\17\ https://www.consumerfinancemonitor.com/2021/04/22/scotus-
rules-ftc-act-section-13b-does
-not-authorize-ftc-to-seek-restitution-or-disgorgement/
#: :text=In%20a%20unanimous%20decision
%2C%20the,AMG%20Capital%20Management%2C%20LLC%20v.
\18\ https://castor.house.gov/news/
documentsingle.aspx?DocumentID=403667
4. In the United States, 37 states, three territories and Washington
DC currently have price gouging laws. But it's a patchwork of
confusion and inconsistency. Many take effect when the state
declares an emergency. Some only apply to certain products such
as gasoline or milk. While laws vary by state, increases of 20
percent or more may be considered price gouging. We need
meaningful price gouging legislation in every state and we must
also pass comprehensive Federal price gouging legislation that
would apply during pandemics, natural disasters and other
---------------------------------------------------------------------------
emergencies.
5. Congress needs to pass the INFORM act, which has bipartisan
support.\19\ It would help squash the sale of counterfeits by
third-party sellers by requiring online marketplaces to acquire
the seller's government ID, tax ID, bank account information,
and contact information.
---------------------------------------------------------------------------
\19\ https://www.congress.gov/ bill/117th-congress/senate-bill/936
6. Businesses need to be more responsible and not sell products that
---------------------------------------------------------------------------
could be substandard.
7. Social media platforms need to eliminate harmful content and
advertising, including false promises of miracle cures.\20\
---------------------------------------------------------------------------
\20\ https://www.ftc.gov/news-events/blogs/business-blog/2021/11/
ftc-analysis-shows-covid-
fraud-thriving-social-media
8. Congress needs to look at granting more authority to the FDA to
crack down on and punish mask counterfeiters. The new bi-
partisan Protecting Patients from Counterfeit Medical Devices
Act \21\ that was introduced six weeks ago could be a good
first step. It's part of an effort to improve this country's
pandemic response and improve the supply chain.
---------------------------------------------------------------------------
\21\ https://www.congress.gov/bill/117th-congress/senate-bill/
3416?s=1&r=8
We all need to do better. We all need to do more. Regulators.
Lawmakers. Law enforcement. Consumer advocates. As long as consumers
are still getting ripped off, we can't stop trying to do more.
Thank you again for the opportunity to address this committee. I
look forward to answering your questions.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Blackburn [presiding]. Thank you, Ms. Murray.
Ms. Engle?
Ms. Engle. [Inaudible.] Sorry. You got it? Is it--OK?
Thanks.
STATEMENT OF MARY K. ENGLE,
EXECUTIVE VICE PRESIDENT, POLICY,
BETTER BUSINESS BUREAU NATIONAL PROGRAMS
Ms. Engle. Ranking Member Blackburn, I am Mary Engle,
Executive Vice President, Policy, at BBB National Programs, a
nonprofit organization dedicated to increasing marketplace
trust through independent industry self-regulation programs. I
previously worked at the Federal Trade Commission for 30 years
with the last 18 spent heading up the Division of Advertising
Practices in the Bureau of Consumer Protection. Thank you for
this opportunity to testify on how independent industry self-
regulation has helped to combat COVID-19 fraud.
BBB National Programs was created in 2019 out of the
reorganization of the Council of Better Business Bureaus into
two separate entities: BBB National Programs and the
International Association of Better Business Bureaus, which is
the umbrella organization for the local BBBs. BBB National
Programs operates more than a dozen national industry self-
regulation and accountability programs in the areas of
advertising, child-directed marketing, privacy, and dispute
resolution. Today I will focus on the work of two of our
programs, the Direct Selling Self-Regulatory Council, or DSSRC,
and the National Advertising Division, or NAD, which both have
addressed COVID-19 scams since the pandemic began.
Launched in 2019, the DSSRC monitors product and business
opportunity claims made by direct-selling companies and their
salesforce members, and facilitates the voluntary removal of
misleading claims from the marketplace. The NAD has provided a
voluntary self-regulatory forum for challenging misleading
advertising since 1971. NAD promotes fair competition and
builds public trust and advertising by reviewing misleading
advertising claims based on competitor challenges and through
its own monitoring. When a company does not participate or
comply with a DSSRC or NAD recommendation, we refer the
advertiser to the appropriate regulatory authority, usually the
FTC.
When COVID-19 shut down the world, some advertisers begin
touting untested cures, treatments, and preventives. The DSSRC
and NAD promptly took action against those claims. In April
2020, the Direct Selling Association and DSSRC issued a joint
press release cautioning direct selling companies and their
salesforce members from making claims referencing COVID-19 in
the context of product benefits and business opportunities. In
addition, DSSRC reminded all direct selling companies to
educate their salesforce members about best practices with
respect to health-related claims.
Since the onset of the pandemic, DSSRC has commenced 139
inquiries involving claims pertaining to COVID. Those inquiries
included 309 product performance claims and 32 claims
discussing the pandemic as an earnings opportunity. In almost
all the inquiries, the parties took prompt action to remove
references to the coronavirus. In the seven cases where that
did not happen, we referred the cases to the FTC or the
appropriate State attorney general. DSSRC currently has five
cases pending involving COVID-19 claims. Our National
Advertising Division has also brought cases challenging COVID
claims. One of the benefits of NAD case decisions is their
ability to educate other marketers as they can expand upon FTC
guidance by showing specific examples of how advertising can
imply, without stating expressly, that a product is effective
against COVID-19.
A good example is the NAD case involving advertising claims
for Your Superfoods U.S. Immunity Boosting Bundle of dietary
supplements. In that matter, the advertiser said things like,
``With all that is going on with the coronavirus, there is a
piece we can control, and that is our own health and building
our immune system because it depends on what we eat. It is
super important to have a lot of micronutrients now, so Super
Foods can help. We have this amazing Immunity Bundle.''
Following NAD's inquiry, the advertiser immediately agreed to
remove the claims from the marketplace. A case concerning an
elderberry supplement, advertised to support the immune system,
provides another example. NAD reviewed the claim, ``As
restrictions are gradually lifting, it is more important than
ever to keep your immune system strong. Our Elderberry Immune
Support keeps you protected with a powerful immune boosting
combo.'' NAD found that this claim conveyed the implied message
that the product protects against COVID. The advertiser
voluntarily removed the misleading advertising from YouTube and
elsewhere. NAD's COVID decisions have reached other industries
as well, from cleaning products, to ultraviolet lights, to
intravenous hydration therapy, and continuously self-cleaning
surfaces.
Thank you for the opportunity to explain how independent
industry self-regulation has helped combat deceptive COVID
claims. Although some companies will respond only to government
enforcement, many other marketers respond voluntarily to remove
misleading advertising when given concrete guidance on
appropriate claims. Independent entity self-regulation thereby
amplifies the impact of government actions to reduce harm to
consumers. Thank you, and I look forward to your questions.
[The prepared statement of Ms. Engle follows:]
Prepared Statement of Mary K. Engle, Executive Vice President, Policy,
BBB National Programs
Introduction
Chairman Blumenthal, Ranking Member Blackburn, and members of the
Subcommittee, I am Mary Engle, Executive Vice President, Policy, at BBB
National Programs, a non-profit organization where businesses go to
enhance consumer trust and consumers are heard. I previously had the
honor of working at the Federal Trade Commission for 30 years, with the
last 18 spent directing the Division of Advertising Practices in the
Bureau of Consumer Protection. Thank you for this opportunity to
testify today on how independent industry self-regulation has helped to
combat COVID-19 fraud.
After serving in government for three decades at the FTC, I was
attracted to join BBB National Programs because of its status as a
mission-driven non-profit organization that creates a fairer playing
field for businesses and a better experience for consumers through the
development and delivery of effective third-party accountability and
dispute resolution programs. BBB National Programs was created in 2019
when the Council of Better Business Bureaus was re-organized into two
separate entities, BBB National Programs and the International
Association of Better Business Bureaus, or IABBB.
BBB National Programs operates more than a dozen national industry
self-regulation programs, providing business guidance and fostering
best practices in arenas such as advertising, child-directed marketing,
dispute resolution, and privacy. IABBB is the umbrella organization for
nearly 100 local Better Business Bureaus in the U.S. and Canada, and
among other things, rates businesses and resolves consumer complaints
about them. Although we share with IABBB a long history and common
mission of increasing marketplace trust, we serve businesses and
consumers differently and are no longer directly affiliated.
Before I explain how industry self-regulatory efforts have
combatted COVID-19 fraud, I think it is important to distinguish
between a company's own self-regulation and independent industry self-
regulation, which is at the core of what we do at BBB National
Programs. Self-regulation, as some are discussing it, is when companies
monitor themselves without much guidance from regulators or the
industry. By contrast, independent industry self-regulation, when done
right, provides active collaboration between industry and regulators
necessary for credible accountability. It is a system of three critical
components: industry-wide accountability to agreed-upon guidelines,
independent monitoring, and coordinating enforcement mechanisms.
Today I will focus on the work of two of our independent industry
self-regulation programs, the Direct Selling Self-Regulatory Council,
or DSSRC, and the National Advertising Division, or NAD, which have
addressed COVID-19 scams since the pandemic began.
The Direct Selling Self-Regulatory Council was launched in 2019.
Through extensive monitoring of product and business opportunity claims
made by direct selling companies and their salesforce members, DSSRC's
oversight facilitates the voluntary removal of misleading claims from
the marketplace. Advertisers who disagree with a DSSRC decision can
appeal to the DSSRC Appellate Board, consisting of three members drawn
from the advertising and direct-selling industry. Although primarily
funded by the Direct Selling Association (DSA), DSSRC operates as an
independent ``watchdog'' and provides accountability for DSA members
and non-members alike.
The National Advertising Division, also part of BBB National
Programs, has a much longer history, having provided a voluntary, self-
regulatory forum for challenging misleading advertising since 1971. The
flagship of the U.S. advertising industry's system of self-regulation,
NAD promotes fair competition and builds public trust in advertising by
reviewing misleading advertising claims, based on competitor challenges
and through its own monitoring program. Its decisions represent the
single largest body of advertising decisions in the U.S. Although
participating in NAD's review is voluntary, over 95 percent of
companies participate and comply with NAD's recommendations. If an
advertiser disagrees with NAD's recommendation to discontinue or change
its advertising, the advertiser can appeal to BBB National Programs'
National Advertising Review Board, or NARB. The National Advertising
Review Board provides independent peer review for National Advertising
Division cases, with appeals heard by five-person panels drawn from an
85-person panel pool, selected for their stature and experience,
comprised of distinguished members representing national advertisers,
advertising agencies, and public members (usually marketing academics).
This layer of independent review further promotes credibility and
voluntary compliance with the self-regulatory system.
When a company does not participate or comply with DSSRC, NAD, or
NARB recommendations, we refer the advertiser to the appropriate
regulatory authority, usually the Federal Trade Commission, but often
other regulatory agencies as well, such as the Food and Drug
Administration and state attorneys general. Recently, BBB National
Programs also began reporting misleading advertising claims directly to
platforms including Facebook and Instagram. Once received, the
platforms will remove the claims that violate their terms of service.
