1,021 posts categorized "Corporate Responsibility" Feed

Poll Finds Republicans Rollback of Broadband Privacy Very Unpopular

A recent poll found that the Republican rollback of broadband privacy rules is very unpopular. Very unpopular. The poll included 1,000 Americans, and the results cut across age, gender, and political affiliations. Despite this, President Trump signed the privacy-rollback legislation on April 3. Since then, many consumers have sought online tools to protect their privacy.

Vox reported the survey results:

Image of Yougov poll results about Republican rollback of broadband privacy. Click to view larger version

Late last week, several Republicans in the House of Representatives sent a letter (Adobe PDF) to Ajit Pai, the Chairman of the U.S. Federal Communications Commission (FCC), urging the FCC to regulate broadband service providers. The letter read, in part:

"We write to ensure that the Federal Communications Commission (FCC) stands ready to protect consumer privacy... The Federal Trade Commission (FTC) has long been the standard bearer for striking the right balance of consumer protection with a pro-innovative construct that encourages consumer choice, opportunities, and new jobs... An FCC approach that mirrors the FTC will continue to protect consumers in this tumultuous time... Until such time as the FCC rectifies the Title II reclassification that inappropriately removed ISPs from the FTC's jurisdiction, we urge the FCC to hold Internet service providers (ISPs) to their privacy promises..."

The letter was signed by Greg Walden (Chairman, Committee on Energy & Commerce), Marsha Blackburn (Chairman, Subcommittee on Communications & Technology), and 48 other representatives.

Tumultuous times? The tumult was created by the rollback of privacy rules -- a situation created by Republicans. All would have been fine if they'd left the FCC's broadband privacy rules in place; rules consumers clear want -- rules that keep users in control of their online privacy.

Representative Blackburn and her fellow Republicans either doesn't know history or have chosen to ignore it. Several problems have plagued the industry: a lack of ISP competition in key markets, consumers in the United States pay more for broadband and get slower speeds compared to other countries, and numerous privacy violations and lawsuits:

Clearly, the FCC had to act, it did, it held hearings, and then finalized improved broadband privacy rules to help consumers. Now, the Congress and President undid all of that creating the tumult they now claim to want to solve.

Clearly, Representative Blackburn and others are happy to comply with the wishes of their corporate donors -- who don't want broadband classified as a utility. Internet access is a basic consumer need for work, entertainment, and school -- just like water, electricity, and natural gas (for cooking). Internet access is a utility, like it or not. The FCC under Chairman Wheeler had the right consumer-friendly approach, despite the spin by Blackburn and others.

What are your opinions?


Lawsuit Claims The Uber Mobile App Scams Both Riders And Drivers

Uber logo A class-action lawsuit against Uber claims that the ride-sharing company manipulated its mobile app to simultaneously short-change drivers and over-charge riders. Ars Technica reported:

"When a rider uses Uber's app to hail a ride, the fare the app immediately shows to the passenger is based on a slower and longer route compared to the one displayed to the driver. The software displays a quicker, shorter route for the driver. But the rider pays the higher fee, and the driver's commission is paid from the cheaper, faster route, according to the lawsuit.

"Specifically, the Uber Defendants deliberately manipulated the navigation data used in determining the fare amount paid by its users and the amount reported and paid to its drivers," according to the suit filed in federal court in Los Angeles."

Controversy surrounds Uber after several high-level executive changes, an investigative news report alleging a worldwide program to thwart oversight by local governments, and a key lawsuit challenging the company's technology.


A Cautionary Tale About The Internet Of Things And The CRFA

The internet-of-things devices consumers installed in their homes aren't really theirs. Oh, consumers paid good money for these smart devices, but the devices aren't really theirs. How so you ask? The cautionary tale below explains.

Unhappy with Garadget, an internet-connected garage-door opener he bought, Robert Martin posted negative reviews on both Garadget's official discussion board (username: rdmart7) and on Garadget's Amazon page. Unhappy with those negative reviews, Denis Grisak, the device's creator, responded initially by disabling internet access to the mobile app Martin used to operate his device. Grisak angrily said Martin could return his device for a refund.

You might call that a digital mugging.

The disagreement escalated and Grisak also disabled Martin's access to the Garadget discussion board and to Martin's online profile. You can read the entire story by The Atlantic. There are several items to learn from this incident. First, as The Atlantic concluded:

"Even just an angry moment can turn a smart device into a dead one."

Clearly, the device creator overreacted by disabling internet access. Grisak later softened his position and restored Martin's online connections. However, the incident highlights the fact that in the heat of the moment, angry (or ethically-challenged) and revengeful device makers can easily and quickly disable smart devices. It doesn't matter that consumers legally paid for those devices.

Second, end-user license agreements (EULA) matter. Terms of service policies matter. Most consumers never read these documents, and they matter greatly. The incident is a reminder of the "gag clauses" some companies insert into policies to silence negative reviews. This incident highlights a technical tactic ethically-challenged device makers can use to enforce gag clauses.

And it's not only device makers. In 2009, some physicians tried to force patients to sign, “Consent And Mutual Agreement to Maintain Privacy” (MAMP) policy documents. Don’t be fooled by the policy name, which is a fancy label for a gag clause. The policy document usually requires the patient to give up their rights to mention that physician on any social networking sites.

Third, legislation and consumer protections matter. The Atlantic reported:

"Some commenters on Amazon and Hacker News wondered whether Grisak’s public online revenge was legal. One person encouraged Martin to reach out to his state attorney general’s office. That’s a complicated question... A bill signed into law signed in December prohibits companies from including “gag clauses” in the contracts they enter into with customers, meaning they can’t bring legal action against someone just for a negative review."

That new law is the "Consumer Review Fairness Act" (CRFA - H.R. 5111) which protects consumers' rights to share their honest opinions online about any product or service.The U.S. Federal Trade Commission (FTC) explains the CRFA and provides guidance:

"The law protects a broad variety of honest consumer assessments, including online reviews, social media posts, uploaded photos, videos, etc. And it doesn’t just cover product reviews. It also applies to consumer evaluations of a company’s customer service... the Act makes it illegal for a company to use a contract provision that: a) bars or restricts the ability of a person who is a party to that contract to review a company’s products, services, or conduct; b) imposes a penalty or fee against someone who gives a review; or c) requires people to give up their intellectual property rights in the content of their reviews.

The [CRFA] makes it illegal for companies to include standardized provisions that threaten or penalize people for posting honest reviews. For example, in an online transaction, it would be illegal for a company to include a provision in its terms and conditions that prohibits or punishes negative reviews by customers. (The law doesn’t apply to employment contracts or agreements with independent contractors, however.) The law says it’s OK to prohibit or remove a review that: 1) contains confidential or private information – for example, a person’s financial, medical, or personnel file information or a company’s trade secrets; 2) is libelous, harassing, abusive, obscene, vulgar, sexually explicit, or is inappropriate with respect to race, gender, sexuality, ethnicity, or other intrinsic characteristic; 3) is unrelated to the company’s products or services; or 4) is clearly false or misleading."

However, the CRFA won't stop device makers from disabling the mobile apps and/or smart devices of consumers who have posted negative reviews. And, an online search easily retrieves physicians' sites still displaying MAMP policy documents. I guess that not everyone is aware of the CRFA.

Fourth, the consumer backlash has begun against smart devices with allegedly poor security. The @Internetofshit blogger (on Twitter and on Facebook) tracks and discusses such devices and device makers' actions that allegedly violate the CRFA. The discussion recently included Garadget:

Tweet by Internetofshit blogger about Garadget. Click to view larger version

What are your opinions of the Garadget incident? Of the CRFA? Of smart device security?


Uber: President Resigns, Greyball, A Major Lawsuit, Corporate Culture, And Lingering Questions

Uber logo Several executive changes are underway at Uber. The President of Uber's Ridesharing unit, Jeff Jones, resigned after only six months at the company. The Recode site posted a statement by Jones:

"Jones also confirmed the departure with a blistering assessment of the company. "It is now clear, however, that the beliefs and approach to leadership that have guided my career are inconsistent with what I saw and experienced at Uber, and I can no longer continue as president of the ride-sharing business," he said in a statement to Recode."

Prior to joining Uber, Jones had been the Chief Marketing Officer (CMO) at Target stores. Travis Kalanick, the Chief Executive Officer at Uber, disclosed that he met Jones at a Ted conference in Vancouver, British Columbia, Canada.

There have been more executive changes at Uber. The company announced on March 7 its search for a Chief Operating Officer (COO). It announced on March 14 the appointment of Zoubin Ghahramani as its new Chief Scientist based San Francisco. Ghahramani will lead Uber’s AI Labs, our recently created machine learning and artificial intelligence research unit and associated business strategy. Zoubin, a Professor of Information Engineering at the University of Cambridge, joined Uber when it acquired Geometric Intelligence.

In February 2017, CEO Travis Kalanick asked Amit Singhal to resign. Singhal, the company's senior vice president of engineering, had joined Uber a month after 15 years at Google. Reportedly, Singhal was let go for failing to disclose reasons for his departure from Google, including sexual harassment allegations.

Given these movements by executives, one might wonder what is happening at Uber. A brief review of the company's history found controversy accompanying its business practices. Earlier this month, an investigative report by The New York Times described a worldwide program by Uber executives to thwart code enforcement inspections by governments:

"The program, involving a tool called Greyball, uses data collected from the Uber app and other techniques to identify and circumvent officials who were trying to clamp down on the ride-hailing service. Uber used these methods to evade the authorities in cities like Boston, Paris and Las Vegas, and in countries like Australia, China and South Korea.

Greyball was part of a program called VTOS, short for “violation of terms of service,” which Uber created to root out people it thought were using or targeting its service improperly. The program, including Greyball, began as early as 2014 and remains in use, predominantly outside the United States. Greyball was approved by Uber’s legal team."

An example of how the program and Greyball work:

"Uber’s use of Greyball was recorded on video in late 2014, when Erich England, a code enforcement inspector in Portland, Ore., tried to hail an Uber car downtown in a sting operation against the company... officers like Mr. England posed as riders, opening the Uber app to hail a car and watching as miniature vehicles on the screen made their way toward the potential fares. But unknown to Mr. England and other authorities, some of the digital cars they saw in the app did not represent actual vehicles. And the Uber drivers they were able to hail also quickly canceled."

The City of Portland sued Uber in December 2014 and issued a Cease And Desist Order. Uber continued operations in the city, and a pilot program in Portland began in April, 2015. Later in 2015, the City of Portland authorized Uber''s operations. In March 2017, Oregon Live reported a pending investigation:

"An Uber spokesman said Friday that the company has not used the Greyball program in Portland since then. Portland Commissioner Dan Saltzman said Monday that the investigation will focus on whether Uber has used Greyball, or any form of it, to obstruct the city's enforcement of its regulations. The review would examine information the companies have already provided the city, and potentially seeking additional data from them... The investigation also will affect Uber's biggest competitor, Lyft, Saltzman said, though Lyft did not operate in Portland until after its business model was legalized, and there's no indication that it similarly screened regulators... Commissioner Nick Fish earlier called for a broader investigation and said the City Council should seek subpoena powers to determine the extent of Uber's "Greyball" usage..."

