Markets Wired

The Department of Justice on behalf of the Federal Trade Commission sued a California-based purveyor of background reports, alleging that the company has deceived consumers with “teaser background reports” that often falsely claimed to include information about arrest, criminal, and sex offender records, and also engaged in misleading billing and marketing practices.

According to a complaint filed by the Department of Justice on behalf of the FTC, MyLife.com, Inc., and its CEO Jeffrey Tinsley have stated through their website that the company’s background reports on particular individuals may contain arrest, criminal, and sexual offender records—even when they did not include such information—to try to persuade consumers to sign up for auto-renewing premium subscriptions.

The complaint alleges that, in many instances, consumers searching the MyLife.com website for an individual’s background report are shown search results that imply, often falsely, that the subject of a search may have records of criminal or sexual offenses—records that can be viewed only by buying a MyLife subscription. The complaint alleges that MyLife’s misleading statements led some consumers to believe they or other individuals had arrest or criminal records when they did not, or if they only had minor traffic citations.

The complaint maintains that MyLife is a consumer reporting agency (CRA), assembling and selling consumer reports that include information such as court or arrest records and sex offender records. MyLife has touted in testimonials that its reports were useful to those making housing, lending, and employment eligibility decisions.

CRAs must comply with the Fair Credit Reporting Act (FCRA), which requires them to take steps to ensure that they only provide consumer report information to those with a “permissible purpose” for receiving it; that they ensure the maximum possible accuracy of the information; and that they allow consumers to dispute and correct information in their consumer reports.

Many consumers have purchased premium memberships because of the misleading information about criminal or arrest records in the “teaser background reports.”

The complaint alleges that MyLife’s misleading billing practices violated the Restore Online Shoppers’ Confidence Act. For example, MyLife did not clearly disclose upfront charges, or that consumers’ subscription would automatically renew, and the company made it difficult for consumers to cancel their subscriptions or obtain a refund. In addition, the complaint alleges that the company misrepresented its refund and cancellation policies in violation of the Telemarketing Sales Rule.

The Commission vote to refer the complaint seeking civil penalties to the Department of Justice for filing was 5-0. The Department of Justice filed the complaint on behalf of the Commission in the U.S. District Court for the Central District of California.

NOTE: The Commission refers a complaint for civil penalties to the DOJ for filing when it has “reason to believe” that the named defendants are violating or are about to violate the law and that a proceeding is in the public interest. The case will be decided by the court.