BBB National Programs values the longtime support of Federal and
state regulatory agencies, particularly the FTC, that support its self-
regulatory efforts to promote fair competition and truthful and
accurate advertising to benefit consumers and businesses. The FTC's
website keeps a record of response to referrals from BBB National
Programs, including DSSRC and NAD.\1\ The FTC's responses demonstrate a
strong track record of following up on such referrals and getting the
advertising claims removed from the marketplace.
---------------------------------------------------------------------------
\1\ https://www.ftc.gov/enforcement/cases-proceedings/closing-
letters-and-other-public-statements/resolution-of-referrals-from-nad
---------------------------------------------------------------------------
How Independent Industry Self-Regulation Has Addressed COVID-19 Fraud
When COVID-19 shut down the world and caused consumers to isolate
fearing dire health consequences, unscrupulous advertisers began
touting cures, treatments, and preventatives to the novel coronavirus.
The FTC and FDA quickly issued letters warning companies to stop making
false and misleading claims that a product could prevent, treat, or
cure COVID-19. Similarly, as described below, the DSSRC and NAD
promptly took action as well.
The response of DSSRC and NAD to the misleading advertising that
flooded the marketplace demonstrates the value independent self-
regulation can provide. Early in the pandemic, DSSRC released a
statement to the direct selling industry, urging caution regarding
misleading health-related product claims as well as misleading earnings
claims, and both DSSRC and NAD opened multiple cases, resulting in the
removal of advertising claims touting that products would prevent,
treat, or cure COVID-19. In all cases, our self-regulatory programs
uphold standards set forth in regulatory guidance issued by the FTC and
FDA. Our case decisions, summaries of which are publicly available,
have impact beyond the advertising at issue. The decisions educate
companies on advertising law. To date the media has written more than
25 articles and blogs highlighting the industry self-regulatory
guidance provided through DSSRC and NAD decisions on COVID-19 claims.
DSSRC Actions Against Misleading COVID-19 Claims
Although the COVID-19 pandemic has significantly impacted all
sectors of the business community, direct selling companies face the
added responsibility of ensuring that their independent salesforce
members are not seeking to boost sales by making unauthorized health-
related or business opportunity claims related to the pandemic. DSSRC
has focused its monitoring efforts on identifying false and misleading
claims about a product's ability to treat or prevent COVID-19, and
claims related to how the pandemic has presented an opportunity for
company salesforce members to earn significant income.
In an action commended by FTC Commissioner Noah Phillips,\2\ in
April 2020, the Direct Selling Association and DSSRC issued a joint
press release cautioning direct selling companies and their independent
salesforces from making claims referencing COVID-19 in the context of
product claims and business opportunity claims. More specifically, the
statement called attention to claims suggesting that products can:
---------------------------------------------------------------------------
\2\ Noah Joshua Phillips, Commissioner, Federal Trade Comm'n,
Keynote Address at the DSA Legal & Regulatory Summit (Oct. 15, 2020),
in https://www.ftc.gov/system/files/documents/public_statements/
1581726/phillips_-_dsa_remarks_10-15-20.pdf
---------------------------------------------------------------------------
Cure, treat, or alleviate the symptoms of COVID-19
Boost or improve immune function that can prevent COVID-19;
or
Eliminate or remove viruses.
In addition, because product claims made by salesforce members are
attributable to direct selling companies themselves, DSSRC reminded all
direct selling companies to educate their salesforce members about best
practices with respect to health-related product claims.
Since the onset of the pandemic, DSSRC has commenced 139 inquiries
that involved claims pertaining to COVID-19. In those inquiries, DSSRC
has reviewed 309 product performance claims that referenced COVID-19
and 33 claims that discussed the pandemic as an earnings opportunity
for direct selling company salesforce members.
Of those 139 inquiries, 127 have been administratively closed while
seven resulted in referrals to the FTC and/or the appropriate state
attorney general office for enforcement. DSSRC will administratively
close an inquiry if a direct selling company takes immediate action to
remove an identified problematic claim or social media post. DSSRC
currently has five cases pending that involve COVID-19 claims. In
almost all the inquiries in which DSSRC identified COVID-19 claims to
direct selling companies, the parties took prompt and immediate action
to remove references to the coronavirus.
Following warning letters issued by the FTC to several direct
selling companies regarding claims that they or their salesforce
members were making about their products' ability to treat or prevent
COVID-19 or about the earnings that salesforce members can earn, DSSRC
released a public statement applauding the actions taken by the FTC and
reiterated its call to direct selling companies to fulfill their
commitment to industry self-regulation. In its statement, DSSRC noted
that the actions taken by the FTC were consistent with recent guidance
issued by both DSSRC and the DSA cautioning direct selling companies
against expressly claiming or implying that their products can prevent,
treat, alleviate, or cure COVID-19 and its symptoms.
With the FTC's heightened scrutiny of the direct selling channel,
direct sellers can ill afford the reputational damage (and certain
adverse regulatory enforcement action) that would result if a company
(or its independent salespeople) seeks to capitalize on the current
pandemic by making unsubstantiated health claims. Accordingly, through
its case work and its direct engagement with the industry through
educational initiatives such as the DSSRC Direct Selling Summit and
DSA's Compliance Certification Program, DSSRC will continue to provide
guidance to the direct selling industry with respect to earnings claims
and representations pertaining to health and safety.
DSSRC will continue to monitor direct selling advertising messages
to make sure they adhere to appropriate and ethical advertising
standards throughout this pandemic and remains committed to helping
ensure that inappropriate claims disseminated by direct selling
companies and their salesforce members referencing COVID-19 are
expeditiously removed from the marketplace.
National Advertising Division Actions Against Misleading COVID-19 Cases
BBB National Programs' National Advertising Division case decisions
have often expanded on the guidance provided by the FTC and FDA letters
by providing specific examples of advertising that conveys implied
messages that a product prevents, treats, or cures COVID-19.
A good example is the NAD case involving advertising claims for
Your Superfoods Immunity Boosting Bundle dietary supplements. In that
matter, following an NAD inquiry, the advertiser immediately agreed to
remove the following claim from the marketplace:\3\
---------------------------------------------------------------------------
\3\ Your Superfoods, Inc. (Your Superfoods Immunity Bundle), Report
#6371, NAD/CARU Case Reports (May 2020).
``[W]ith all that's going on, with the coronavirus . . . there
is a piece that we can control and that is our own health and
building our immune system because it depends on what we eat. .
.. It's super important to have a lot of micronutrients now, so
Superfoods can help. We have this amazing immunity bundle--
Super Greens to up your green, Mellow Yellow which really
reduces your stress because [stress] actually reduces your
immunity, and then we also have immunity boosting mushrooms in
---------------------------------------------------------------------------
our Magic Mushroom mix.''
A case concerning an Elderberry supplement advertised to support
the immune system provides another example.\4\ NAD reviewed the claim:
``[a]s restrictions are gradually lifting, it's more important than
ever to keep your immune system strong. Our Elderberry Immune Support
keeps you protected with vitamin C, zinc, elderberries, garlic and
echinacea; a powerful immune-boosting combo.''
---------------------------------------------------------------------------
\4\ Vitamin Bounty/Matherson Organics, LLC (Vitamin Bounty
Elderberry Immune Support), Report #6397, NAD/CARU Case Reports (Sept.
2020).
---------------------------------------------------------------------------
NAD found that this claim conveyed the implied message that Vitamin
Bounty Elderberry Immune Support IV Drips protect users against the
novel coronavirus or COVID-19.
NAD initially referred the advertiser to the FTC for failing to
respond to the inquiry but, after referral, the advertiser agreed to
participate and voluntarily discontinued the claim, removing the
misleading advertising from YouTube and elsewhere. NAD's decision also
alerted the dietary supplement industry that touting immune support
together with reminders of the ongoing pandemic misleads consumers that
the product could help prevent disease. A prominent publication that
covers the dietary supplement industry, Nutritional Outlook, alerted
the industry to the decision with the headline, ``Minor reference to
pandemic constitutes implied COVID-19 claim according to recent NAD
case,'' in an article that cautioned dietary supplement makers not to
tie immune support to the pandemic. Other similar decisions looked at
social media posts and other advertising tying dietary supplements that
claim to support the immune system to the pandemic, generating guidance
that spread across the dietary supplement industry.
NAD decisions further expanded on FTC and FDA guidance to other
kinds of products that touted unsupported health benefits. In response
to an NAD inquiry, an advertiser modified its claims that its air
purifier was effective on the coronavirus:
``Remove airborne coronavirus by 99.999%*''.\5\
---------------------------------------------------------------------------
\5\ NuWave LLC's OxyPure Air Purifier, Report #6432, NAD/CARU Case
Reports (Mar. 2021).
NAD recommended that the advertiser prominently disclose that it
tested only porcine respiratory coronavirus, a surrogate for SARS-CoV-
2.
NAD decisions have reached a broad and disparate range of
industries from cleaning products \6\ to ultra-violet lights,\7\
intravenous hydration therapy,\8\ and even continuously self-cleaning
surfaces,\9\ removing misleading claims. These industries have been
alerted that unsupported claims that a product prevents, treats, or
cures COVID-19 violate the law. The self-regulatory response to the
pandemic is a powerful example of how independent industry self-
regulation can prevent misleading advertising and reduce harm to
consumers. Former FTC Chairwomen Edith Ramirez praised the NAD program
in 2016 as an example of ``how impactful self-regulation can be,''
further noting that it is ``a valuable complement to the FTC's own
enforcement efforts to eliminate fraud.'' \10\
---------------------------------------------------------------------------
\6\ One Home Brands, Inc. d/b/a Blueland (Blueland Cleaning
Products), Report #6416, NAD/CARU Case Reports (Sept. 2020).
\7\ Ontel Products Corp. (Safe & HealthyTM UV-C
Disinfecting Light), Report #6426, NAD/CARU Case Reports (Dec. 2020).
\8\ IV Drips, Customized IV Hydration & Wellness (IV Hydration
Therapy), Report #6389, NAD/CARU Case Reports (Oct. 2020).
\9\ NanoTouch Material, LLC (NanoSeptic Surfaces), Report #6390,
NAD/CARU Case Reports (July 2020).
\10\ Edith Ramirez, Chairwoman, Federal Trade Comm'n, Address at
the CRN/ACI Fourth Annual Legal, Regulatory, and Compliance Forum on
Dietary Supplements (June 2016), Press Release, https://www.crnusa.org/
newsroom/crn-nad-reflect-programs-ten-years-self-regulatory-excellence.
---------------------------------------------------------------------------
Conclusion
Thank you for the opportunity to appear before you today to explain
how independent industry self-regulation has helped combat deceptive
COVID-19 advertising claims in the marketplace. When regulatory
guidance establishes standards or best practices for advertising
particular products or claims, independent industry self-regulation is
effective at spreading that guidance, holding companies accountable to
those standards, advising additional industries about the guidance, and
applying the standards in a wide array of settings. A broad range of
industries, including the dietary supplements, healthcare, and direct-
selling industries look to DSSRC and NAD for guidance. Although some
companies will respond only to government enforcement, many other
marketers respond quickly and voluntarily to remove misleading
advertising when given concrete guidance on appropriate claims.
Independent industry self-regulation thereby amplifies the impact of
government actions.
With our Direct Selling Self-Regulatory Council and National
Advertising Division always on watch, BBB National Programs looks
forward to working with this Subcommittee to address the problem of
misleading COVID-19 marketing claims. Thank you again for this
opportunity to testify, and I am happy to answer your questions.