This raises questions about other locations Uber may have used its Greyball program. The San Francisco District Attorney's office is investigating, as are government officials in Sydney, Australia. Also this month, the Upstate Transportation Association (UTA), a trade group of taxi companies in New York State, asked government officials to investigate. The Albany Times Union reported:

"In a Tuesday letter to Governor Andrew Cuomo, Assembly Speaker Carl Heastie and Senate Majority Leader John Flanagan, UTA President John Tomassi wrote accused the company of possibly having used the Greyball technology in New York to evade authorities in areas where ride-hailing is not allowed. Uber and companies like it are authorized to operate only in New York City, where they are considered black cars. But UTA’s concerns about Greyball are spurred in part by reported pick-ups in some suburban areas."

A look at Uber's operations in Chicago sheds some light on how the company operates. NBC Channel 5 reported in 2014:

"... news that President Barack Obama's former adviser and campaign strategist David Plouffe has joined the company as senior VP of policy and strategy delivers a strong message to its enemies: Uber means business. How dare you disrupt our disruption? You're going down.

Here in the Land of Lincoln, Plouffe's hiring adds another layer of awkward personal politics to the Great Uber Debate. It's an increasingly tangled web: Plouffe worked in the White House alongside Rahm Emanuel when the Chicago mayor was Chief of Staff. Emanuel, trying to strike a balance between Uber-friendly and cabbie-considerate, recently passed a bill that restricts Uber drivers from picking up passengers at O'Hare, Midway and McCormick Place... Further complicating matters, Emanuel's brother, Hollywood super-agent Ari Emanuel, has invested in Uber..."

That debate also included the Illinois Governor, as politicians try to balance the competing needs of traditional taxi companies, ride-sharing companies, and consumers. The entire situation raises questions about why there aren't Greyball investigations by more cities. Is it due to local political interference?

That isn't all. In 2014, Uber's "God View" tool raised concerns about privacy, the company's tracking of its customers, and a questionable corporate culture. At that time, an Uber executive reportedly suggested that the company hire opposition researchers to dig up dirt about its critics in the news media.

Uber's claims in January 2015 of reduced drunk-driving accidents due to its service seemed dubious after scrutiny. ProPublica explained:

"Uber reported that cities using its ridesharing service have seen a reduction in drunk driving accidents, particularly among young people. But when ProPublica data reporter Ryann Grochowski Jones took a hard look at the numbers, she found the company's claim that it had "likely prevented" 1,800 crashes over the past 2.5 years to be lacking... the first red flag was that Uber didn't include a methodology with its report. A methodology is crucial to show how the statistician did the analysis... Uber eventually sent her a copy of the methodology separately, which showed that drunk-driving accidents involving drivers under 30 dropped in California after Uber's launch. The math itself is fine, Grochowski Jones says, but Uber offers no proof that those under 30 and Uber users are actually the same population.

This seems like one of those famous moments in intro statistics courses where we talk about correlation and causality, ProPublica Editor-in-Chief Steve Engelberg says. Grochowski Jones agrees, showcasing how drowning rates are higher in the summer as are ice cream sales but clearly one doesn't cause the other."

Similar claims by Uber about the benefits of "surge pricing" seemed to wilter under scrutiny. ProPublica reported in October, 2015:

"The company has always said the higher prices actually help passengers by encouraging more drivers to get on the road. But computer scientists from Northeastern University have found that higher prices don’t necessarily result in more drivers. Researchers Le Chen, Alan Mislove and Christo Wilson created 43 new Uber accounts and virtually hailed cars over four weeks from fixed points throughout San Francisco and Manhattan. They found that many drivers actually leave surge areas in anticipation of fewer people ordering rides. "What happens during a surge is, it just kills demand," Wilson told ProPublica."

Another surge-pricing study in 2016 concluded with a positive spin:

"... that consumers can benefit from surge pricing. They find this is the case when a market isn’t fully served by traditional taxis when demand is high. In short, if you can’t find a cab on New Year’s Eve, Daniels’ research says you’re better off with surge pricing... surge pricing allows service to expand during peak demand without creating idleness for drivers during normal demand. This means that more peak demand customers get rides, albeit at a higher price. This also means that the price during normal demand settings drops, allowing more customers service at these normal demand times."

In other words, "can benefit" doesn't ensure that riders will benefit. And "allows service to expand" doesn't ensure that service will expand during peak demand periods. "Surge pricing" does ensure higher prices. A better solution might be surge payments to drivers during peak hours to expand services. Uber will still make more money with more rides during peak periods.

The surge-pricing concept is a reminder of basic economics when prices are raised by suppliers. Demand decreases. A lower price should follow, but the surge-price prevents that. As the prior study highlighted, drivers have learned from this: additional drivers don't enter the market to force down the higher surge-price.

And, there is more. In 2015, the State of California Labor Commission ruled that Uber drivers are employees and not independent contractors, as the company claimed. Concerns about safety and criminal background checks have been raised. Last year, BuzzFeed News analyzed ride data from Uber:

"... the company received five claims of rape and “fewer than” 170 claims of sexual assault directly related to an Uber ride as inbound tickets to its customer service database between December 2012 and August 2015. Uber provided these numbers as a rebuttal to screenshots obtained by BuzzFeed News. The images that were provided by a former Uber customer service representative (CSR) to BuzzFeed News, and subsequently confirmed by multiple other parties, show search queries conducted on Uber’s Zendesk customer support platform from December 2012 through August 2015... In one screenshot, a search query for “sexual assault” returns 6,160 Uber customer support tickets. A search for “rape” returns 5,827 individual tickets."

That news item is interesting since it includes several images of video screens from the company's customer support tool. Uber's response:

"The ride-hail giant repeatedly asserted that the high number of queries from the screenshots is overstated, however Uber declined BuzzFeed News’ request to grant direct access to the data, or view its data analysis procedures. When asked for any additional anonymous data on the five rape complaint tickets it claims to have received between December 2012 and August 2015, Uber declined to provide any information."

Context matters about ride safety and corporate culture. A former Uber employee shared a disturbing story with allegations of sexual harassment:

"I joined Uber as a site reliability engineer (SRE) back in November 2015, and it was a great time to join as an engineer... After the first couple of weeks of training, I chose to join the team that worked on my area of expertise, and this is where things started getting weird. On my first official day rotating on the team, my new manager sent me a string of messages over company chat. He was in an open relationship, he said, and his girlfriend was having an easy time finding new partners but he wasn't. He was trying to stay out of trouble at work, he said, but he couldn't help getting in trouble, because he was looking for women to have sex with... Uber was a pretty good-sized company at that time, and I had pretty standard expectations of how they would handle situations like this. I expected that I would report him to HR, they would handle the situation appropriately, and then life would go on - unfortunately, things played out quite a bit differently. When I reported the situation, I was told by both HR and upper management that even though this was clearly sexual harassment and he was propositioning me, it was this man's first offense, and that they wouldn't feel comfortable giving him anything other than a warning and a stern talking-to... I was then told that I had to make a choice: (i) I could either go and find another team and then never have to interact with this man again, or (ii) I could stay on the team, but I would have to understand that he would most likely give me a poor performance review when review time came around, and there was nothing they could do about that. I remarked that this didn't seem like much of a choice..."

Her story seems very credible. Based upon this and other events, some industry watchers question Uber's value should it seek more investors via an initial public offering (IPO):

"Uber has hired two outside law firms to conduct investigations related to the former employee's claims. One will investigate her claims specifically, the other is conducting a broader investigation into Uber's workplace practices...Taken together, the recent reports paint a picture of a company where sexual harassment is tolerated, laws are seen as inconveniences to be circumvented, and a showcase technology effort might be based on stolen secrets. That's all bad for obvious reasons... What will Uber's valuation look like the next time it has to raise money -- or when it attempts to go public?"

To understand the "might be based on stolen secrets" reference, the San Francisco Examiner newspaper explained on March 20:

"In the past few weeks, Uber’s touted self-driving technology has come under both legal and public scrutiny after Alphabet — Google’s parent company — sued Uber over how it obtained its technology. Alphabet alleges that the technology for Otto, a self-driving truck company acquired by Uber last year, was stolen from Alphabet’s own Waymo self-driving technology... Alphabet alleges Otto founder Anthony Levandowski downloaded proprietary data from Alphabet’s self-driving files. In December 2015, Levandowski download 14,000 design files onto a memory card reader and then wiped all the data from the laptop, according to the lawsuit.

The lawsuit also lays out a timeline where Levandowski and Uber were in cahoots with one another before the download operation. Alphabet alleges the two parties were in communications with each other since the summer of 2015, when Levandowski still worked for Waymo. Levandowski left Waymo in January 2016, started Otto the next month and joined Uber in August as vice president of Uber’s self-driving technology after Otto was purchased by Uber for $700 million... This may become the biggest copyright infringement case brought forth in Silicon Valley since Apple v. Microsoft in 1994, when Apple sued Microsoft over the alleged likeness in the latter’s graphic user interface."

And, just this past Saturday Uber suspended its driverless car program in Arizona after a crash. Reportedly, Uber's driverless car programs in Arizona, Pittsburgh and San Francisco are suspended pending the results of the crash investigation.

No doubt, there will be more news about the lawsuit, safety issues, sexual harassment, Greyball, and investigations by local cities. What are your opinions?


Maker Of Smart Vibrators To Pay $3.75 Million To Settle Privacy Lawsuit

Today's smart homes contain a variety of internet-connected appliances -- televisions, utility meters, hot water heaters, thermostats, refrigerators, security systems-- and devices you might not expect to have WiFi connections:  mouse traps, wine bottlescrock pots, toy dolls, and trash/recycle bins. Add smart vibrators to the list.

We-Vibe logo We-Vibe, a maker of vibrators for better sex, will pay U.S. $3.75 million to settle a class action lawsuit involving allegations that the company tracked users without their knowledge nor consent. The Guardian reported:

"Following a class-action lawsuit in an Illinois federal court, We-Vibe’s parent company Standard Innovation has been ordered to pay a total of C$4m to owners, with those who used the vibrators associated app entitled to the full amount each. Those who simply bought the vibrator can claim up to $199... the app came with a number of security and privacy vulnerabilities... The app that controls the vibrator is barely secured, allowing anyone within bluetooth range to seize control of the device. In addition, data is collected and sent back to Standard Innovation, letting the company know about the temperature of the device and the vibration intensity – which, combined, reveal intimate information about the user’s sexual habits..."

Image of We-Vibe 4 Plus product with phone. Click to view larger version We-Vibe's products are available online at the Canadian company's online store and at Amazon. This Youtube video (warning: not safe for work) promotes the company's devices. Consumers can use the smart vibrator with or without the mobile app on their smartphones. The app is available at both the Apple iTunes and Google Play online stores.

Like any other digital device, security matters. C/Net reported last summer:

"... two security researchers who go by the names followr and g0ldfisk found flaws in the software that controls the [We-Vibe 4Plus] device. It could potentially let a hacker take over the vibrator while it's in use. But that's -- at this point -- only theoretical. What the researchers found more concerning was the device's use of personal data. Standard Innovation collects information on the temperature of the device and the intensity at which it's vibrating, in real time, the researchers found..."