Senator Blackburn. Thank you, Ms. Engle.
Mr. Leatherman, you are recognized.
STATEMENT OF TODD LEATHERMAN,
PROGRAM COUNSEL FOR THE NATIONAL ATTORNEYS
GENERAL TRAINING AND RESEARCH INSTITUTE,
CENTER FOR CONSUMER PROTECTION,
NATIONAL ASSOCIATION OF ATTORNEYS GENERAL
Mr. Leatherman. Thank you, Ranking Member Blackburn, and
thank you, Chairman Blumenthal and members of the Subcommittee.
My name is Todd Leatherman, and I want to thank you for
inviting me to participate in today's hearing.
I currently serve as Program Counsel at the National
Association of Attorneys General, or NAAG, which is the
nonpartisan national forum for America's 56 state and territory
attorneys general. NAAG provides training and resources to
support attorneys general in protecting the rule of law and the
United States Constitution. Prior to joining NAAG, I spent 23
years in the Kentucky AG's Office of Consumer Protection,
serving as consumer protection chief for 20 of those years,
focusing on a wide range of consumer protection issues,
including price gouging and disaster scams. In my current role,
I provide support and training for the consumer protection
provisions of AG offices, who, along with Federal counterparts
at the FTC, CFBP, DOJ, Secret Service, and others, are on the
front lines fighting to protect U.S. consumers from deceptive
business practices and scams. I have submitted written
testimony and refer you to that for additional information that
I am unable to address in my time today.
Attorneys general are the primary enforcers of consumer
laws within their jurisdictions, and through a combination of
enforcement advocacy and education, they help protect consumers
from a wide variety of deceptive business practices and scams.
From the outset of the pandemic, consumers have been pitched
phony cures, treatments, and products supposed to prevent
COVID. They have been targeted by bogus testing sites,
bombarded with scam telemarketing, phishing and smishing scams
cloaked as contract--contact tracing calls or testing
companies, but which were, in fact, identity theft efforts.
They have been sold counterfeit or knockoff N95 masks or other
PPE that is not protective.
Like many of us, consumers have been spending more time
online and are being targeted by online scammers through online
marketplaces promising everything from PPE to puppies but
having no intention of actually delivering the goods. Attorneys
general on all sides of the political spectrum have taken on
scams like these as well as practices by legitimate businesses
that have harmed consumers, including recovering many millions
of dollars wrongfully retained by entertainment event ticket
sellers and vacation travel companies following pandemic-
related cancellations. In addition, attorneys general have
taken on price gouging, which is when a merchant charges
increased prices for essential consumer goods and services
during a declared state of emergency at such a high level that
it takes unfair advantage of consumers. While merchants can
pass on their own increased cost to consumers, they may not
increase prices simply to make a profit following a spike in
demand for an essential good or service, like bottled water or
gasoline after a major weather disaster or hand sanitizers or
masks during the pandemic. Thirty-nine States and several of
the territories have price gouging statutes which are enforced
by the AGs. Attorneys general are vigilant when it comes to
price gouging and active in enforcing these laws.
On the consumer education front, the AGs have continued to
provide vital consumer alerts to warn consumers about the
latest scams, as well as to put unscrupulous businesses on
notice that ignoring the law will result in enforcement action.
NAAG has been coordinating with the FTC in providing timely
public alerts and educational materials and alerting consumers
regarding emergent scams and tips on how to avoid them.
Another consequence of the pandemic is that we are all
spending increasing amounts of time online, and as you would
expect, so are scammers. Impersonator scams are a huge problem.
According to the FTC, one type of impersonator scam, the
romance scam, is one of the fastest-growing scams in the U.S.
and resulted in hundreds of millions of dollars in losses over
the last two years. NAAG is hosting a public webinar on
Valentine's Day with members of the FBI, Commodity Futures
Trading Commission, AARP, and the dating site company, the
Match Group, to provide information about this financially and
often emotionally devastating crime.
In closing, I would like to voice my appreciation once
again to Chairman Blumenthal, Ranking Member Blackburn, and the
entire subcommittee for holding today's hearing. Keeping
consumers safe is a team effort, and I applaud your effort on
educating the public, and urge you to continue using your
platform to grow awareness among your constituents and
consumers across the Nation on how to identify, avoid, and
report scams and fraud. As you all have said, there is much
work to do, and the attorneys general are ready to do the work
and continue the work in protecting consumers.
I look forward to your questions today and working with the
Subcommittee on keeping consumers safe in the future.
[The prepared statement of Mr. Leatherman follows:]
Prepared Statement of Todd Leatherman, Program Counsel, NAGTRI Center
for Consumer Protection, National Association of Attorneys General
Chairman Blumenthal, Ranking Member Blackburn, and members of the
Subcommittee, thank you for inviting me to participate in today's
hearing. My name is Todd Leatherman. I currently serve as Program
Counsel at the National Association of Attorneys General (NAAG).
Founded in 1907, NAAG is the nonpartisan national forum for America's
state and territory attorneys general. NAAG provides a community for
attorneys general and their staff to collaboratively address issues
important to their work, as well as training and resources to support
attorneys general in protecting the rule of law and the United States
Constitution.
Prior to joining the association, I spent 23 years in the Kentucky
Attorney General's Office of Consumer Protection. I served as the
office's executive director for 20 of those years focusing on a wide
range of consumer protection issues. In my current role, I am one of
two attorneys within the National Attorney General Training and
Research Institute's Center for Consumer Protection, the Nation's only
entity dedicated to providing support to attorney general staff who are
committed to protecting the public against consumer fraud and abuse.
The Center supports the work of the NAAG Consumer Protection
Committee, which currently has 19 members and is co-chaired by Illinois
Attorney General Kwame Raoul and Tennessee Attorney General Herbert H.
Slatery III.
In my role, I support 2022 NAAG President and Iowa Attorney General
Tom Miller's Presidential Initiative, ``Consumer Protection 2.0: Tech
Threats and Tools''. As part of the initiative, Attorney General Miller
welcomes the opportunity to collaborate with the Federal government and
Congress on our shared priorities. I encourage you to participate in
the many events and meetings scheduled this year focused on the
initiative and protecting consumers.
Role of State Attorneys General
Attorneys general are the primary enforcers of consumer laws within
their state or territory. Their activities and enforcement actions are
critically important for protecting consumers across the country. They
deal with a full range of issues that consumers encounter in the
marketplace and at home, including health, safety, and privacy. Because
consumer protection is uniquely ``people law,'' it is often the place
where individuals have the closest contact with not only the attorney
general's office, but with any governmental entity.
Attorneys general serve the public in a variety of ways in the
sphere of consumer protection. These include:
Education: Making consumers aware of their consumer rights
and potential scams/frauds through speaking engagements,
websites, press releases, public service announcements, mobile
offices, social media, and other communications.
Mediation: Serving as an independent mediator regarding
disputes that consumers have with businesses.
Enforcement: Investigation, settlement, and litigation of
consumer protection matters.
COVID-19 Scams and Fraud
Whenever disaster strikes, unscrupulous individuals see an
opportunity to profit off their fellow citizens' vulnerability. To
individuals willing to profit off the misfortune of others, the COVID-
19 pandemic has presented the opportunity of a lifetime. Phony cures,
treatments, and products supposed to prevent infection; bogus testing
sites, telemarketing, phishing and smishing scams cloaked as contact
tracing calls, e-mails, or text messages; sales of counterfeit or
knock-off N95 masks or other PPE; puppy scams--requiring consumers to
send money for a new pet that never arrives. Schemes like these, as
well as price gouging, have occurred during the pandemic and been the
subject of enforcement actions by attorneys general. In addition,
attorneys general have helped recover millions of dollars in wrongfully
retained cancellation fees, obtained refunds for cancelled travel and
entertainment events.
A few COVID-related cases to highlight:
Missouri and Arkansas sued and won cases against James
Bakker and his associated television production company
regarding false claims about a ``silver solution'' product that
was marketed as a cure or treatment for COVID.\1\
---------------------------------------------------------------------------
\1\ Arkansas: https://arkansasag.gov/media-center/news-releases/
rutledge-sues-jim-bakker-for-peddling-colloidal-silver-products-to-
cure-covid-19/; Missouri: https://ago.mo.gov/home/news/
2020/03/10/ag-schmitt-files-suit-against-jim-bakker-for-selling-fake-
coronavirus-cure.
Nebraska settled with a testing company regarding deceptive
and misleading statements to consumers regarding the ability of
their antibody tests to identify the presence of a current or
prior COVID-19 infection.\2\
---------------------------------------------------------------------------
\2\ https://ago.nebraska.gov/news/ag-peterson-reaches-settlement-
omaha-companies-deceptive-
and-misleading-statements-regarding.
Oregon's attorney general announced agreements with six
companies and medical practitioners selling products and
services advertising a so-called Covid-19 ``cure,'' or an
ability to boost immunity and protect people from the
disease.\3\
---------------------------------------------------------------------------
\3\ https://www.doj.state.or.us/media-home/news-media-releases/ag-
rosenblum-settles-with-six
-companies-and-medical-clinics-selling-unproven-covid-19-treatments/.
New York's attorney general sent cease and desist letters to
multiple companies allegedly selling fake COVID-19
treatments.\4\
---------------------------------------------------------------------------
\4\ https://ag.ny.gov/press-release/2020/attorney-general-james-
orders-companies-stop-selling-
fake-treatments-coronavirus.
Arizona's attorney general secured an agreement with
Ticketmaster, returning over $71 million in refunds for
consumers who purchased tickets to live events that were
cancelled, postponed, or rescheduled due to the COVID-19
pandemic.\5\
---------------------------------------------------------------------------
\5\ https://www.azag.gov/press-release/ag-brnovich-secures-71-
million-ticket-refunds-arizona-
events-impacted-covid-19.
The Texas attorney general obtained a temporary restraining
order against a Texas clinic for misrepresenting the character
of its COVID-19 testing and failing to secure patients'
sensitive personal information.\6\
---------------------------------------------------------------------------
\6\ https://www.texasattorneygeneral.gov/news/releases/ag-paxton-
files-lawsuit-against-clinica-
hispana-fraudulent-covid-testing-and-failing-secure-personal
---------------------------------------------------------------------------
Price Gouging
Thirty-nine states and several of the territories have price
gouging statutes, most of which grant the jurisdiction's attorney
general civil enforcement authority for any violations \7\. Some
states, such as Florida, Louisiana, and Mississippi, also give the
attorney general criminal enforcement authority in price gouging cases.
States that may lack a specific price gouging statute, may still combat
price gouging under their deceptive trade practices act, specifically
as an unfair practice.
---------------------------------------------------------------------------
\7\ https://www.ncsl.org/research/financial-services-and-commerce/
price-gouging-state-statutes
.aspx
---------------------------------------------------------------------------
How price gouging is defined in specific statutes, varies by state.
However, price gouging laws generally prohibit a merchant from
increasing prices for essential consumer goods and services, during a
declared state of emergency, to a level that takes unfair advantage of
consumers. The laws generally recognize that if a merchant's costs
increase, they may pass on those cost increases to consumers. However,
when merchants' costs have not increased, they may not increase prices
simply to make a windfall profit following a spike in demand for an
essential good or service, whether it be a generator, motel room,
bottled water, gasoline, hand sanitizer, or masks. This type of market
behavior is illegal, unfair to consumers, and harms communities at
their most vulnerable moments.
Attorneys general have used their price gouging authority following
multiple disasters. For example:
In 2017, the Texas attorney general took action against
gasoline stations and motels who raised their prices
exorbitantly in the aftermath of Hurricane Harvey.\8\
---------------------------------------------------------------------------
\8\ https://www.texasattorneygeneral.gov/news/releases/ag-paxton-
files-more-lawsuits-against-
businesses-accused-price-gouging-during-hurricane-harvey
The New York and New Jersey attorneys general obtained
settlements from hotels, gas stations, and a hardware store for
price increases following Hurricane Sandy.\9\
---------------------------------------------------------------------------
\9\ https://www.nj.com/mercer/2013/07/
mercer_county_hotels_settle_with_state_over_alleged_
price_gouging_during_sandy.html; https://ag.ny.gov/press-release/2013/
ag-schneiderman-anno
unces-40k-settlement-brooklyn-hotel-price-gouging-
wake#: :text=Espa%C3%B1ol-,A.G.%20Schnei
derman%20Announces%20%2440k%20Settlement%20With%20Brooklyn%20Hotel%20For
,In%20
Wake%20Of%20Hurricane%20Sandy&text=NEW%20YORK%20%2D%20As%20part%20of,San
dy
%2C%20Attorney%20General%20Eric%20T.
The North Carolina attorney general obtained settlements
from an out of state water damage restoration company for
charging excessive prices following Hurricane Florence.\10\
---------------------------------------------------------------------------
\10\ https://ncdoj.gov/attorney-general-josh-stein-reaches-100000-
settlement-in-hurricane-florence
-price-gouging-investigation/.
Price gouging restrictions may also be implemented following an
unexpected supply disruption, a recent example being the 2021 Colonial
Pipeline ransomware attack that led to the shutdown of the pipeline
supplying much of the gasoline to the East Coast. Following that event,
a number of attorneys general, including the those from Kentucky,\11\
North Carolina,\12\ and Virginia,\13\ filed price gouging actions
against gasoline stations who raised their prices to unlawful levels.
---------------------------------------------------------------------------
\11\ https://www.kentuckytoday.com/state/price-gouging-settlement-
with-fuel-retailer-reached/
article_ca5ed3f0-3b45-50c0-b69a-3de3cd1522fe.html.
\12\ https://ncdoj.gov/wp-content/uploads/2022/01/
doc05140920220120142958.pdf.
\13\ https://www.oag.state.va.us/media-center/news-releases/2158-
september-23-2021-herring-holds-gas-station-accountable-for-price-
gouging.
---------------------------------------------------------------------------
Price Gouging Enforcement During the COVID Pandemic
As the committee is aware, consumers have reported gouging on a
wide range of products from hand sanitizer to masks, even on eggs
during the COVID-19 pandemic.
One such incident made the national press in the early days of the
pandemic. A pair of brothers from Tennessee drove from store to store
purchasing large quantities of hand sanitizer in Tennessee and
Kentucky. The brothers then jacked up the prices and sold the bottles
of hand sanitizer on Amazon for $8 to $70 each, many times higher than
their purchase price. The Tennessee and Kentucky attorneys general
quickly took action, obtaining a settlement in which the brothers gave
up the supplies and made them available for emergency responders and
others serving the public.
A few other cases to highlight:
Colorado's attorney general announced a settlement with a
business for making misleading claims about masks and
respirators it sold and for charging unreasonably excessive
prices for those products.\14\
---------------------------------------------------------------------------
\14\ https://coag.gov/press-releases/1-25-21/.
Oregon's attorney general settled with five Oregon companies
for consumer protection violations related to the COVID-19
pandemic.\15\
---------------------------------------------------------------------------
\15\ https://www.doj.state.or.us/media-home/news-media-releases/
attorney-general-announces-settlements-in-covid-19-consumer-protection-
cases/.
Pennsylvania's attorney general has taken action against
numerous retailers who raised prices on sanitizer, wipes,
masks, and bottled water;\16\
---------------------------------------------------------------------------
\16\ https://www.attorneygeneral.gov/avcs/.
The attorneys general of New York and Minnesota obtained
settlements from egg wholesalers alleged to have price gouged
and obtained more than 1 million eggs each for food pantries
---------------------------------------------------------------------------
serving low-income communities in their states.
Attorneys general across the country have sent warning letters,
activated price gouging hotlines, and launched mobile apps for
consumers to report exorbitant prices.
The authority of attorneys general to pursue price gougers
operating online was recently affirmed by the U.S. Sixth Circuit Court
of Appeals when it upheld Kentucky's authority to investigate third
party sellers offering products on Amazon. The court reversed a lower
court ruling which had held that Kentucky's statute violated the
dormant commerce clause of the U.S. Constitution by, in effect,
regulating prices in other states. A bipartisan coalition of 39 states
filed an amicus brief in support of Kentucky and the Sixth Circuit
agreed with the states that the law was constitutional.
Attorneys general are vigilant when it comes to price gouging and
active in enforcing these laws.
Responding to Disasters
During times of disaster, attorneys general have an important role
to play in keeping their communities safe, whether it be from price
gougers, scam artists selling bogus products, fake charities preying on
the public's sympathy to con them out of donations, or fly-by-night
storm chasers offering shoddy or expensive construction, repair, or
other damage-related services. Just recently, when my home state of
Kentucky suffered a devastating rash of tornados in early January,
Attorney General Cameron and his office reached out to local officials
and created a contractor registration program, requiring contractors
offering emergency-related services to register with his office so they
have identifying and contact information for all such businesses
operating in the area. The contractors are then required to place a
conspicuous placard on their vehicles so residents know who has been
approved to perform work in the area and can avoid those who are not.
The program is a creative initiative to help deter con men and
unscrupulous businesses and, so far, has been a huge success.
On the consumer education front, attorneys general have continued
to provide vital consumer alerts and public outreach to warn consumers
about the latest scams, as well as to put unscrupulous businesses on
notice that ignoring the law will result in enforcement action.
NAAG has been coordinating with Federal consumer agencies like the
Federal Trade Commission (FTC) and Consumer Financial Protection Bureau
(CFPB) in providing timely public alerts and educational materials,
alerting consumers regarding emergent scams and tips on how to avoid
them. Among those efforts are campaigns regarding free at-home test
kits which we released last month, as well as efforts warning of fake
COVID clinical trials and vaccine scams at earlier stages of the
pandemic. We will soon be issuing tips to consider when visiting a
testing site or obtaining an at-home test kit. This new campaign comes
amid a number of anecdotal reports of bogus pop-up testing sites,
delayed test results, and questions about at-home kits.
The materials related to these campaigns are available on our
COVID-19 resource page on NAAG's consumer-facing website
www.consumerresources.org. We encourage you and your staffs to make use
of these materials along with other information on the site. Of
particular interest may be the page which lists every attorney
general's consumer protection website and complaint intake portal,
which many of your colleagues and their staffs have told us has been
very useful in referring consumers to their attorney general.
Online Dangers Grow During COVID Pandemic
Apart from scams directly related to COVID, all of us are spending
increasing amounts of time online and so are scammers. This growing
online presence has led to other problematic issues--including
impersonator scams like romance scams, which according to the FTC is
the fastest growing scam in the U.S. and one resulting in more than
$300 million in consumer losses in 2020. As part of Attorney General
Miller's NAAG Presidential Initiative, we are hosting a public webinar
regarding romance scams on Valentine's Day, with members of the Federal
Bureau of Investigations, Commodity Futures Trading Commission, AARP,
and dating site company the Match Group, to provide information about
this pernicious and financially and emotionally devastating crime.
Conclusion
In closing, I'd like to voice my appreciation once again to
Chairman Blumenthal, Ranking Member Blackburn, and the entire
Subcommittee for holding today's hearing. Keeping consumers safe is a
team effort. I applaud your focus on educating the public and urge you
to continue using your platform to grow awareness among your
constituents and the consumers across the Nation on how to identify and
report scams and fraud.
I look forward to your questions today and working with the
Subcommittee on keeping consumers safe in the future.
Senator Blumenthal [presiding]. Thank you, Mr. Leatherman.
I am going to begin the questioning with you, Mr. Levine.
You mentioned in your remarks that the FTC has sent letters
directing more than 425 companies to remove deceptive claims.
In what proportion of those cases have the claims been removed?
Mr. Levine. Thank you, Senator. The overwhelming majority
of recipients of those cease and desist demands take down their
claims and often take them down within 48 hours.
Senator Blumenthal. And then bring new ones.
Mr. Levine. Well, Senator, we monitor these closely. If we
see them bringing new claims, we will not hesitate to take them
to court.
Senator Blumenthal. But you have brought only three cases
under COVID-related--the COVID-related Consumer Protection Act.
Mr. Levine. I completely agree Senator that we need to
bring more cases, and we will be bringing more cases. It is
certainly important that we get these claims taken down
quickly, but it is also critical that we not allow scammers to
profit from preying on American consumers. And if that means
taking them to court, that is exactly what we are going to do.
Senator Blumenthal. You know, I have sat at this dais for
years now, and I have heard the same thing said as you have
said, I am sure in good faith, but we continue to have warning
letters without real apparent effect. Are you obligated to
bring warning letters before you bring lawsuits?
Mr. Levine. We are not obligated, Senator. Particularly
early on in the pandemic, we wanted to make sure these claims
got taken down quickly to prevent further harm to consumers.
But I think we are now at the point where we do not only want
to get these claims taken down. We want to make sure scammers
out there know that they are going to pay a heavy price, not
only pay back what they stole, but pay a penalty to the
government as punishment, and that is why we are going to bring
more cases.
Senator Blumenthal. How many penalties have been paid as a
result of the three cases that you brought?
Mr. Levine. I could get that exact figure, Senator. I know
some of those cases remain in litigation.
Senator Blumenthal. So, in effect, there have been few, if
any, penalties actually paid.
Mr. Levine. I think in addition to the three cases under
the CCPA, Senator, we brought about 15 other COVID-related
cases under other authorities, and there may be penalty
liability there as well.
Senator Blumenthal. What changes have you made to deter
these criminals from price gouging, and scamming, and deceptive
and misleading practices that you have the authority to go to
court on without warning letters, but evidently continue
issuing warning letters?
Mr. Levine. I think the big change we are making is trying
to make sure that there is civil penalty liability across the
market. So those cease and desist demands and warning letters
do give us the basis to seek civil penalties against COVID
scammers, but we are also sending notices of penalty offenses
for other types of scams not covered by the CCPA to make sure
that those scammers pay a penalty. Same with our Made in USA
fraud rule. We want to make sure those scammers pay a penalty.
There are a lot of people using this pandemic as a basis to
prey on American consumers, and we want to make sure everyone
pays a price and know they are going to pay a price if they
persist in their wrongdoing.
Senator Blumenthal. I appreciate your words, but what the
con artists and scammers understand is action.
Mr. Levine. I agree.
Senator Blumenthal. Actions speak louder than words. So far
there has been no action. More important, there have been no
penalties. There is no deterrence if there are no penalties,
and there is no real deterrence unless there are penalties that
have real bite. And so far, there has been a complete dearth of
action. We have given you new authority, and I am at a loss to
understand why the FTC has not taken stronger action. I
understand that some of your testimony may be on your own or
without the authority of the FTC, but let me ask you as someone
with a lot of experience in this area, how do you go to work
knowing that this Agency has apparently no clear strategy,
articulated by the Agency itself, for changing its practice to
bring more cases without warnings? Forget the warnings.