In the September 2016 complaint (Adobe PDF; 601 K bytes), the plaintiffs sought to stop Standard Innovation from "monitoring, collecting, and transmitting consumers’ usage information," collect damages due to the alleged unauthorized data collection and privacy violations, and reimburse users from their purchase of their We-Vibe devices (because a personal vibrator with this alleged data collection is worth less than a personal vibrator without data collection). That complaint alleged:

"Unbeknownst to its customers, however, Defendant designed We-Connect to (i) collect and record highly intimate and sensitive data regarding consumers’ personal We-Vibe use, including the date and time of each use and the selected vibration settings, and (ii) transmit such usage data — along with the user’s personal email address — to its servers in Canada... By design, the defining feature of the We-Vibe device is the ability to remotely control it through We-Connect. Defendant requires customers to use We-Connect to fully access the We-Vibe’s features and functions. Yet, Defendant fails to notify or warn customers that We-Connect monitors and records, in real time, how they use the device. Nor does Defendant disclose that it transmits the collected private usage information to its servers in Canada... Defendant programmed We-Connect to secretly collect intimate details about its customers’ use of the We-Vibe, including the date and time of each use, the vibration intensity level selected by the user, the vibration mode or patterns selected by the user, and incredibly, the email address of We-Vibe customers who had registered with the App, allowing Defendant to link the usage information to specific customer accounts... In addition, Defendant designed We-Connect to surreptitiously route information from the “connect lover” feature to its servers. For instance, when partners use the “connect lover” feature and one takes remote control of the We-Vibe device or sends a [text or video chat] communication, We-Connect causes all of the information to be routed to its servers, and then collects, at a minimum, certain information about the We-Vibe, including its temperature and battery life. That is, despite promising to create “a secure connection between your smartphones,” Defendant causes all communications to be routed through its servers..."

The We-Vibe Nova product page lists ten different vibration modes (e.g., Crest, Pulse, Wave, Echo, Cha-cha-cha, etc.), or users can create their own custom modes. The settlement agreement defined two groups of affected consumers:

"... the proposed Purchaser Class, consisting of: all individuals in the United States who purchased a Bluetooth-enabled We-Vibe Brand Product before September 26, 2016. As provided in the Settlement Agreement, “We-Vibe Brand Product” means the “We-Vibe® Classic; We-Vibe® 4 Plus; We-Vibe® 4 Plus App Only; Rave by We-VibeTM and Nova by We-VibeTM... the proposed App Class, consisting of: all individuals in the United States who downloaded the We-Connect application and used it to control a We-Vibe Brand Product before September 26, 2016."

According to the settlement agreement, affected users will be notified by e-mail addresses, with notices in the We-Connect mobile app, a settlement website (to be created), a "one-time half of a page summary publication notice in People Magazine and Sports Illustrated," and by online advertisements in several websites such as Google, YouTube, Facebook, Instagram, Twitter, and Pinterest. The settlement site will likely specify additional information including any deadlines and additional notices.

We-Vibe announced in its blog on October 3, 2016 several security improvements:

"... we updated the We-ConnectTM app and our app privacy notice. That update includes: a) Enhanced communication regarding our privacy practices and data collection – in both the onboarding process and in the app settings; b) No registration or account creation. Customers do not provide their name, email or phone number or other identifying information to use We-Connect; c) An option for customers to opt-out of sharing anonymous app usage data is available in the We-Connect settings; d) A new plain language Privacy Notice outlines how we collect and use data for the app to function and to improve We-Vibe products."

I briefly reviewed the We-Connect App Privacy Policy (dated September 26, 2016) linked from the Google Play store. When buying digital products online, often the privacy policy for the mobile app is different than the privacy policy for the website. (Informed shoppers read both.) Some key sections from the app privacy policy:

"Collection And Use of Information: You can use We-Vibe products without the We-Connect app. No information related to your use of We-Vibe products is collected from you if you don’t install and use the app."

I don't have access to the prior version of the privacy policy. That last sentence seems clear and should be a huge warning to prospective users about the data collection. More from the policy:

"We collect and use information for the purposes identified below... To access and use certain We-Vibe product features, the We-Connect app must be installed on an iOS or Android enabled device and paired with a We-Vibe product. We do not ask you to provide your name, address or other personally identifying information as part of the We-Connect app installation process or otherwise... The first time you launch the We-Connect app, our servers will provide you with an anonymous token. The We-Connect app will use this anonymous token to facilitate connections and share control of your We-Vibe with your partner using the Connect Lover feature... certain limited data is required for the We-Connect app to function on your device. This data is collected in a way that does not personally identify individual We-Connect app users. This data includes the type of device hardware and operating system, unique device identifier, IP address, language settings, and the date and time the We-Connect app accesses our servers. We also collect certain information to facilitate the exchange of messages between you and your partner, and to enable you to adjust vibration controls. This data is also collected in a way that does not personally identify individual We-Connect app users."

In a way that does not personally identify individuals? What way? Is that the "anonymous token" or something else? More clarity seems necessary.

Consumers should read the app privacy policy and judge for themselves. Me? I am skeptical. Why? The "unique device identifier" can be used exactly for that... to identify a specific phone. The IP address associated with each mobile device can also be used to identify specific persons. Match either number to the user's 10-digit phone number (readily available on phones), and it seems that one can easily re-assemble anonymously collected data afterwards to make it user-specific.

And since partner(s) can remotely control a user's We-Vibe device, their information is collected, too. Persons with multiple partners (and/or multiple We-Vibe devices) should thoroughly consider the implications.

The About Us page in the We-Vibe site contains this company description:

"We-Vibe designs and manufactures world-leading couples and solo vibrators. Our world-class engineers and industrial designers work closely with sexual wellness experts, doctors and consumers to design and develop intimate products that work in sync with the human body. We use state-of-the-art techniques and tools to make sure our products set new industry standards for ergonomic design and high performance while remaining eco‑friendly and body-safe."

Hmmmm. No mentions of privacy nor security. Hopefully, a future About Us page revision will mention privacy and security. Hopefully, no government officials use these or other branded smart sex toys. This is exactly the type of data collection spies will use to embarrass and/or blackmail targets.

The settlement is a reminder that companies are willing, eager, and happy to exploit consumers' failure to read privacy policies. A study last year found that 74 percent of consumers surveyed never read privacy policies.

All of this should be a reminder to consumers that companies highly value the information they collect about their users, and generate additional revenue streams by selling information collected to corporate affiliates, advertisers, marketing partners, and/or data brokers. Consumers' smartphones are central to that data collection.

What are your opinions of the We-Vibe settlement? Of its products and security?


Your Smart TV Is A Blabbermouth. How To Stop Its Spying On You

Internet-connected televisions, often referred to as "smart TVs," collect a wide variety of information about consumers. The devices track the videos you watch from several sources: cable, broadband, set-top box, DVD player, over-the-air broadcasts, and streaming devices. The devices collect a wide variety of information about consumers, including items such as as sex, age, income, marital status, household size, education level, home ownership, and household value. The TV makers sell this information to third parties, such as advertisers and data brokers.

Some people might call this "surveillance capitalism."

Reliability and trust with smart devices are critical for consumers. Earlier this month, Vizio agreed to pay $2.2 million to settle privacy abuse charges by the U.S. Federal Trade Commission (FTC).

What's a consumer to do to protect their privacy? This C/Net article provides good step-by-step instructions to turn off or to minimize the tracking by your smart television. The instructions include several smart TV brands: Samsung, Vizio, LG, Sony, and others. Sample instructions for one brand:

"Samsung: On 2016 TVs, click the remote's Home button, go to Settings (gear icon), scroll down to Support, then down to Terms & Policy. Under "Interest Based Advertisement" click "Disable Interactive Services." Under "Viewing Information Services" unclick "I agree." And under "Voice Recognition Services" click "Disable advanced features of the Voice Recognition services." If you want you can also disagree with the other two, Nuance Voice Recognition and Online Remote Management.

On older Samsung TVs, hit the remote's Menu button (on 2015 models only, then select Menu from the top row of icons), scroll down to Smart Hub, then select Terms & Policy. Disable "SynchPlus and Marketing." You can also disagree with any of the other policies listed there, and if your TV has them, disable the voice recognition and disagree with the Nuance privacy notice described above."

Browse the step-by-step instructions for your brand of television. If you disabled the tracking features on your smart TV, how did it go? If you used a different resource to learn about your smart TV's tracking features, please share it below.


EU Privacy Watchdogs Ask Microsoft For Explanations About Data Collection About Users

A privacy watchdog group in the European Union (EU) are concerned about privacy and data collection practices by Microsoft. The group, comprising 28 agencies and referred to as the Article 29 Working Party, sent a letter to Microsoft asking for explanations about privacy concerns with the software company's Windows 10 operating system software.

The February 2017 letter to Brendon Lynch, Chief Privacy Officer, and to Satya Nadella, Chief Executive Officer, was a follow-up to a prior letter sent in January. The February letter explained:

"Following the launch of Windows 10, a new version of the Windows operating system, a number of concerns have been raised, in the media and in signals from concerned citizens to the data protection authorities, regarding protection of your users’ personal data... the Working Party expressed significant concerns about the default installation settings and an apparent lack of control for a user to prevent collection or further processing of data, as well as concerns about the scope of data that are being collected and further processed... "

Microsoft logo While Microsoft has been cooperative so far, the group's specific privacy concerns:

"... user consent can only be valid if fully informed, freely given and specific. Whilst it is clear that the proposed new express installation screen will present users with five options to limit or switch off certain kinds of data processing it is not clear to what extent both new and existing users will be informed about the specific data that are being collected and processed under each of the functionalities. The proposed new explanation when, for example, a user switches the level of telemetry data from 'full' to 'basic' that Microsoft will collect 'less data' is insufficient without further explanation. Such information currently is also not available in the current version of the privacy policy.

Additionally, the purposes for which Microsoft collects personal data have to be specified, explicit and legitimate, and the data may not be further processed in a way incompatible with those purposes. Microsoft processes data collected through Windows 10 for different purposes, including personalised advertising. Microsoft should clearly explain what kinds of personal data are processed for what purposes. Without such information, consent cannot be informed, and therefore, not valid..."

Visit this EU link for more information about the Article 29 Working Party, or download the Article 29 Working Party letter to Microsoft (Adobe PDF).


Survey: Internet of Evil Things Report

Pwnie 2017 Internet of Evil Things report A recent survey of information technology (IT) professionals by Pwnie Express, an information security vendor, found that connected devices bring risks into corporate networks and IT professionals are not keeping up. 90 percent of IT professionals surveyed view connected devices as a security threat to their corporate systems and networks. 66 percent aren't sure how many connected devices are in their organizations.

These findings have huge implications as the installed base of connected devices (a/k/a the "Internet of things" or ioT) takes off. Experts forecast 8.4 billion connected devices in use worldwide in 2017, up 31 percent from 2016. Total spending for those devices will reach almost $2 trillion in 2017, and $20.4 billion by 2020. The regions that will drive this growth include North America, Western Europe, and China; which already comprise 67 percent of the installed base.