Mr. Levine. I think our strategy, Senator, is going to be
to bring more cases. As I said, I think we are now at the stage
in the pandemic where we are moving away from trying to get
these claims taken down as quickly as possible. Obviously we
want them taken down as quickly as possible, but we also need
to make sure that these scammers are paying a heavy penalty for
preying on people. And as I said, we are not just going to ask
people to turn over what they stole. We are going to ask them
to pay a civil penalty to the government and, when appropriate,
we are going to make a criminal referral so that--because some
of these people deserve jail time.
Senator Blumenthal. Are they under an obligation to take
down a deceptive misleading scam simply because you have issued
a warning letter?
Mr. Levine. If they do not, we are going to take them to
court, so yes.
Senator Blumenthal. So why not just take them to court?
They will take it down anyway.
Mr. Levine. Some of them we are going to take to court.
Part of it is trying to get these claims taken down as quickly
as possible, but I hear what you are saying, Senator. It is not
only that these scammers pay a price. Consumers who lose money
to these scams should be made whole, and to do that we need to
bring lawsuits, and that is what we are going to do.
Senator Blumenthal. To make them whole, you need to bring
lawsuits.
Mr. Levine. Mm-hmm.
Senator Blumenthal. But also, to prevent them in the
future, you need to bring lawsuits with the remedy of penalties
and injunctive relief so if they violate a court order, the
court itself will exact penalty.
Mr. Levine. We want to obtain permanent injunctions against
these scammers that put them under court order for the rest of
their lives. That is what most--that is what many of these
scammers deserve, and that is what we are going to be seeking
in court.
Senator Blumenthal. Well, I am not from Missouri, but I am
in the show me state of mind. The Ranking Member is recognized.
Senator Blackburn. Thank you, Mr. Chairman. Mr. Levine, I
do appreciate that you mentioned that most of these things have
started online. Mr. Leatherman, I want to come to you first
because in Tennessee we have seen a preponderance of these
online scams that have kicked up and the prevalence of that,
and in my opinion, the States' attorneys general are in the
best spot to deal with this. And as you well know, Tennessee
has been very active and AG Slatery has been very active in
pursuing these cases against fraudsters in this space. And what
I would like to know from you, recognizing that the State is in
a better position to go after this than the Federal Government,
are there any barriers or hurdles that the State AGs are facing
in this fight against these online scammers? And we know that
we want our State AGs to be as well-equipped as possible, so
any barriers or hurdles?
Mr. Leatherman. I appreciate the question, Ranking Member
Blackburn. And as you know, Attorney General Slatery, but also
many other attorneys general, have been very active in pursuing
not only price gouging cases, but also counterfeit PPE cases
and also bogus cure cases. And you are correct that--and as has
been mentioned by others, there is a lot of activity that is
going on online. I would say that as a legal matter, the State
AGs are replete with authority under the UDAP cases as well as
price gouging cases in order to pursue these cases.
The barriers or the challenges are those related to the
volume of the activity that is going on. Obviously, AG offices
have limited resources, and so being able to address all these
issues is a challenge. We are not here with head in hand asking
for additional resources, but obviously, if the Federal
Government is interested in providing----
Senator Blackburn. Let me--let me jump in there.
Mr. Leatherman. Yep.
Senator Blackburn. So really, there are no legal barriers.
The attorneys general have the needed authority, correct?
Mr. Leatherman. That is correct.
Senator Blackburn. OK. And just--it is always a resourcing
issue, so I appreciate that. Ms. Engle, let me come to you. I
want to be sure I understood. 2019, pre-pandemic, is when the
Direct Selling Association started their Self-Regulatory
Council there at the BBB National Program, correct?
Ms. Engle. That is correct.
Senator Blackburn. OK.
Ms. Engle. It was created in 2019.
Senator Blackburn. I think that that is significant, and we
know that you have used it to monitor the marketplace. So talk
with me just a touch about the program's impact and what needs
to happen to ensure that these self-regulatory bodies can be
successful?
Ms. Engle. Sure. So, you know, the impact of this program
in the area of COVID has been the removal of over 400
misleading claims from the marketplace, from the direct selling
marketplace specifically. And it is true that most of these
claims appear on social media, and so we actively monitor
social media in order to find those claims and contact the
companies.
Senator Blackburn. How large is the staff that monitors
this?
Ms. Engle. We have a handful of staff, but we have a--we
have a contract with a--like a web crawler type of company----
Senator Blackburn. Sure. Absolutely.
Ms. Engle.--that does the monitoring, yes.
Senator Blackburn. OK. That is helpful. Ms. Murray, I want
to come to you. CBP at the port in L.A. and Long Beach,
intercepted 13,586 counterfeit products in 2021, and it was a
153-percent increase from 2020. So you touched on it in your
remarks, but a more fulsome response on what we can do to fight
these overseas entities that are flooding our ports and
flooding our country with fake and counterfeit items. This is
dangerous for our citizens, and we know most of this is, of
course, coming from China.
Ms. Murray. Yes, thank you for the question. As I mentioned
in my remarks, during 2020 and 2021, Customs and Border
Protection actually seized 34 million counterfeit masks during
that time. And, of course, the ports in Los Angeles and Houston
and on the East Coast, I mean, all of them have seen this just
monstrous increase in fake PPE. I think what we need to see is
more resources as well as more cooperation. The things that
scare me is we hear about the cases where the FBI was involved
in this case and Border Patrol seized this many masks or this
many fake COVID tests.
But what about the ones we do not hear about? What about
the ones that are actually ending up on store shelves, or
online, or in hospitals, because there were a number of cases
last year where hospitals, including the Cleveland Clinic here
in Ohio, as well as hospitals in Minnesota and New Jersey, all
across the country, where hospitals actually had distributed
what turned out to be counterfeit 3M N95 masks. And how do we
stop that? I mean, that is just awful to think that we had our
frontline workers running around for hours or days or weeks
with fake masks, and so we absolutely need to have more
resources to stop that.
Senator Blackburn. Thank you. Thank you, Mr. Chairman.
Senator Blumenthal. I see that Senator Klobuchar has joined
us remotely, and she is recognized.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. All right. Well, thank you very much,
Chairman Blumenthal, and thank you also, Senator Blackburn, for
holding this important hearing. I appreciate it. I was
listening in, Ms. Murray, as you talked about the fake masks,
and 3M is, of course, a Minnesota company, so it even hits
harder home that someone was ripping off their masks and
distributing them to our frontline workers. Also, last week,
our attorney general, Minnesota Keith Ellison, filed a lawsuit
in State court against two COVID testing companies for
falsifying test results, and I think going after these cases is
really, really important.
One thing that I wanted to mention was just the work that
we can do federally. I have proposed legislation with Senator
Grassley that would change the way the merger fees are done so
that we could get more money into the FTC as well as to the
Department of Justice to help them with their annual budget.
Mr. Levine, what would the effect be of tripling actually the
FTC's budget, which is part of another bill that I have
introduced, have on the Agency's ability to better protect
consumers? And by the way, there are ways we can do this, as
Senator Grassley and I pointed out from our merger fee bill,
without putting it on the back of taxpayers. And I think there
is also an argument that the cases, because there is so much
rampant scams going on, actually bring in money for the
government if done right, but not if they do not have the
funding to start the cases to begin with. Mr. Levine, do you
want to answer that?
Mr. Levine. Certainly, Senator, and thank you for the
question. In short, the effect would be transformative. I mean,
a striking fact about FTC funding, we actually have a smaller
headcount today than we did in 1980 when the economy was far
smaller. With more resources, we could bring more cases and
return more money to more consumers. In the 5 years before the
Supreme Court took away our strongest authority--Section
13(b)--we returned more than $11 billion to consumers, far more
than we received in Federal funding. Investing in the FTC is a
good investment.
Senator Klobuchar. Exactly. You bring in money. And, Ms.
Murray, you also highlighted the chronically underfunded
Agency. How will more funding directly benefit customers from
your perspective?
Ms. Murray. To the extent that the Federal agencies have
more resources, they can improve their technology. They can
improve their staffing. They can improve their training. All of
those are needed to help consumers because consumers cannot do
it alone.
Senator Klobuchar. Right. Another thing, social media
platforms, as you all know, are designed to amplify content,
and, sadly, if not monitored, it actually makes it easier for
scammers to spread content that is false. And, Mr. Levine, in
your testimony, you note how since 2017, reports of scams
starting on social media have increased 19-fold. Can you tell
us about some of the most prevalent scams, and then maybe, Ms.
Engle, could you also touch on this, what you think should
happen? Mr. Levine.
Mr. Levine. Absolutely, Senator. The numbers are quite
striking, not only a 17-fold increase in the volume of losses
on social media, a 19-fold increase in the number of people
reporting losses, 95,000 complaints last year, $770 million in
losses reported last year, and we know that is the tip of the
iceberg. We are seeing particular rise in investment scams,
romance scams, online shopping, and other frauds. And simply
put, Senator, online platforms are not doing enough to police
this problem.
Senator Klobuchar. Yep. Very good. Ms. Engle, would you
like to add what the platforms should be doing to make sure
these scams are not put forward in the first place?
Ms. Engle. Absolutely. I think in addition to being
vigilant, I mean, one of the things that we would like them to
do is to partner with us so that when we see misleading ads on
their platforms and the advertiser does not comply with our
decision, we could refer them to the platforms. Facebook
actually has already agreed to do that, and so when we refer
matters to them, that misleading ads violate the terms of
service, they promptly take them down. And we would like to
have that same partnership with the other platforms as well.
Senator Klobuchar. Mm-hmm. All right. Well, very good. I
think there are also some other proposals out there, I think,
that would be very helpful on everything from algorithms, to
assessing financial fees, taxes on this, to changes to immunity
for misrepresentation. It is one thing if someone puts a false
comment on. It is another when a platform actually amplifies
the misinformation and is making money off of it. To me, that
is the distinguishing factor if you are going to look at
immunity issues, or you are going to look at taxation, or you
are going to look at anything, to try to get a handle on this
because there has got to be more disincentive--more incentives
for good behavior than disincentives in place that we see right
now. So thank you very much.
Senator Blumenthal. Senator Markey.
STATEMENT OF HON. EDWARD MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. Thank you, Mr. Chairman, very much.
Massachusetts is seeing encouraging decreases in COVID-19, but
we know that reliable at-home test kits will continue to be an
important tool to keep our communities healthy. And at-home
testing kits are vital for identifying illnesses and stopping
the spread of COVID-19. Unfortunately, we know that during
periods of increased demand for tests, bad actors have engaged
in predatory and profiteering behavior, including selling
fraudulent test kits and charging exorbitant prices. Ms.
Murray, can you briefly describe the types of fraudulent
activity related to COVID testing that threaten consumers in
this country?
Ms. Murray. Yes. Thank you, Senator, and I assume that by
testing, you are talking about, like, the test sites as well as
the test kits that people can buy in stores. And, you know, I
mean, I have focused on consumer issues for 30 years. I was a
consumer finance journalist in my past life, and just when you
think you have heard it all--predatory lending, phone calls,
the grandkids are in jail and they need iTunes gift cards for
bail money--just when you think you have heard it all, then all
of a sudden you get COVID coming along, and we have had so much
of unauthorized test kits, counterfeit masks, fake test sites,
and these miracle cures that do not work. So we----
Senator Markey. What should we do? What is the solution to
this? We know it is out there. We know it is rampant. What is
the plan we should put in place?
Ms. Murray. We need more resources, more enforcement.
Frankly, I would like to see some--well, I--we need more
supply, OK? And I would like to see more aggressive
enforcement.
Senator Markey. I am sorry. We need more--we need more
supply of what? We need more supply of what?
Ms. Murray. Of test kits and of the test sites. I mean----
Senator Markey. How do we make sure that those that are
there are not fraudulent? We know the 60 percent of the masks
coming in from China are fraudulent, so what can we do in order
to, you know, police that?
Ms. Murray. Well, with the--with the test kits, there is a
site that you can go on with the FDA to make sure that the test
kits are valid. But really, I mean, are consumers going to be
able to look--they are at the grocery store. They finally found
some test kits for sale, and they are going to pull it up on
their phone to see whether it is legitimate or not? I think the
retailers have more responsibility to make sure that the
products that they are getting in their stores are actually
authorized. And with these test sites, what I was starting to
say is I would like to see a little bit more of the mindset of
see something, say something.
I mean, I wonder what some of these pop-up test sites that
have opened up in shopping center plazas, if somebody just was
able to call their local police department and say, hey, can
you go out and check out what this thing is because, you know,
people can just buy, like, orange cones and hazmat suits and go
and pretend to be a test site. We have heard just horrible,
horrible cases with these fake test sites, and people are
getting their information stolen, in some cases, being asked to
pay money for free--for what should be a free test. Everybody
needs to----
Senator Markey. So, Mr. Levine, let me just say this to
you, Mr. Levine. We have got a big problem out here. Senator
Blumenthal and I have written for the--to the Federal Trade
Commission asking for the toughest possible actions to be taken
to deal with these scams, and I applaud the FTC for everything
that they have done thus far. But we just want to make sure
that we are working with you so that you have all of the
authority which you need in order to--in order to police this
area.
And I guess I would just move over to masks quickly because
they are an effective tool for reducing transmission, but the
Centers for Disease Control and Prevention recently updated its
masking guidance to acknowledge that higher-quality masks
provide better protection from COVID-19. Now more Americans are
looking for increased protection that comes from N95, KF94s,
and KN95s masks. Unfortunately, online marketplaces are rife
with counterfeit and fraudulent masks, and those platforms
continue to allow masks to be sold despite concerns that the
information about these products is misleading and unverified.
Last year, the Department of Justice established a COVID-19
Fraud Enforcement Task Force. Today, Senator Blumenthal and
Senator Warren join with me in writing to the Department of
Justice urging to take all steps necessary to protect consumers
from the threat of fraudulent masks online in the marketplace.
Ms. Murray, do agree that this task force should prioritize
efforts to protect consumers and promote public health by
cracking down on fraudulent masks?
Ms. Murray. Absolutely, and one of the stunning things is
some of these fake masks that have been tested by health
officials. Their filtration level is 7 percent.
Senator Markey. So exactly. So we need some kind--what we
need is this. We need a national ranking for masks so that
people know that a cloth mask, on a scale of 10, is a 1 or a 2,
that a surgical mask is only a 5 or a 6, and that you need
those stronger masks to get up to an 8 or a 9 or 10. So
actually, the Federal Government has to do a better job in
putting together a comprehensive program. We actually--when
people go and purchase their sunscreen, they know that it is--
what the SPF is, 36, 18. People know what it is for their own
skin. Right now it is incomprehensible to people in terms of
the rating system for masks. And the Federal Government,
following what NIOSH does for their masks, has another
counterpart, the FDA, some agency, of which is ranking all of
these masks, and that will help the consumer to know what to
buy. In the same way when they buy a car--it is 5 stars, 4, 3,
2, and 1 for safety--we need some kind of system for masks
because we might see this pandemic subsiding, but it is going
to come back, and at that point, hopefully by then, we will
have a ranking system.
So I thank you, Mr. Chairman. This is just such an
important hearing. It gets right to what the Federal Government
should be taking as action to give more protections to
consumers in our country. Thank you.
Senator Blumenthal. Thank you, Senator Markey, and thanks
for mentioning the letter that we did today regarding
fraudulent and fake masks and other scams. Very important that
the Department of Justice takes responsibility here as well.
Senator Thune.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman. Mr. Levine, I
recently introduced the bipartisan Robocall Trace Back
Enhancement Act with Senator Markey to help bolster privately
led efforts to trace back the origins of illegal robocalls. Can
you speak to the FTC's efforts on engaging with industry
initiatives, like the Robocall Trace Back Group, and whether
this public/private partnership has been successful in
identifying illegal robocaller actions?
Mr. Levine. Absolutely, Senator, and, first of all, thank
you for your leadership on this issue and on the Trace Act as
well. It has been a successful partnership, but let us not kid
ourselves. There is a lot more work to be done. The FTC has
brought 150 lawsuits. We are moving upstream targeting VoIP
providers who are blasting billions of calls into Americans'
homes and pockets, but a lot more needs to be done if we are
going to take on this scourge.
Senator Thune. Well, and I hope that you can continue to
advise us, too, on things that we can do to give you more
tools, but we do want to make sure that these partnerships that
we have called for are hopefully functioning and working in an
effective way. And I would follow up with Mr. Leatherman
virtually, if you could elaborate on the coordination between
industry and enforcement officials to make the traceback
efforts effective, and then perhaps also address the question
whether there are other tools Congress should consider
providing attorneys general to meet the challenge of tracking
illegal robocallers?
[No response.]
Senator Thune. Mr. Leatherman?
[No response.]
Senator Blumenthal. I do not know whether we have Mr.
Leatherman still----
Senator Thune. OK.
Senator Blumenthal. Oh, there he is.
Senator Blumenthal. Mr. Leatherman?
Mr. Leatherman. Sorry about that.
Senator Blumenthal. Did you hear the question?
Mr. Leatherman. I did not hear the question. My Internet
just blinked out, so would you repeat it, please?
Senator Thune. I do not know if you heard my first question
of Mr. Levine, but I wanted to ask if you could elaborate on
the coordination between industry and enforcement officials to
make the trace back efforts effective. This comes back to the
issue of robocalls. And as a followup, are there other tools
Congress should consider providing State attorneys general to
meet the challenge of tackling illegal robocallers?
Mr. Leatherman. Thank you, Senator, for that question, and
thank you for your leadership on the issue involving robocalls.
As you are aware, I think, there has been a number of cases
brought recently by State attorneys general using tools that
have been made available through the Trace Back Act, and those
efforts are ongoing. There have been a number of cases brought
recently targeting illegal activity conducted on networks, and
so the networks themselves have been subject to law enforcement
actions.
So in the past, it was difficult to obviously sift through
all of the scammers, and so the AGs have been very [inaudible]
in targeting the network [inaudible] that [inaudible].
Senator Blumenthal. Mr. Leatherman, I think we have lost
you again. I think we have lost you.
Senator Thune. Mr. Chairman, let me come back to Mr. Levine
here, and this is a separate issue, but it has to do with a
concern I have had for a long time about the big four meat
packers' dominance and control over beef processing capacity
and cattle supply in this country. Packers are enjoying
excessive profits while cattle producers and family farm and
ranch operations, like those in my home state of South Dakota,
struggle to stay in business. At the same time, consumers are
left paying record high prices for beef, and most of the time
they are not even sure where it is coming from because the
product of the USA labeling loophole, which is entirely another
issue. But I remain very concerned with potential improper or
anticompetitive activity in the beef sector, and I am
encouraged that this Administration has prioritized oversight
of this highly concentrated industry. And I am wondering what
your views are with respect to the FTC using its Section 6(b)
authority to investigate these meatpacking companies?
Mr. Levine. Well, Senator, I certainly share your interest
in this issue. I would want to raise that with my colleagues in
the Bureau of Competition who would have more knowledge on that
particular issue. But I just want to jump off on something you
said about the ``Product of USA'' beef. You know, one of the
things we did at the FTC last year is finalized a rule that
prohibits mislabeling products made in USA when they are from
overseas. But as you referenced, Senator, we know that when
Americans are shopping for beef, it might say ``Product of
USA'' on the label, but that cattle could have been born,
raised, and slaughtered overseas. This is not only bad for
consumers. This is bad for the ranchers in your state and
across the country who are being cheated by misleading labels.
We stand ready to work with the USDA on this issue to protect
all consumers from misleading ``Product of USA'' of ``Made in
USA'' labels.
Senator Thune. Thank you, and I hope that you will take a
look at the other issue that I mentioned on the FTC with
respect to the concentration and dominance and control that a
handful of meatpackers have. But I appreciate you addressing
the issue of labeling because it is misleading to consumers in
this country when a product that comes in from outside the U.S.
attracts the USA label, and it does not represent an animal
that was born, raised, and harvested here in the United States.
And so this is an issue that has been around for a long time.
We have addressed it in a couple of farm bills. It continually
gets challenged at the World Trade Organization, and we have
not been willing to defend the legislation that has passed
previously here in the Congress that would provide mandatory
country of origin labeling.
I am glad that you all are moving forward to try and close
that loophole. I hope that you will use the powers that your
Agency has and the authorities that it has to continue to try
and tighten up so we can get to a point in this country where
everything that we put in the center of our plate has the same
requirements as the clothes we wear. Your tie, my tie will all
say made in some other country. We have got labeling on
everything except the stuff that we eat. It makes absolutely no
sense. It is an issue that just flat has to be addressed. I
have got a bill with Senator Tester to do that, but to the
degree that you all have regulatory authority, I would
encourage you to continue to exercise it in a way that allows
American consumers to be able to differentiate when they go to
the supermarket or the grocery store the products that are
born, raised, and harvested here in the United States and those
that are not. I think it is an important distinction to be made
and something that consumers around this country desperately
want to see. Thank you.
Thank you, Mr. Chairman.
Senator Blumenthal. Thank you, Senator Thune, and I join
completely in the views you just expressed, and if you want to
follow up with letters or legislation, I would be very pleased
to join you. This is an issue of consumer protection that is
supremely important to our whole country, not just to your
State and the ranchers and others there. I see we are joined by
Senator Lee.
STATEMENT OF HON. MIKE LEE,
U.S. SENATOR FROM UTAH
Senator Lee. Thanks so much, Mr. Chairman. Mr. Levine, I
would like to talk about 13(b). You wrote in your testimony
that in the context of 13(b), ``restoring the FTC's ability to
provide redress to wronged consumers is critical.'' But, of
course, in the AMG case in which that ruling was issued, the
Court specifically noted that its decision did not prohibit the
FTC from using its authority under Section 5 and under Section
19 to obtain redress for wronged consumers. Is the Supreme
Court wrong? Under other existing authorities, are you unable
to provide any redress for wronged consumers?
Mr. Levine. It is possible, Senator, but it is very
difficult, and I am happy to talk through why if that would be
helpful.
Senator Lee. OK. Well, I mean, it is pretty significant. I
mean, there was a significant ruling. The ruling was
significant on its face. It also happened to be unanimous. And
what the unanimous Court found in that case was that over a
period of over 40 years, the FTC had been illegally obtaining
money from companies, and we are not talking about something
trivial. Some were. We are talking about billions of dollars.