Key results from the latest survey by Pwnie Express:

"One in five of the survey respondents (20%) said their IoT devices were hit with ransomware attacks last year. 16 percent of respondents say they experienced Man-in-the-middle attacks through IoT devices. Devices continue to lend themselves to problematic configurations. The default network from common routers “linksys” and “Netgear” were two of the top 10 most common “open default” wireless SSID’s (named networks), and the hotspot network built-in for the configuration and setup of HP printers - “hpsetup”- is #2."

An SSID, or Service Set Identifier, is the name a wireless network broadcasts. Manufacturers ship them with default names, which the bad guys often look for to find open, unprotected networks. While businesses purchase and deploy a variety of connected devices (e.g., smart meters, manufacturing field devices, process sensors for electrical generating plants, real-time location devices for healthcare) and some for "smart buildings" (e.g., LED lighting, HVAC sensors, security systems), other devices are brought into the workplace by workers.

Most companies have Bring Your Own Device (BYOD) policies allowing employees to bring and use in the workplace personal devices (e.g., phones, tablets, smart watches, fitness bands). The risk for corporate IT professionals is that when employees, contractors, and consultants bring their personal devices into the workplace, and connect to corporate networks. A mobile device infected with malware from a wireless home network, or from a public hot-spot (e.g., airport, restaurant) can easily introduce that malware into office networks.

Consumers connect a wide variety of items to their wireless home networks: laptops, tablets, smartphones, printers, lighting and temperature controls, televisions, home security systems, fitness bands, smart watches, toys, smart wine bottles, and home appliances (e.g., refrigerators, hot water heaters, coffee makers, crock pots, etc.). Devices with poor security features don't allow operating system and security software updates, don't encrypt key information such as PIN numbers and passwords, and build the software into the firmware where it cannot be upgraded. Last month, the U.S. Federal Trade Commission (FTC) filed a lawsuit against a modem/router maker alleging poor security in its products.

Security experts advise consumers to perform several steps to protect their wireless home networks: change the SSID name, change all default passwords, enable encryption (e.g., WEP, WPA, WPA2, etc.), create a special password for guests, and enable a firewall. While security experts have warned consumers for years, too many still don't heed the advice.

The survey respondents identified the top connected device threats:

"1. Misconfigured healthcare, security, and IoT devices will provide another route for ransomware and malware to cause harm and affect organizations.

2. Unresolved vulnerabilities or the misconfiguration of popular connected devices, spurred by the vulnerabilities being publicized by botnets, including Mirai and newer, “improved” versions, in the hands of rogue actors will compromise the security of organizations purchasing these devices.

3. Mobile phones will be the attack vector of the future, becoming an extra attack surface and another mode of rogue access points taking advantage of unencrypted Netgear, AT&T, and hpsetup wireless networks to set up man-in-the-middle attacks."

The survey included more than 800 IT security professionals in several industries: financial services, hospitality, retail, manufacturing, professional services, technology, healthcare, energy and more. Download the "2017 Internet of Evil Things Report" by Pwnie.


Are Smart Television Makers Gaming The Energy-Efficiency Tests?

After yesterday's blog post about the settlement agreement by VIZIO with the U.S. Federal Trade Commission (FTC) and the New Jersey Attorney General, a reader mentioned an Economist article about smart televisions. It seems there is an ongoing investigation into whether or not manufacturers, similar to the Volkswagon emissions scandal, misrepresented the energy-efficiency test results of their televisions.

The Economist reported:

"South Korea’s Samsung and LG, along with Vizio, a Californian firm, stand accused of misrepresenting the energy efficiency of large-screen sets. Together, they sell over half of all TVs in America. In September 2016 the Natural Resources Defense Council (NRDC), an environmental group, published research on the energy consumption of TVs, showing that those made by Samsung, LG and Vizio performed far better during short government tests than they did the rest of the time. Some TVs consumed double the amount of energy suggested by manufacturers’ marketing bumpf. America’s Department of Energy (DoE) has also conducted tests of its own that have turned up big inconsistencies.

Not all TV-makers are at fault: the NRDC found no difference in energy-consumption levels for TVs made by Sony and Philips. But class-action lawsuits have already been filed against the three companies highlighted by the tests—the latest was lodged against Samsung in New York on January 30th. The industry is now waiting to see whether regulators will take action... Televisions made by Samsung and LG (but not Vizio) appear to recognize the test clip that the American government uses to rate energy consumption and to advise consumers on how much it will cost to operate the set over a whole year. The DoE’s ten-minute test clip has a lot of motion and scene changes in short succession, with each clip lasting only 2.3 seconds before flashing to a new one (most TV content is made up of scenes that last more than double that length). During these tests the TVs’ backlight dims, resulting in substantial energy savings. For the rest of the time, during typical viewing conditions, the backlight stays bright..."

If true, then those new televisions many consumers bought may cost them a lot more energy and electricity costs. The September 2016 NRDC press release:

"There are flaws in the government’s method for testing the energy use of televisions and three major TV manufacturers representing half of the U.S. market appear to be exploiting them, which could cost owners of recently purchased models an extra $1.2 billion on their utility bills... The global standard video clip on which the DOE test method is based is eight years old and needs a major overhaul. DOE should update its test method with more realistic video content... It appears that some major manufacturers have modified their TV designs to get strong energy-use marks during government testing but they may not perform as well in consumers’ homes. These ‘under the hood’ changes dramatically increase a TV’s energy use and environmental impact, usually without the user’s knowledge. While this may not be illegal, it smacks of bad-faith conduct that falls outside the intent of the government test method designed to accurately measure TV energy use..."

The consequences and impacts go far beyond possible bad-faith conduct:

"The latest version of ultra high-definition (UHD) TVs used approximately 30 to 50 percent more energy when playing content produced with High Dynamic Range (HDR) than conventional UHD content... With millions of televisions purchased annually across America, all of this extra energy use has a major impact on national energy consumption, consumer utility bills, and the environment..."

You can learn more about the DoE test procedures here. What are your opinions of this?


VIZIO To Pay $2.2 Million To Settle Privacy Charges About Its Smart TVs

VIZIO Inc. logo Today's blog post highlights how easy it is for manufacturers to make and sell smart-home devices that spy on consumers without notice nor consent. VIZIO, Inc., one of the largest makers of smart televisions, agreed to pay $2.2 million to settle privacy abuse charges by the U.S. Federal Trade Commission (FTC) and the State of New Jersey Attorney General. The FTC announcement explained:

"... starting in February 2014, VIZIO, Inc. and an affiliated company have manufactured VIZIO smart TVs that capture second-by-second information about video displayed on the smart TV, including video from consumer cable, broadband, set-top box, DVD, over-the-air broadcasts, and streaming devices. In addition, VIZIO facilitated appending specific demographic information to the viewing data, such as sex, age, income, marital status, household size, education level, home ownership, and household value... VIZIO sold this information to third parties, who used it for various purposes, including targeting advertising to consumers across devices... VIZIO touted its “Smart Interactivity” feature that “enables program offers and suggestions” but failed to inform consumers that the settings also enabled the collection of consumers’ viewing data. The complaint alleges that VIZIO’s data tracking—which occurred without viewers’ informed consent—was unfair and deceptive, in violation of the FTC Act and New Jersey consumer protection laws."

The FTC complaint (Adobe PDF) named as defendants VIZIO, Inc. and VIZIO Inscape Services, LLC, its wholly-owned subsidiary. VIZIO has designed and sold televisions in the United States since 2002, and has sold more than 11 million Internet-connected televisions since 2010. The complaint also mentioned:

"... the successor entity to Cognitive Media Services, Inc., which developed proprietary automated content recognition (“ACR”) software to detect the content on internet-connected televisions and monitors."

This merits emphasis because consumers thinking that they can watch DVD or locally recorded content in the privacy of their home with advertisers knowing it really can't because the ACR software can easily identify, archive, and transmit it. The complaint also explained:

"Through the ACR software, VIZIO’s televisions transmit information about what a consumer is watching on a second-by-second basis. Defendants’ ACR software captures information about a selection of pixels on the screen and sends that data to VIZIO servers, where it is uniquely matched to a database of publicly available television, movie, and commercial content. Defendants collect viewing data from cable or broadband service providers, set-top boxes, external streaming devices, DVD players, and over-the-air broadcasts... the ACR software captures up to 100 billion data points each day from more than 10 million VIZIO televisions. Defendants store this data indefinitely. Defendants’ ACR software also periodically collects other information about the television, including IP address, wired and wireless MAC addresses, WiFi signal strength, nearby WiFi access points, and other items."

That's impressive. The ACR software enabled VIZIO to know and collect information about other devices (e.g., computers, tablets, phones, printers) connected to your home WiFi network. Then, besides the money consumers paid for their VIZIO smart TVs, the company also made money by reselling the information it collected to third parties... probably data brokers and advertisers. You'd think that the company might lower the price of its smart TVs given that additional revenue stream, but I guess not.

Now, here is where VIZIO created problems for itself:

"Consumers that purchased new VIZIO televisions beginning in August 2014, with ACR tracking preinstalled and enabled by default, received no onscreen notice of the collection of viewing data. For televisions that were updated in February 2014 to install default ACR tracking after purchase, an initial pop-up notification appeared on the screen that said: "The VIZIO Privacy Policy has changed. Smart Interactivity has been enabled on your TV, but you may disable it in the settings menu. See www.vizio.com/privacy for more details. This message will time out in 1 minute." This notification provided no information about the collection of viewing data or ACR software. Nor did it directly link to the settings menu or privacy policy... In March 2016, while Plaintiffs’ investigations were pending, [VIZIO and VIZIO Inscape] sent another pop-up notification to televisions that, for the first time, referenced the collection of television viewing data. This notification timed out after 30 seconds without input from the household member who happened to be viewing the screen at the time, and did not provide easy access to the settings menu... In all televisions enabled with ACR tracking, VIZIO televisions had a setting, available through the settings menu, called “Smart Interactivity.” This setting included the description: “Enables program offers and suggestions.” Similarly, in the manual for some VIZIO televisions, a section entitled “Smart Interactivity” described the practice as “Your TV can display program-related information as part of the broadcast.” Neither description provided information about the collection of viewing data..."

30 seconds? Really?! If a consumer left the room to grab a bite to eat or visit the bathroom for a bio break, they easily missed this pop-up message. No notice? Neither are good. VIZIO released a statement about the settlement:

"VIZIO is pleased to reach this resolution with the FTC and the New Jersey Division of Consumer Affairs.  Going forward, this resolution sets a new standard for best industry privacy practices for the collection and analysis of data collected from today’s internet-connected televisions and other home devices,” stated Jerry Huang, VIZIO General Counsel. “The ACR program never paired viewing data with personally identifiable information such as name or contact information, and the Commission did not allege or contend otherwise. Instead, as the Complaint notes, the practices challenged by the government related only to the use of viewing data in the ‘aggregate’ to create summary reports measuring viewing audiences or behaviors... the FTC has made clear that all smart TV makers should get people’s consent before collecting and sharing television viewing information and VIZIO now is leading the way,” concluded Huang."