Now, I certainly want to ensure, as I know you do, that
consumers who have been harmed can be made whole again, but I
think we cannot ignore what has happened. And I think it would
be legislative malpractice on my part if I were to decide to
jump on board with something that would grant the Commission
the very same authority that the Commission used for 40 years,
not only against bad actors, but also against lawful actors,
against legal, non-predatory business practices that were
providing legitimate goods and services. And so I think instead
of just giving carte blanche authority, Congress should ensure
that this authority is coupled with proper safeguards in order
to block any future abuses of this immense power.
Now, let me make sure I understand. Are you against any
guardrails around 13(b)-like authority for the FTC?
Mr. Levine. I think the best guardrail for our 13(b)
authority is the fact that the FTC cannot order anybody to pay
a nickel. We need a Federal judge to order any payment. We
needed that under 13(b), and we need it under some of the
legislation the Senate has considered.
Senator Lee. OK. So injunctive relief. You are saying that
they need to be able to have an injunctive relief, but they
have an injunctive relief. What other types of reforms would
you be willing to support? What kinds of guardrails around the
authority to do what the unanimous Supreme Court said they were
unlawfully doing for 40 years in the AMG case?
Mr. Levine. The biggest reform we need is the ability to
return money to consumers, Senator, who have been scammed. You
are right. There are other ways to do it. It will take 5, 6
years--it could take years, and by the time we actually get
money back, by the time we actually get a judgment and we are,
you know, through the appeals process, the defendant does not
have any money anymore. The best way to stop fraud and get
money back to consumers is restoring the authority we had.
Senator Lee. Look, ensuring that consumers can be protected
from scams and from unfair and deceptive business trap
practices is extremely important, and we need to get this right
when we do it. It is also important, not in spite of the fact
that the aforementioned is important, but because it is
important, it is also essential that we ensure that consumers
continue to have access to goods and services provided by
legitimate businesses. These two goals do not have to be at
odds with one another. In fact, due process allows for them to
be pursued effectively and simultaneously. In fact, that is
what due process is. It is why we have it. It is why it is
built into the Constitution not just once, but twice.
I believe Congress can grant the expansion of 13(b)
authority while also providing appropriate safeguards,
safeguards of the sort outlined in my proposed legislation, S.
3410, which is called the Consumer Protection and Due Process
Act. And it would protect consumers by, one, providing the FTC
with the ability to pursue monetary, equitable remedies as
against bad actors, and, two, providing businesses due
process--due process protections from improper, unfounded, and
frivolous claims, which leads to a concern that I have had.
You know, under the COVID-19 Consumer Protection Act--the
CCPA--it is illegal to engage in deceptive marketing related to
the treatment, the cure, the prevention, the mitigation, or the
diagnosis of COVID-19. And over the past two years roughly
since that has been in place, many hardworking Americans have
stepped up to the plate and have worked diligently to identify,
or create, or develop inexpensive therapies and treatments
against COVID-19. Lamentably, it seems that the Federal
Government is keen on promoting only some solutions while
essentially blocking medical professionals from delivering
other FDA-approved medications for the treatment of COVID,
treatment options that are often far less expensive and far
more available than the government-pushed approaches.
And I find it quite concerning that this combination of the
FTC, the FDA, and other entities seem to be trying to block the
off-label use of approved drugs when it comes to tackling the
COVID-19 pandemic. In some cases, it is off-label use of
previously approved medication. In other cases, it is anything
that looks like it might help relieve the symptoms of COVID or
otherwise address COVID. And so, look, it is not illegal for
healthcare providers in their best judgment as medical
professionals and with the health history and the best
interests of their patients in mind to just prescribe off-label
uses for approved drugs. Do you think this is a valid and
important practice that is being hampered by the FTC and the
FDA?
Mr. Levine. I think it depends on the circumstance,
Senator. I can say that we certainly do not regulate the
practice of medicine, and I think if you look at the cease and
desist demands we have sent, the cases we have brought, you
know, frankly, Senator, these are not close calls. These are
hucksters. These are fraudsters who are selling people snake
oil. So I think some of the concerns you raised, I am happy
to----
Senator Lee. So you are saying that you go only after those
who are selling snake oil or the modern-day equivalent? Mr.
Chairman, I see my time has expired. I have got just one or two
follow-up questions. I will be fast.
Senator Blumenthal. Go ahead.
Senator Lee. Thank you, Mr. Chairman.
Mr. Levine. We go after a wide range of COVID-19-related
fraud, Senator.
Senator Lee. You do.
Mr. Levine. And they are not close calls.
Senator Lee. In your testimony, you mentioned that the
first case that you filed under the CCPA was against a
chiropractor due to claims about the use of vitamin D and zinc
supplements to treat or prevent COVID-19. And in the complaint
filed by the Commission for that very case, you noted that you
would seek to bar health claims unless ``true and can be
substantiated by competent and reliable scientific evidence.''
How do you determine what meets that evidentiary standard, and
by what process does the Commission make these determinations?
What process does it follow to protect the rights of those who
do not think they are selling snake oil?
Mr. Levine. The short answer, Senator, is that we have to
persuade a Federal judge. It has been the position of the FTC
for decades that if you are going to make a health claim, there
needs to be a reasonable basis for it or else it is deceptive,
but we cannot just announce that.
Senator Lee. And what guidance do you provide them about
what is deceptive?
Mr. Levine. We've provided extensive guidance both through
our casework and through our business guidance on FTC.gov
around the types of bases we look for for making medical
claims. But, again, if we are going into Federal court alleging
that a claim is unsubstantiated, we are only going to win if we
can convince a Federal judge.
Senator Lee. Yes, and therein lies the tie to what I am
describing about the need for due process. You have
overwhelming power at your disposal. You have presumptions in
the eyes of an entity that is staring down the barrel of your
enforcement. It is not an even playing field when they walk
into that court. The immense authority that you have got at
your disposal within your discretion is itself looming, and it
could, can, and does shut businesses down entirely. Now, I
understand the difficult line-drawing problems inherent in the
practice of government, but let us not pretend that this
happens in a vacuum, and let us not pretend that this does not
connect back to the need to protect due process and the need
for there to be guardrails around 13(b) authority.
So in light of that, I hope and expect--in fact, I demand
that you reconsider any opposition you might otherwise have to
have to having guardrails around 13(b) authority. We can
protect consumers and we must, but we have also got to provide
American businesses, American consumers with due process
protection.
Thank you, Mr. Chairman.
Senator Blumenthal. Thanks, Senator Lee. I have just a few
questions and then we will end. I have heard from a lot of
consumers who have been victims of these scams and a lot of
them on online marketplaces, as we have remarked throughout
this hearing. Consumers who research sellers and attempt to
authenticate these products, whether they are masks or supposed
miracle cures, did their homework and still got scammed, so the
question is on online retailers and marketplaces. Mr. Levine,
in your testimony, you mentioned enforcement action against
online marketers who claimed to provide, but failed to deliver,
face masks and other products, and you remarked that the online
marketplaces should be more cooperative. I am not quoting you
directly. Amazon, Facebook, eBay. Tell me whether they have
been cooperative, and if not, why not?
Mr. Levine. I think, Senator, that they will refer us cases
and we will let them know when we spot problems on their
marketplaces, but I think here's the thing. If you are a
consumer looking to buy an authentic mask, and we have brought
lawsuits against sellers of--they claim it is an N95 mask and
it is an absolute cloth mask. It is crazy to me that 2 years
into this pandemic, consumers still cannot go on an e-commerce
platform and have confidence that the mask they buy is
authentic. Nobody, not e-commerce platforms and not the
scammers, should be profiting from the sale of defective masks
that are not only cheating consumers of money, but that are
putting public health at risk. But unfortunately, that is
exactly what is happening, and the platforms are not taking
enough responsibility for the fraud they are facilitating.
Senator Blumenthal. Are they doing anything?
Mr. Levine. I think they are doing things around the edges,
but at the end of the day, their business model does not give
them an incentive to sufficiently police this problem.
Senator Blumenthal. They could scrutinize the sales of
these products, correct?
Mr. Levine. Certainly, Senator, just like we do. We have
people with the money Congress gave us monitoring these
marketplaces all the time, and it raises the question why these
marketplaces are not doing more on their own to protect their
own customers and the American public from the kinds of frauds
that you and others on this subcommittee have talked about.
Senator Blumenthal. Tell me, why is the FTC not taking
action against the online marketplaces if they are failing to
perform their responsibilities? Is it lack of authority?
Mr. Levine. I think a big problem, Senator, is that these
marketplaces have disclaimed responsibility for any of the
conduct on their marketplaces, invoking Section 230 of the
Communications Decency Act.
Senator Blumenthal. Well, they disclaim responsibility, but
can they not be held responsible?
Mr. Levine. It is certainly--you know, it is going to
depend on the facts of course, Senator, but if you look at how
some Federal courts have interpreted the CDA, it is, in fact,
quite broad. And what it means is that these platforms do not
have a strong incentive to actually police their marketplaces
and we do not have strong tools.
Senator Blumenthal. Let me put it to you this way. I
understand there may be an issue under Section 230, but why has
the FTC not come to us and said we need to hold these online
marketplaces accountable because they are, in effect, complicit
and we cannot reach them?
Mr. Levine. I am here telling you just that, Senator.
Senator Blumenthal. That you are asking for authority----
Mr. Levine. We would----
Senator Blumenthal.--on behalf of the FTC?
Mr. Levine. We would be--well, I am speaking for myself,
but we would be very----
Senator Blumenthal. Well, that is not--you know, Mr.
Levine, I really respect your impressive accomplishments as an
enforcer, your personal career, but without meaning any
disrespect, we want you here speaking for the Agency. We did
not invite you here as a private citizen. We did not invite
you, as a matter of fact. We invited the FTC. I want you to
tell me that you want authority on behalf of your Agency to
effectively enforce the law.
Mr. Levine. I cannot commit the Commission to a position,
but the Commission would be happy to work with you as we have--
--
Senator Blumenthal. Well, I want you to work with me.
Mr. Levine. Happy to.
Senator Blumenthal. I want you to do more than just work
with us. Request the authority so we can have you here and say
the FTC says it needs authority to go after these scammers and
protect the public because the online marketers, in effect, are
enabling and profiting from fraud. That is what is happening
here.
Mr. Levine. I could not agree more, and like I said, we
will certainly work with you on that, Senator.
Senator Blumenthal. And I appreciate your agreement,
believe me.
Mr. Levine. Yes.
Senator Blumenthal. Do not misunderstand me. I appreciate
your personal agreement, but we want the FTC to be on record as
well.
Mr. Levine. Totally understood, Senator.
Senator Blumenthal. Thank you. I would like to ask you, Mr.
Levine, you mentioned in your testimony the work that the
Commission is doing to reach out to Latina consumers in Spanish
language ads, and you mentioned the FTC v. Moda Latina BZ, Inc.
case. Have there been others like it, and what was that case
about?
Mr. Levine. I could get you a list of all the cases,
Senator. Moda Latina was an important case. It was COVID
related. The company was peddling money-making opportunities
deceptively and cheating people out of a lot of funds. We
actually issued a report in the fall called ``Serving
Communities of Color,'' where we detailed our extensive
enforcement work over the last 5 years to make sure that we are
being--we are responding to consumer protection problems in
every community, including for Latinos.