Terms of the settlement agreement and the Court Order (Adobe PDF) require VIZIO to:

"A. Prominently disclose to the consumer, separate and apart from any “privacy policy,” “terms of use” page, or other similar document: (1) the types of Viewing Data that will be collected and used, (2) the types of Viewing Data that will be shared with third parties; (3) the identity or specific categories of such third parties; and (4) all purposes for Defendants’ sharing of such information;

B. Obtain the consumer’s affirmative express consent (1) at the time the disclosure...

C. Provide instructions, at any time the consumer’s affirmative express consent is sought under Part II.B, for how the consumer may revoke consent to collection of Viewing Data.

D. For the purposes of this Order, “Prominently” means that a required disclosure is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers..."

The Order also defines that disclosure must be visual, audible, in all formats which VIZIO uses, in easy-to-understand language, and not contradicted by any legal statements elsewhere. Terms of the settlement require VIZIO to pay $1.5 million to the FTC, $1.0 million to the New Jersey Division of Consumer Affairs (which includes a $915,940.00 civil penalty and $84,060.00 for attorneys’ fees and investigative costs). VIZIO will not have to pay $300,000 due to the N.j> Division of consumer affairs it the company complies with court order, and does not engage in acts that violate the New Jersey Consumer Fraud Act (CFA) during the next five years.

Additional terms of the settlement agreement require VIZIO to destroy information collected before March 1, 2016, establish and implement a privacy program, designate one or several employees responsible for that program, identify and risks of internal processes that cause the company to collect consumer information it shouldn't, design and implement a program to address those risks, develop and implement processes to identify service providers that will comply with the privacy program, and hire an independent third-party to audit the privacy program every two years.

I guess the FTC and New Jersey AG felt this level of specificity was necessary given VIZIO's past behaviors. Kudos to the FTC and to the New Jersey AG for enforcing and protecting consumers' privacy. Given the rapid pace of technological change and the complexity of today's devices, oversight is required. Consumers simply don't have the skills nor resources to do these types of investigations.

What are your opinions of the VIZIO settlement?


Cable, Telecom And Advertising Lobbies Ask Congress To Remove FCC Broadband Privacy Rules

The Association of National Advertisers (ANA) and 15 other cable, telecommunications, advertising lobbies sent a letter on January 27, 2017 to key leaders in Congress urging them to repeal the broadband privacy rules the U.S. Federal Communications Commission (FCC) adopted in October 2016 requiring Internet service providers (ISPs) to protect the privacy of their customers. 15 advertising and lobbyist groups co-signed the letter with the ANA: the American Cable Association, the Competitive Carriers Association, CTIA-The Wireless Association (formerly known as the Cellular Communications Industry Association), the Data & Marketing Association, the Internet Advertising Bureau, the U.S. Chamber of Commerce, the U.S. Telecom Association, and others.

The letter, available at the ANA site and here (Adobe PDF; 354.4k), explained the groups' reasoning:

"Unfortunately, in adopting new broadband privacy rules late last year, the Federal Communications Commission (“FCC”) took action that jeopardizes the vibrancy and success of the internet and the innovations the internet has and should continue to offer. While the FCC’s Order applies only to Internet Service Providers (“ISPs”), the onerous and unnecessary rules it adopted establish a very harmful precedent for the entire internet ecosystem. We therefore urge Congress to enact a resolution of disapproval pursuant to the Congressional Review Act (“CRA”) vitiating the Order.

Adopted on a party-line 3-2 vote just ten days before the Presidential election, over strenuous objections by the minority and strong concerns expressed by entities throughout the internet ecosystem, the new rules impose overly prescriptive online privacy and data security requirements that will conflict with established law, policy, and practice and cause consumer confusion... the FCC Order would create confusion and interfere with the
ability of consumers to receive customized services and capabilities they enjoy and be informed of new products and discount offers. Further, the Order would also result in consumers being bombarded with trivial data breach notifications."

Data breach notifications are trivial? After writing this blog for almost 10 years, I have learned they aren't. Consumers deserve to know when companies fail to protect their sensitive personal information. Most states have laws requiring breach notifications. It seems as these advertising groups don't want to be responsible nor held accountable.

The Hill explained the CRA and how it usually fails:

"The Congressional Review Act (CRA) has only worked precisely one time as a way for Congress to undo an executive branch regulation... The CRA was passed in 1996 as part of then-Speaker Newt Gingrich's (R-Ga.) "Contract with America." While executive branch agencies can only issue regulations pursuant to statutes passed by Congress, Congress wanted to find a way to make it easier to overturn those regulations. Previously there was a process by which, if one house of Congress voted to overturn the regulation, it was invalidated. This procedure was ruled unconstitutional by the Supreme Court in 1983.

Congress was still able to overturn an executive branch regulation by passing a law. Passing a law is, of course, subject to filibusters in the Senate. We've learned that the filibuster in recent years has made it quite difficult to pass laws. The CRA created a period of 60 "session days" (days in which Congress is in session) during which Congress could use expedited procedures to overturn a regulation.

Also on January 27, several consumer privacy advocates sent a letter (Adobe PDF) to the same Congressional representatives. The letter, signed by 20 privacy advocates including the American Civil Liberties Union, the Center for Democracy and Technology, the Center for Media Justice, Consumers Union, the National Hispanic Media Coalition, the Privacy Rights Clearing House, and others urging the Congressional representatives:

"... to oppose the use of the Congressional Review Act (CRA) to adopt a Resolution of Disapproval overturning the FCC’s broadband privacy order. That order implements the mandates in Section 222 of the 1996 Telecommunications Act, which an overwhelming, bipartisan majority of Congress enacted to protect telecommunications users’ privacy. The cable, telecom, wireless, and advertising lobbies request for CRA intervention is just another industry attempt to overturn rules that empower users and give them a say in how their private information may be used.

Not satisfied with trying to appeal the rules of the agency, industry lobbyists have asked Congress to punish internet users by way of restraining the FCC, when all the agency did was implement Congress’ own directive in the 1996 Act. This irresponsible, scorched-earth tactic is as harmful as it is hypocritical. If Congress were to take the industry up on its request, a Resolution of Disapproval could exempt internet service providers (ISPs) from any and all privacy rules at the FCC... It could also preclude the FCC from addressing any of the other issues in the privacy order like requiring data breach notification and from revisiting these issues as technology continues to evolve in the future... Without these rules, ISPs could use and disclose customer information at will. The result could be extensive harm caused by breaches or misuse of data.

Broadband ISPs, by virtue of their position as gatekeepers to everything on the internet, have a largely unencumbered view into their customers’ online communications. That includes the websites they visit, the videos they watch, and the messages they send. Even when that traffic is encrypted, ISPs can gather vast troves of valuable information on their users’ habits; but researchers have shown that much of the most sensitive information remains unencrypted. The FCC’s order simply restores people’s control over their personal information and lets them choose the terms on which ISPs can use it, share it, or sell it..."

The new FCC broadband privacy rules kept consumers in control of their online privacy. The new rules featured opt-in requirements allowing them to collect consumers' sensitive personal information only after gaining customers' explicit consent.

So, advertisers have finally stated clearly how much they care about protecting consumers' privacy. They really don't. They don't want any constraints upon their ability to collect and archive consumers' (your) sensitive personal information. During the 2016 presidential campaign, candidate and now President Donald Trump promised:

"One of the keys to unlocking growth is scaling-back years of disastrous regulations unilaterally imposed by our out-of-control bureaucracy. In 2015 alone, federal agencies issued over 3,300 final rules and regulations, up from 2,400 the prior year. Every year, over-regulation costs our economy $2 trillion dollars a year and reduces household wealth by almost $15,000 dollars. Mr. Trump has proposed a moratorium on new federal regulations that are not compelled by Congress or public safety, and will ask agency and department heads to identify all needless job-killing regulations and they will be removed... A complete regulatory overhaul will level the playing field for American workers and add trillions in new wealth to our economy – keeping companies here, expanding hiring and investment, and bringing thousands of new companies to our shores."

Are FCC rules protecting your privacy "over-regulation," "onerous and unnecessary?" Are FCC privacy rules keeping consumers in control over their sensitive personal information "disastrous?" Will the Trump administration side with corporate lobbies or consumers' privacy protections? We shall quickly see.

There is a clue what the answer to that question will be. President Trump has named Ajit Pai, a Republican member of the Federal Communications Commission, as the new FCC chair replacing Tom Wheeler, the former chair and Democrat, who stepped down on Friday. This will also give the Republicans a majority on the FCC.

Pai is also an opponent of net neutrality rules the FCC has also adopted, which basically says consumers (and not ISPs) decided where consumers go on the Internet with their broadband connections. Republicans in Congress and lobby groups have long opposed net neutrality. In 2014, more than 100 tech firms urged the FCC to protect net neutrality. With a new President in the White House opposing regulations, some companies and lobby groups seem ready to undo these consumer protections.

What do you think?


Here's Another Way Wells Fargo Took Advantage Of Customers

[Editor's note: today's article by reporters at ProPublica explores some questionable banking practices. This blog contains coverage about Wells Fargo, including this item from 2011. PropPublica originally published this news story on January 23, 2017. It is reprinted with permission.]

by Jesse Eisinger, ProPublica

Wells Fargo logo Wells Fargo, the largest mortgage lender in the country, portrays itself as a stalwart bank that puts customers first. That reputation shattered in September, when it was fined $185 million for illegally opening as many as 2 million deposit and credit-card accounts without customers' knowledge.

Now four former Wells Fargo employees in the Los Angeles region say the bank had another way of chiseling clients: Improperly charging them to extend their promised interest rate when their mortgage paperwork was delayed. The employees say the delays were usually the bank's fault but that management forced them to blame the customers.

The new allegations could exacerbate the lingering damage to the bank's reputation from the fictitious accounts scandal. Last week, Wells Fargo reported declining earnings. In the fourth quarter, new credit card applications tumbled 43 percent from a year earlier, while new checking accounts fell 40 percent.

"I believe the damage done to Wells Fargo mortgage customers in this case is much, much more egregious," than from the sham accounts, a former Wells Fargo loan officer named Frank Chavez wrote in a November letter to Congress that has not previously been made public. "We are talking about millions of dollars, in just the Los Angeles area alone, which were wrongly paid by borrowers/customers instead of Wells Fargo." Chavez, a 10-year Wells Fargo veteran, resigned from his job in the Beverly Hills private mortgage group last April. Chavez sent his letter to the Senate banking committee and the House financial services committee in November. He never got a reply.

Three other former employees of Wells Fargo's residential mortgage business in the Los Angeles area confirmed Chavez's account. Tom Swanson, the Wells Fargo executive in charge of the region, directed the policy, they say.

In response to ProPublica's questions, Wells Fargo spokesman Tom Goyda wrote in an email, "We are reviewing these questions about the implementation of our mortgage rate-lock extension fee policies. Our goal is always to work efficiently, correctly and in the best interests of our customers and we will do a thorough evaluation to ensure that's consistently true of the way we manage our rate-lock extensions." Through the spokesman, Swanson declined a request for an interview.

Wells Fargo's practice of shunting interest rate extension fees for which it was at fault onto the customer appears to have been limited to the Los Angeles region. Two of the former employees say other Wells Fargo employees from different regions told them the bank did not charge the extension fees to customers as a matter of routine.

Three of the former employees, who now work for other banks, say their new employers do not engage in such practices.

Here's how the process works: A loan officer starts a loan application for a client. That entails gathering documents, such as tax returns and bank statements from the customer, as well as getting the title to the property. The loan officer then prepares a credit memo to submit the entire file to the processing department and underwriting department for review. The process should not take more than 60 or 90 days, depending on what kind of loan the customer sought. During this period, the bank allows customers to "lock in" the quoted interest rate on the mortgage, protecting them from rising rates. If the deadline is missed, and rates have gone up, the borrower can extend the initial low rate for a fee, typically about $1,000 to $1,500, depending on the size of the loan.

Wells Fargo's policy is to pay extension fees when it's at fault for delays, according to Goyda. Yet in the Los Angeles region, the former employees say, Wells Fargo made customers pay for its failures to meet deadlines. The former employees attributed the delays to the inexperience and low pay of the processing and underwriting staff. In addition, to keep costs down, the bank understaffed the offices, they say.

"The reason we were not closing on time was predominantly lender related," said a former Wells Fargo employee. When a loan officer asked the bank to pick up the extension fee, "it didn't make a difference if" the written request "was a one-liner or the next War and Peace," said the former employee. "The answer was always the same: No. Declined. 2018Borrower paid,' never 2018Lender paid.'"

Anticipating that it couldn't close on time, the bank adopted a variety of strategies to shift responsibility to customers. The "most blatant methods of attempting to transfer blame onto customers for past and expected future delays," Chavez wrote, included having loan processors flag "the file for 2018missing' customer documentation or information that had already been provided by the borrower." The customers would have to refile, blowing the deadline.

Sometimes loan officers would ask customers to submit extra documents that Wells Fargo did not need for its initial assessments, burdening them with paperwork to ensure they wouldn't meet the deadline. On occasion, employees built in a cushion, quoting a higher fee at the beginning. That way, they didn't have to go back to tell the customer about the extra fee at the end.

One employee says he complained to Swanson's boss about the situation but upper management referred the problem back to Swanson. The employee's immediate manager then scolded him.

Swanson told co-workers that he personally took a hit if the bank paid out too many extension fees, two of the former employees recall. "Swanson would be very upfront that his bonus is tied to extension fees," says one. The other former loan officer says, "During meetings, the branch was told extensions were costing the branch money."

Swanson, an 18 year veteran of the bank, has faced criticism before that he sought profits at the expense of customers. In 2005, customers in Los Angeles sued Wells Fargo for racial discrimination. They contended that Swanson prohibited loan officers in minority neighborhoods from using a software program that gave them the ability to offer borrowers discounted fees. He allowed loan officers to use the same program in white neighborhoods, where residents paid lower fees as a result. Believing that minority borrowers did not shop around for mortgages, Swanson contended Wells Fargo did not need to offer the discounts in their neighborhoods since the bank faced less competition, according to witness testimony at trial.

In 2011, a Los Angeles Superior Court jury found that Wells Fargo intentionally discriminated on a portion of the loans in question and awarded plaintiffs $3.5 million, a decision that was upheld on appeal. With interest, the payout rose to just under $6 million. "The verdict in the case was not in line with the law and the facts, and there was no evidence that class members paid a higher price than other similarly situated borrowers," Goyda said. Nevertheless, he added, the bank decided to pay the judgment rather than pursue additional appeals.

"Swanson runs that place," said Barry Cappello, who co-tried the case against Wells Fargo with his partner Leila Noël. "He is the man. They do what he wants done. Despite the lawsuit and the millions they paid out, the guy is still there."

Shifting extension fees onto borrowers may amount to just poor customer service, rather than a regulatory violation. Still, if it is widespread and systematic, the bank could be running afoul of banking laws that ban unfair or deceptive practices, regulators say.

For a couple of years around 2011, when Wells Fargo was originating a heavy volume of mortgages, the bank made a decision to pay all the extension fees, spokesman Goyda said. But, around 2014, it reverted back to its traditional policy of paying fees only when it's at fault.

Chavez says that the problems began in earnest that year and persisted as of the time he left last April. The precise value of the improperly assigned extension fees in the Los Angeles region is unclear. Chavez and another employee estimate they ran into the millions. One of the former employees estimates a quarter of the mortgages at his branch had to be extended. By that measure, if a loan officer did $100 million in loans in a year, those mortgages would rack up about $62,000 in extension fees. The Beverly Hills office alone did around $800 million to $1 billion in underlying mortgages, generating at least half a million dollars in extension fees, the employee estimates. Swanson's region has 19 branches.

Some customers resented having to pay the extension fees, and took their business elsewhere. After one mortgage application faced a delay, a Wells Fargo assistant vice president in Brentwood named Joshua Oleesky called to tell the customer that he had to pay an interest rate lock extension fee. The customer balked, blaming the bank for missing the deadline. Oleesky "started interrogating me on why Wells Fargo was responsible for the delay," the customer wrote in a June 29, 2015, letter of complaint to Michael Heid, then president of Wells Fargo Home Lending. (He cc'd John Stumpf, Wells Fargo's former CEO, who was ousted after the fictitious accounts scandal.) The customer went with another bank for the mortgage. Through the Wells Fargo spokesman, Oleesky declined comment.

According to the customer, Heid didn't answer the letter.

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Western Union Admitted To Money-Laundering Charges. To Pay $586 Million Fine

Western Union Company logo A news item you may have missed during the run-up to the Presidential Inauguration. The U.S. Federal Trade Commission (FTC) announced settlement agreements with Western Union where the company admitted to money-laundering charges and agreed to pay $586 million in fines and restitution.

Western Union inked settlement agreements with the FTC, the Justice Department (DOJ), and with several U.S. Attorneys’ Offices: the Middle District of Pennsylvania, the Central District of California, the Eastern District of Pennsylvania and the Southern District of Florida. The FTC announcement stated:

"In its agreement with the Justice Department, Western Union admits to criminal violations including willfully failing to maintain an effective anti-money laundering program and aiding and abetting wire fraud... According to admissions contained in the deferred prosecution agreement (DPA) with the Justice Department and the accompanying statement of facts, Western Union violated U.S. laws—the Bank Secrecy Act (BSA) and anti-fraud statutes—by processing hundreds of thousands of transactions for Western Union agents and others involved in an international consumer fraud scheme. As part of the scheme, fraudsters contacted victims in the U.S. and falsely posed as family members in need or promised prizes or job opportunities. The fraudsters directed the victims to send money through Western Union to help their relative or claim their prize. Various Western Union agents were complicit in these fraud schemes, often processing the fraud payments for the fraudsters in return for a cut of the fraud proceeds."

The FTC alleged in a complaint filed in U.S. District Court for the Middle District of Pennsylvania that the company’s conduct violated the FTC Act. The complaint alleged that fraudsters globally used Western Union’s money transfer system for many years, even after the company was aware of the problems. The complaint also alleged that some Western Union agents were complicit in fraud. Also, the FTC’s complaint alleged that Western Union failed to implement effective anti-fraud policies and procedures, and it failed to act promptly against problem agents (e.g., suspensions, terminations).

Also, the announcement described the extent and duration of the fraud:

"The BSA requires financial institutions, including money services businesses such as Western Union, to file currency transaction reports (CTRs) for transactions in currency greater than $10,000 in a single day. To evade the filing of a CTR and identification requirements, criminals will often structure their currency transactions so that no single transaction exceeds the $10,000 threshold. Financial institutions are required to report suspected structuring... Western Union knew that certain of its U.S. Agents were allowing or aiding and abetting structuring by their customers. Rather than taking corrective action to eliminate structuring at and by its agents, Western Union, among other things, allowed agents to continue sending transactions... Beginning in at least 2004, Western Union recorded customer complaints about fraudulently induced payments in what are known as consumer fraud reports (CFRs). In 2004, Western Union’s Corporate Security Department proposed global guidelines for discipline and suspension of Western Union agents that processed a materially elevated number of fraud transactions. In these guidelines, the Corporate Security Department effectively recommended automatically suspending any agent that paid 15 CFRs within 120 days. Had Western Union implemented these proposed guidelines, it would have prevented significant fraud losses to victims and would have resulted in corrective action against more than 2,000 agents worldwide between 2004 and 2012."

U.S. Attorney Eileen M. Decker of the Central District of California said:

"Our investigation uncovered hundreds of millions of dollars being sent to China in structured transactions designed to avoid the reporting requirements of the Bank Secrecy Act, and much of the money was sent to China by illegal immigrants to pay their human smugglers... In a case being prosecuted by my office, a Western Union agent has pleaded guilty to federal charges of structuring transactions – illegal conduct the company knew about for at least five years. Western Union documents indicate that its employees fought to keep this agent – as well as several other high-volume independent agents in New York City – working for Western Union because of the high volume of their activity. This action today will ensure that Western Union effectively controls its agents and prevents the use of its money transfer system for illegal purposes."

U.S. Attorney Bruce D. Brandler said:

"The U.S. Attorney’s Office for the Middle District of Pennsylvania has a long history of prosecuting corrupt Western Union Agents... Since 2001 our office, in conjunction with the U.S. Postal Inspection Service, has charged and convicted 26 Western Union Agents in the United States and Canada who conspired with international fraudsters to defraud tens of thousands of U.S. residents via various forms of mass marketing schemes. I am gratified that the deferred prosecution agreement reached today with Western Union ensures that $586 million will be available to compensate the many victims of these frauds."

Terms of the settlement agreements require Western union to:

  • Pay a monetary judgment of $586 million,
  • Implement and maintain a comprehensive anti-fraud program with training for its agents and their front line associates,
  • Monitor to detect and prevent fraud-induced money transfers,
  • Conduct due diligence on all new and renewing company agents, plus suspend or terminate non-compliant agents,
  • Stop transmitting money transfers it knows or reasonably should know are fraud-induced,
  • Block money transfers sent to any person who is the subject of a fraud report,
  • Provide clear and conspicuous consumer fraud warnings on its paper and electronic money transfer forms,
  • Increase the availability of websites and telephone numbers that enable consumers to file fraud complaints,
  • Refund fraudulent money transfers if it failed to comply with its anti-fraud procedures, and
  • Not process money transfers it knows or should know are payments for telemarketing transactions.

Western Union's compliance with these requirements will be monitored for three years by an independent compliance auditor. Western Union said in a January 19th press release:

"The Western Union Company (NYSE: WU) today announced agreements with the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) that resolve previously disclosed investigations focused primarily on the Company’s oversight of certain agents and whether its anti-fraud program, as well as its anti-money laundering controls, adequately prevented misconduct by those agents and third parties. The conduct at issue mainly occurred from 2004 to 2012."

"As part of this resolution, Western Union will enter into a deferred prosecution agreement with the DOJ and a consent order with the FTC. The Company will pay a total of $586 million to the federal government, which is to be used to reimburse consumers who were victims of fraud during the relevant period. Western Union also will take specific actions to further enhance its oversight of agents and its protection of customers... Over the past five years, Western Union increased overall compliance funding by more than 200 percent, and now spends approximately $200 million per year on compliance, with more than 20 percent of its workforce currently dedicated to compliance functions. The comprehensive improvements undertaken by the Company have added more employees with law enforcement and regulatory expertise, strengthened its consumer education and agent training, bolstered its technology-driven controls and changed its governance structure so that its Chief Compliance Officer is a direct report to the Compliance Committee of the Board of Directors."