Senator Blumenthal. And you mentioned also immigrant
communities. Does that report cover immigrant communities?
Mr. Levine. It does, Senator.
Senator Blumenthal. I want to just finish by asking a
couple of questions. You noted in your testimony that the FTC
requested data from social media and video streaming companies
in December 2020 about personal information collection and use
practices, stating, ``This study may provide critical
information on the business practices at issue.'' What is
intended by the study and what kind of progress has been made
on it?
Mr. Levine. A lot of progress has been made, Senator. As
you can imagine, the document production has been quite
voluminous. I think the key to the study, and it really relates
to what we are talking about today. We know that scammers have
a powerful new tool in social media to target consumers where
it is going to hurt them the most. And what we want to do is we
want to lift the hood, understand how these algorithms operate
so that we can do the best we--so that we can do the best job
we can do to protect consumers and also report to Congress on
our findings so that you can make a determination if
legislation is needed.
Senator Blumenthal. And finally, you mentioned in your
testimony that the U.S. Customs and Border Patrol needed to
better act to prevent counterfeit masks and other counterfeit
products from coming into the country. What more should they be
doing?
Mr. Levine. I think the specific discussion of CBP might be
elsewhere. I will--what I will say, Senator, is that it could
come into the country. The way it is actually getting into
consumers' homes is through e-commerce marketplaces that, as I
said, are not doing enough to police this problem. We can put
all the people on at our ports that we can, they are never
going to catch everything. The real question to me is why these
for-profit marketplaces cannot do what the FTC is doing, making
sure that fraudulent masks, defective masks are not being sold
and that they are not profiting from it.
Senator Blumenthal. That is a good way to end this hearing,
even though it is a discouraging act--answer about online
marketplaces. I think it should serve as a call to action, and
I know that this committee will be further interested in taking
action. So I want to really thank all of the witnesses for
being here today. Your testimony has been very, very helpful
and enlightening.
This hearing record is going to remain open for two weeks.
Any Senators that want to submit questions for the record
should do so by February 15. We ask that responses be returned
as quickly as possible, in no case later than two weeks after
you receive the questions.
And, again, my thanks for your testimony. My thanks to
everybody who is online or virtual, and that will conclude this
hearing. Thank you very much.
[Whereupon, at 4:42 p.m., the hearing was concluded.]
A P P E N D I X
Response to Written Questions Submitted by Hon. Ben Ray Lujan to
Teresa Murray
Unlicensed COVID-19 Testing Site. I am deeply concerned by reports
of unlicensed COVID-19 test sites operating in New Mexico. These sites
operated without any connection to New Mexico's medical providers or
the Department of Health. These sites threaten public health both by
issuing unreliable results and by undermining confidence in legitimate
testing sites.
Question 1. What do we know about unlicensed and scam COVID-19
testing sites and the impact they are having on public health?
Answer. We know that unlicensed and scam COVID-19 testing sites
started popping up in recent weeks \1\ as opportunistic con artists
tried to fill a void in the marketplace and seize on public fear of
COVID and desperation to get tested, particularly before holiday
gatherings. These fake testing sites popped up in New Mexico and other
locations nationwide, including Chicago, Oregon, Los Angeles and
Philadelphia, the latter which affected 4,000 people. The sites often
would set up shop in vacant lots at busy intersections, and in the
parking lots of shopping plazas. They'd put up a sign and some orange
cones to mark off lanes and those ``working'' the sites were often
dressed in hazmat suits or some other outfit to look legitimate.
---------------------------------------------------------------------------
\1\ https://www.consumer.ftc.gov/blog/2022/01/dont-assume-every-
covid-19-test-site-legit
---------------------------------------------------------------------------
In New Mexico, Attorney General Balderas put out a warning in
January about fake test sites where thieves were stealing personal or
medical information.\2\
---------------------------------------------------------------------------
\2\ https://www.krqe.com/health/coronavirus-new-mexico/new-mexico-
attorney-general-warns-residents-of-covid-19-test-scams/ https://
www.cibolacitizen.com/news/attorney-general-balderas-urges-citizens-
beware-covid-19-test-scams
---------------------------------------------------------------------------
Specifics on other incidents:
Jan 4, 2022--Philadelphia officials are warning residents to
avoid pop-up tents offering COVID-19 testing in Center City
that claim to be funded by the Federal government. The tents
started operating around Center City in late December and city
officials confirmed over the weekend that they had falsely
claimed they were backed by the Federal Emergency Management
Agency.
Lab Elite, a Chicago-based company offering PCR tests, said it
runs testing sites in several cities and said it collected
about 4,000 test samples in Philadelphia last month.\3\
---------------------------------------------------------------------------
\3\ https://www.inquirer.com/news/covid-test-philadelphia-labelite-
fema-20220103.html
Jan. 10--Illinois' governor directed the Illinois Attorney
General's office to investigate fly by night testing sites.\4\
BBB was involved in getting warnings out too.
---------------------------------------------------------------------------
\4\ https://abc7chicago.com/covid-testing-scam-fake-sites-pop-up-
test-covid-19-warning/11425543/
Jan 13--The Oregon Department of Justice opened an
investigation into a company accused of operating suspicious
COVID-19 test sites.\5\
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\5\ https://www.opb.org/article/2022/01/13/oregon-attorney-general-
warns-against-covid-19-test-scams/
Mid-January--Los Angeles officials shut down a bunch of fake
testing sites. Some residents reported they paid up to $200 and
never received their results, and some sites even required
people to give their Social Security number.\6\
---------------------------------------------------------------------------
\6\ https://www.latimes.com/california/story/2022-01-27/
californias-attorney-general-warns-of-fake-covid-testing-sites-heres-
how-to-identify-one http://ph.lacounty.gov/hccp/covidscams/
Jan. 18--In Philadelphia, workers at a sidewalk COVID-19
testing tent falsely claimed to be working with FEMA, said
James Garrow, communications director for the Philadelphia
Department of Public Health. But FEMA told the department it
---------------------------------------------------------------------------
wasn't funding any testing centers in the city at the time.
The problems and public health threats of these fake testing sites
include:
Consumers would sometimes get charged for what was supposed
to a free test.
The con artists would steal people's personal information
and use it to commit identity theft.
Consumers would get fake test results, if any results at
all. What happened with people who actually had COVID and would
have tested positive at a legitimate testing site, but were
told they tested negative? How many got infected needlessly?
As news of these fake testing sites spreads, there's a risk
of people becoming leery of getting tested anywhere. This
clearly threatens public health.
The FTC says we're also seeing a surge in unauthorized home test
kits, fueled by the shortage of COVID test kits.\7\ \8\
---------------------------------------------------------------------------
\7\ https://www.cnbc.com/2022/01/06/fake-covid-testing-kits-are-
everywhereheres-how-to-avoid-them.html
\8\ https://www.consumer.ftc.gov/blog/2022/01/how-avoid-buying-
fake-covid-tests-online
Question 2. What measures do you recommend for public officials to
restore confidence in genuine testing sites and supplies?
Answer. Officials should do more to inform consumers how they can
verify whether a test site is legitimate. In Ohio, where I live, you
can look up whether a location is legitimate with an easy-to-use
website.\9\ But it's not easy in every state to just call your local
health department or state health department and give them an address
and find out whether it's legit. I'd like to see a phone number that
consumers could call, perhaps local health officials or the state AG or
department of health that could tell them quickly whether a particular
location is legitimate. It needs to be quick and easy. Some government
officials in some cities agree it's not easy.
---------------------------------------------------------------------------
\9\ https://coronavirus.ohio.gov/dashboards/other-resources/
testing-ch-centers
---------------------------------------------------------------------------
Officials should also quickly investigate reports of unauthorized
tests or fake test sites and publicize it more when they shut something
down. This will instill more confidence that the public is being
protected.
And more legitimate sites need to be established. In Cleveland and
many other cities, there were reports of two-hour waits before the
holidays, if you could even get an appointment to sit in line in your
car. (Some members of my family couldn't.)
The government should also do whatever it takes to make at-home
tests widely available. The inexcusable shortage drives people to scam
testing sites and leads to price-gouging for legitimate tests. As far
as counterfeit supplies, we can try to educate consumers about warning
signs of fake testing sites, at-home tests and other products, but that
only goes so far. For example, if hospitals can't tell the difference
between genuine N95 masks and counterfeits, how are my parents or your
neighbors supposed to know?
I'm surprised there haven't been any fake vaccination sites yet.
Maybe there have been. But God help us if that happens. Lots of people
are already vaccine-hesitant.
In many cases, consumers can be their own first line of defense.
But people rely on government and public health officials to protect
them.
______
Response to Written Questions Submitted by Hon. Ben Ray Lujan to
Todd Leatherman
Question 1. What challenges do States face when bringing cases
against price gouging?
Answer. States face a number of challenges. State price gouging
legal authority can vary in several respects and depending on the
statute, there can be a number of complications to state efforts to
combat pricing behavior that harms consumers.
First, not all states have price gouging laws. 39 states do have
such laws, but states that don't, may still have authority under other
consumer protection laws that prohibit ``unfair'' or ``unconscionable''
conduct. While those terms, may encompass the types of conduct that
raises concern, they lack specificity that could be helpful in applying
those laws to situations involving price gouging and there is little
precedent in the use of such statutes or guidance from the courts on
how they may apply to price gouging.
Second price gouging statutory definitions of what price increases
are illegal can be quite broad, as with many consumer protection laws,
as what may be deemed an ``excessive'' increase in one situation may
not be inappropriate in others. This flexibility is needed, but can
lead to litigation in situations where there is no precise standard.
Other issues that are commonly raised by defendants that can lead
to protracted litigation:
What is the effective date of the price gouging law--does it
apply to price increases that occur prior to the declaration,
such as when the market anticipates a disaster and increases
prices prior to the declaration?
What is the benchmark price for purposes of comparing the
allegedly unlawful price?
What is the duration of the emergency or applicability of
the price gouging law?
Does the statute apply to wholesalers as well as retailers?
What are the allowable increased costs of the seller that
may justify an increase in the price? Are ``opportunity costs''
allowable costs?
What types of events trigger the statute; must they be local
to the jurisdiction or do national events also trigger the
statute. If so, what local effects must be present?
Statutes may only apply to natural disasters as opposed to
market disruptions such as occurred with the baby formula
shortage.
Question 2. What steps can the Federal government take to help
fight this practice?
Answer. First, whatever solution, if any, Congress should propose,
Congress should not preempt the states, who should have the authority
to enforce their state laws.
Second, the Federal government could articulate a clear standard
and provide the Federal Trade Commission clear authority to address
price gouging. Much of the price gouging activity that occurred during
the pandemic occurred online and across state and international
borders. The Federal government is in a much better position to address
this type of activity than most state attorneys general, whose
resources are severely limited. Having an additional ``cop on the
beat'' is needed to address this activity. Also, providing the business
community guidance on what activity is considered unlawful would be
very helpful to both businesses and enforcers.
The issues identified in the prior section merit serious
consideration and there is a growing body of case law interpreting
state price gouging statutes that would inform the Congress on the
issues confronting enforcers as well as the business community.
The issues are challenging but there will continue to be instances
in which businesses seek to gain an economic advantage due to a
disaster or supply disruption and businesses should not be allowed to
obtain a windfall at consumers' expense.
[all]