"... [Western Union] will simultaneously resolve, without any additional payment or non-monetary obligations, potential claims by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) relating to conduct in the 2010 to 2012 period that FinCEN contended violated the Bank Secrecy Act. The Company received a notice of investigation from FinCEN in mid-December 2016. The separate agreement with FinCEN sets forth a civil penalty of $184 million, the full amount of which will be deemed satisfied by the $586 million compensation payment under the DOJ and FTC agreements."


Several Banks Fined Billions By Justice Department For Alleged Wrongdoing

Credit Suisse logo In case you missed it, the U.S. Department of Justice (DOJ) announced last week several settlement agreements and fines against several banks. First, for conduct with the packaging, securitization, issuance, marketing and sale of residential mortgage-backed securities (RMBS) between 2005 and 2007, Credit Suisse will pay about $5.3 billion in fines and relief. That includes $2.48 billion as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and $2.8 billion in:

"... relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing. Investors, including federally-insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued and underwritten by Credit Suisse between 2005 and 2007."

Principal Deputy Associate Attorney General Bill Baer said:

"Credit Suisse claimed its mortgage backed securities were sound, but in the settlement announced today the bank concedes that it knew it was peddling investments containing loans that were likely to fail... That behavior is unacceptable. Today's $5.3 billion resolution is another step towards holding financial institutions accountable for misleading investors and the American public."

Second, for conduct with the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007, Deutsche Bank will pay $7.2 billion in fines and relief. That includes a $3.1 billion civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.

Deutsche bank logo Principal Deputy Associate Attorney General Bill Baer said:

"This $7.2 billion resolution – the largest of its kind – recognizes the immense breadth of Deutsche Bank’s unlawful scheme by demanding a painful penalty from the bank, along with billions of dollars of relief to the communities and homeowners that continue to struggle because of Wall Street’s greed... The Department will remain relentless in holding financial institutions accountable for the harm their misconduct inflicted on investors, our economy and American consumers."

Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, said:

"In the Statement of Facts accompanying this settlement, Deutsche Bank admits making false representations and omitting material information from disclosures to investors about the loans included in RMBS securities sold by the Bank. This misconduct, combined with that of the other banks we have already settled with, hurt our economy and threatened the banking system... To make matters worse, the Bank’s conduct encouraged shoddy mortgage underwriting and improvident lending that caused borrowers to lose their homes because they couldn’t pay their loans. Today’s settlement shows once again that the Department will aggressively pursue misconduct that hurts the American public."

State Street Corporation logo Third, State Street Corporation will pay more than $64 million to resolve fraud charges. State Street:

"... entered into a deferred prosecution agreement and agreed to pay a $32.3 million criminal penalty to resolve charges that it engaged in a scheme to defraud a number of the bank’s clients by secretly applying commissions to billions of dollars of securities trades. State Street also agreed to offer an equal amount as a civil penalty to the U.S. Securities and Exchange Commission (SEC)."

Acting Assistant Attorney General Bitkower said:

"State Street engaged in a concerted effort to fleece its clients by secretly charging unwarranted commissions... The bank fundamentally abused its clients’ trust and inflicted very real financial losses. The department will hold responsible those who engage in this type of criminal conduct."

Acting U.S. Attorney Weinreb said:

"State Street cheated its customers by agreeing to charge one price for its services and then secretly charging them something else... Banks that defraud their clients in this way must be held accountable, no matter how big they are."

Kudos to the DOJ for its enforcement actions. If this wrongdoing is ever going to stop, then jail time for executives needs to be applied.


FINRA Fined 12 Brokerage Firms $14.4 Million For Inadequate Data Security

Just before the long holiday break, the Financial Industry Regulatory Authority (FINRA) announced that it fined 12 banks and brokerage firms a total of $14.4 million for failing to adequately protect information in electronic broker-dealer and customer records. The FINRA announcement explained:

"... at various times, and in most cases for prolonged periods, the firms failed to maintain electronic records in “write once, read many,” or WORM, format, which prevents the alteration or destruction of records stored electronically... Federal securities laws and FINRA rules require that business-related electronic records be kept in WORM format to prevent alteration. The SEC has stated that these requirements are an essential part of the investor protection function... FINRA found that each of these 12 firms had WORM deficiencies that affected millions, and in some cases, hundreds of millions, of records pivotal to the firms’ brokerage businesses, spanning multiple systems and categories of records... each of the firms had related procedural and supervisory deficiencies affecting their ability to adequately retain and preserve broker-dealer records stored electronically. In addition, FINRA found that three of the firms failed to retain certain broker-dealer records the firms were required to keep under applicable record retention rules. In settling this matter, the firms neither admitted nor denied the charges, but consented to the entry of FINRA's findings."

The firms fined and the amounts for each:

"Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC were jointly fined $4 million. RBC Capital Markets LLC and RBC Capital Markets Arbitrage S.A. were jointly fined $3.5 million. RBS Securities, Inc. was fined $2 million. Wells Fargo Advisors, LLC, Wells Fargo Advisors Financial Network, LLC and First Clearing, LLC were jointly fined $1.5 million. SunTrust Robinson Humphrey, Inc. was fined $1.5 million. LPL Financial LLC was fined $750,000. Georgeson Securities Corporation was fined $650,000. PNC Capital Markets LLC was fined $500,000.

In September, Wells Fargo bank paid $185 million in fines to settle charges of alleged unlawful sales practices during the past five years. LPL Financial had several data breaches during 2007 to 2009.

For readers seeking more information, the FINRA announcement includes links to the settlement agreements.


FTC Lawsuit Claims D-Link Products Have Inadequate Security

Do you use D-Link modem/routers or routers? Do you have or plan to buy smart home appliances or electronics (a/k/a the Internet of Things or IoT) you want to connect via your home WiFi network to these or other brand routers? Are you concerned about the security of IoT devices? If you answered yes to any of these questions, then today's blog post is for you.

The U.S. Federal Trade Commission (FTC) has filed a complaint against Taiwan-based D-Link Corporation and its U.S. subsidiary alleging the tech company didn't do enough to make its products secure from hacking. The FTC announcement stated that its complaint alleged:

"... that D-Link failed to take reasonable steps to secure its routers and Internet Protocol (IP) cameras, potentially compromising sensitive consumer information, including live video and audio feeds from D-Link IP cameras... D-Link promoted the security of its routers on the company’s website, which included materials headlined “EASY TO SECURE” and “ADVANCED NETWORK SECURITY.” But despite the claims made by D-Link, the FTC alleged, the company failed to take steps to address well-known and easily preventable security flaws, such as: a) "hard-coded" login credentials integrated into D-Link camera software -- such as the username “guest” and the password “guest” -- that could allow unauthorized access to the cameras’ live feed; b) a software flaw known as “command injection” that could enable remote attackers to take control of consumers’ routers by sending them unauthorized commands over the Internet; c) the mishandling of a private key code used to sign into D-Link software, such that it was openly available on a public website for six months; and d) leaving users’ login credentials for D-Link’s mobile app unsecured in clear, readable text on their mobile devices, even though there is free software available to secure the information."

Besides the D-Link shopping site, the company's products are available at many online stores, including Best Buy, Target, Walmart, and Amazon. The FTC complaint (Adobe PDF) stated 5 Counts describing in detail the alleged security lapses, some of  which allegedly contradict advertising claims. The redacted complaint did not list specific product model numbers. Apple Insider reported:

"The security lapses also extended to mobile apps offered by D-Link to access and manage IP cameras and routers from a smartphone or tablet."

If these allegations are true, then item "C" is troubling. it raises questions about how and why a private key code were available on a public, unprotected server and for so long. It raises questions why this information wasn't encrypted. Access codes on a public server may help government intelligence agencies perform their tasks, but it suggests insufficient security for consumers. Access codes and login credentials are the holy grail for criminals. This is the information they seek in order to hack accounts and hijack devices.

Consumers connect via home routers a variety of IoT or smart devices: security systems, cameras, baby monitors, thermostats, home electronics, home appliances, toys, lawn mowers, and more. If true, the vulnerabilities could allow criminals to case home furnishings, eavesdrop on conversations, watch residents' patterns and discover when they are away from home, disable security systems, access tax and financial records, redirect users' Internet usage to fraudulent sites, and more.

The risks are real. A prior blog post discussed some of the security issues with IoT devices. Home routers have been hijacked and used to shut down targeted sites. ZDNet warned in May 2015:

"According to a report released by cybersecurity firm Incapsula on Wednesday, lax security practices concerning small office and home office (SOHO) routers has resulted in tens of thousands of routers becoming hijacked -- ending up as slave systems in the botnet network. Distributed denial-of-service (DDoS) attacks are a common way to disrupt networks and online services. The networks are often made up of compromised PCs, routers and other devices. Attackers control the botnet through a command and control center (C&C) in order to flood specific domains with traffic... ISPs, vendors and users themselves -- who do not lay down basic security foundations such as changing default passwords and keeping networks locked -- have likely caused the slavery of "hundreds of thousands [...] more likely millions" of routers now powering DDoS botnets which can cause havoc for both businesses and consumers..."

And a December 7, 2016 report by Incapsula listed about 18 vendors, including D-Link, that were susceptible to the Mirai malware used by botnets. So, the threat is real. Home routers have already been hijacked by bad guys to attack sites.

D-Link posted on its site a response to the FTC complaint:

"D-Link Systems, Inc. will vigorously defend itself against the unwarranted and baseless charges made by the Federal Trade Commission (FTC)... D-Link Systems maintains a robust range of procedures to address potential security issues, which exist in all Internet of Things (IOT) devices. Notably, the complaint does not allege any breach of a D-Link Systems device. Instead, the FTC speculates that consumers were placed “at risk” to be hacked, but fails to allege, as it must, that actual consumers suffered or are likely to suffer actual substantial injuries."

That response raises more questions. Breaches involve unauthorized persons accessing computers and/or networks. Clearly, botnets are collections of hijacked devices controlled by unauthorized persons using malware. The Incapsula reports clearly documented this. So, how are hijacked home routers and IoT devices with malware not breaches? And, botnets are designed to attack targeted sites, and not necessarily the hijacked routers and devices. So, the "actual substantial injuries" argument falls apart.

Aware consumers don't want their smart televisions, refrigerators, dishwashers, home security systems, baby monitors, cameras, and other devices hijacked by bad guys. The whole situation seems to provide two important reminders for consumers: 1) protect your IoT devices, and 2) be informed shoppers.

Protecting your IoT devices means changing the default passwords, especially on your routers and disabling remote access features. Informed shoppers Inquire before purchase about software security updates for IoT devices. Are those updates included in the product price, available in a separate subscription, or not at all? There are plenty of examples of smart home products with vulnerabilities and questionable security. Informed shoppers know before purchase.

If the product offers a separate subscription for software security updates, the money spent will be well worth it to protect your sensitive personal and financial information, to protect your family's privacy, and to avoid hijacked devices. If the product lacks software security updates, you want to know what you're buying and maybe barter for a lower price. Me? I'd keep shopping for alternatives with better security.

Protect your WiFi-connected home electronics, devices, and appliances. Don't contribute to Internet security problems.

Since most consumers lack the technical expertise to understand and detect breaches on their IoT devices, I am grateful for the FTC enforcement action; and for its guidelines in 2015 for companies offering IoT devices. Plus, the FTC is concerned with industry-wide threats that could hamper commerce. Perhaps, an economist can calculate the negative impacts upon commerce, the U.S. economy, and GDP from botnet attacks.

What are your opinions of the FTC lawsuit against D-Link Corporation? Of the security of IoT devices?


2 Credit Reporting Agencies To Pay $23.1 Million To Settle Deceptive Advertising Charges

Last week, the Consumer Financial Protection Bureau (CFPB) announced the actions it had taken against two credit reporting agencies and their subsidiaries for deceptive advertising practices with credit scores and related subscription programs. The CFPB announcement explained:

"TransUnion, since at least July 2011, and Equifax, between July 2011 and March 2014, violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by: 1) Deceiving consumers about the value of the credit scores they sold: In their advertising, TransUnion and Equifax falsely represented that the credit scores they marketed and provided to consumers were the same scores lenders typically use to make credit decisions. In fact, the scores sold by TransUnion and Equifax were not typically used by lenders to make those decisions; 2) Deceiving consumers into enrolling in subscription programs: In their advertising, TransUnion and Equifax falsely claimed that their credit scores and credit-related products were free or, in the case of TransUnion, cost only “$1.” In reality, consumers who signed up received a free trial of seven or 30 days, after which they were automatically enrolled in a subscription program. Unless they cancelled during the trial period, consumers were charged a recurring fee – usually $16 or more per month. This billing structure, known as a “negative option,” was not clearly and conspicuously disclosed to consumers."

Credit scores are numerical summaries designed to predict consumer repayment behavior and while using credit. Those numeric summaries attempt to indicate a consumer's credit worthiness based up like their bill-paying history: the number and type of credit accounts, the total amount of debt, if the credit accounts are maxed out, the age of that debt, whether bills are paid on time, collection activities by lenders to get paid, and the age of the consumer's accounts.

It is important for consumers to know that lenders rely in part on credit scores when deciding whether to extend credit to consumers and how much credit to extend. Plus, there are several branded credit scores in the marketplace. So, no single credit score is used by all lenders, and lenders may use one or more branded credit scores when making lending decisions. Also, the credit scores sold to consumers by TransUnion:

"... are based on a model from VantageScore Solutions, LLC. Although TransUnion has marketed VantageScores to lenders and other commercial users, VantageScores are not typically used for credit decisions."

Generally, the higher a credit score, the less risky that consumer is to lenders. The U.S. Federal Trade Commission (FTC) has a helpful site that explains credit scores and provides answers to common questions by consumers.

The CFPB actions require Equifax and TransUnion to pay fines totaling $5.5 million to the CFPB, and to pay more than $17.6 million in restitution to affected consumers.TransUnion's share of the fines is $3 million, and Equifax's share is $2.5 million. Other terms of the enforcement action:

"TransUnion and Equifax must clearly inform consumers about the nature of the scores they are selling to consumers... Before enrolling a consumer in any credit-related product with a negative option feature, TransUnion and Equifax must obtain the consumer’s consent. TransUnion and Equifax must give consumers a simple, easy-to-understand way to cancel the purchase of any credit-related product, and stop billing and collecting payments for any recurring charge when a consumer cancels."

"Negative option" is when a free trial automatically converts to a monthly paid subscription if the fails to cancel during the free trial period. Historically, the three major credit reporting agencies have offshore outsourced call center operations. So, it will be interesting to see how many of these jobs return to the United States given the policy positions of the incoming President and his administration. And, the industry has come under scrutiny for failing to fix errors in the credit reports they sell.

The industry has had some spectacular information security failures. A May 2016 breach at Equifax exposed the sensitive personal information of more than 430,000 employees of its Kroger supermarkets client. In 2012, Equifax and some of its customers paid $1.6 million to settle allegations by the FTC about the improper sales of customer lists from January 2008 and to early 2010.

The CFPB began supervision of the credit reporting industry in 2012. CFPB Director Richard Cordray said about this recent enforcement action:

"TransUnion and Equifax deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises... Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them."

Kudos to the CFPB for this enforcement action.


Trump's Treasury Pick Excelled at Kicking Elderly People Out of Their Homes

[Editor's note: today's guest post is by reporters at ProPublica. This news story was originally published on December 27, 2016. It is reprinted with permission.]

by Paul Kiel and Jesse EisingerProPublica

In 2015, OneWest Bank moved to foreclose on John Yang, an 80-year-old Korean immigrant living in Orange Park, Florida, a small suburb of Jacksonville. The bank believed he wasn't living in his home, violating the terms of its loan. It dispatched an agent to give him legal notification of the foreclosure.

Where did the bank find him? At the same single-story home the bank had said in court papers he did not occupy.

Still OneWest pressed on, forcing Yang, a former Christian missionary, to seek help from legal aid attorneys. This year, during a deposition, an employee of OneWest's servicing division was asked the obvious question: Why would the bank pursue a foreclosure that seemed so clearly unjustified by the facts?

The employee's response was blunt: "You're trying to make logic out of an illogical situation."

Yang was lucky. The bank eventually dropped its efforts against him. But others were not so fortunate. In recent years, OneWest has foreclosed on at least 50,000 people, often in circumstances that consumer advocates say run counter to federal rules and, as in Yang's case, common sense.

President-elect Donald Trump's nomination of Steven Mnuchin as Treasury Secretary has prompted new scrutiny of OneWest's foreclosure practices. Mnuchin was the lead investor and chairman of the company during the years it ramped up its foreclosure efforts. Representatives from the company and the Trump transition team did not respond to requests for comment.

Records show the attempt to push Mr. Yang out of his home was not an unusual one for OneWest's Financial Freedom unit, which focused on controversial home loans known as reverse mortgages. Regulators and consumer advocates have long worried that these loans, popular during the height of the housing bubble, exploit elderly homeowners.

The loans allow people to benefit from the equity they have built up over many years without selling their houses. The money is paid in a variety of ways, from lump sums to a stream of monthly checks. Borrowers are allowed to stay in their homes for as long as they live.

The loans are guaranteed by the U.S. Department of Housing and Urban Development, meaning the agency pays lenders like Freedom Financial the difference between the ultimate sale price of the home and the size of the reverse mortgage.

But the fees are often high and the interest charges mount up quickly because the homeowner isn't paying down any of the principal on the loan. Homeowners remain on the hook for property taxes and insurance and can lose their homes if they miss those payments.

A 2012 report to Congress by the Consumer Financial Protection Bureau said that "vigorous enforcement is necessary to ensure that older homeowners are not defrauded of a lifetime of home equity."

ProPublica found numerous examples where Financial Freedom had foreclosed for legally questionable reasons. The company served several other homeowners at their homes to let them know they were being sued for not occupying their homes. In Florida, a shortfall of only $0.27 led to a foreclosure attempt. In Atlanta, the company sought to foreclose on a widow after her husband's death, but backed down when a legal aid attorney sued, citing federal law that allowed the surviving spouse to remain in the home.

"It appears their business approach is scorched earth, in a way that doesn't serve communities, homeowners or the taxpayer," said Alys Cohen, a staff attorney for the National Consumer Law Center in Washington D.C.

Since the financial crisis, OneWest, through Financial Freedom, has conducted a disproportionate number of the nation's reverse mortgage foreclosures. It was responsible for 16,200 foreclosures on government-backed reverse mortgages, or 39 percent of all foreclosures nationwide, from 2009 through late 2014, even though it only serviced about 17 percent of the loans, according to government data analyzed by the California Reinvestment Coalition, an advocacy group for low-income consumers. While some foreclosures were justified, legal aid attorneys say Financial Freedom has refused to work with borrowers in foreclosure to establish payment plans, in contrast with other servicers of reverse mortgages.

Experts say the companies are not entirely to blame for the wave of foreclosures. HUD oversees standards on most reverse mortgages. In the years after the housing crash, HUD's rules evolved, creating a miasma of confusion for mortgage servicers. Companies say the new federal rules required them to foreclose when borrowers fell far behind on property and insurance costs, rather than work out payment plans.

OneWest's rough treatment of homeowners extended to its behavior toward borrowers with standard mortgages in the aftermath of the housing crash. In 2009, the Obama administration launched a program to encourage mortgage servicers to work out affordable mortgage modifications with borrowers. OneWest, weighed down by several hundred thousand souring mortgages, signed up.

It didn't go well. About three-quarters of homeowners who sought a modification from OneWest through the program were denied, according to the latest figures from the Treasury Department. OneWest was among the worst performing large servicers in the program by that measure. In 2011, activists protested OneWest's indifference at Mnuchin's Bel Air mansion in Los Angeles.

"We're in a difficult economic environment and very sympathetic to the problems many homeowners face, but under the government's program there's not a solution in every case," Mnuchin told the Wall Street Journal in that year.

Despite the controversy, Mnuchin and the other investors in OneWest made a killing on their purchase. In 2009, Mnuchin's investment group bought the failed mortgage bank IndyMac, which had been taken over by the Federal Deposit Insurance Corporation after the financial crisis, changing the name to OneWest. They paid about $1.5 billion, with the FDIC sharing the ongoing mortgage losses. George Soros, a Clinton backer at whose hedge fund Mnuchin had worked, and John Paulson, a hedge fund manager who also supported Trump, invested alongside Mnuchin in IndyMac.

In 2015, CIT, a lender to small and medium-sized businesses, bought OneWest for $3.4 billion, more than doubling the Mnuchin group's initial investment. Mnuchin personally made about $380 million on the sale, according to Bloomberg estimates. He retains around a 1 percent stake in CIT, worth around $100 million, which he may have to divest if confirmed.

CIT has found the reverse mortgage business to be a headache. Recently, CIT took a $230 million pretax charge after it discovered that OneWest had mistakenly charged the government for payments that the company should have shouldered itself. An investigation of Financial Freedom's practices by HUD's inspector general is ongoing.

Yang's lawyers at Jacksonville Area Legal Aid fought his foreclosure for a year. Though Yang had run a dry cleaning business in Florida and roamed the world as a missionary, working in North Korea, China, and Afghanistan, the bank's torrent of paperwork had overwhelmed him. Yang didn't speak English well. OneWest claimed it had sent him forms to verify he was living at his home, but that he never sent them back.

Under HUD rules, OneWest was required to verify that each borrower continued to use the property as a principal residence. It is a condition of all the HUD-backed loans in order to help ensure the government subsidy goes to those who need it.

But Yang can be forgiven for thinking that OneWest could not have doubted that he was still in his home. During the same period that OneWest was moving to foreclose on Yang for not living in his home, another arm of the bank regularly spoke and corresponded with him at his home about a delinquent insurance payment, according to court documents.

A Financial Freedom employee testified in the case that the department that handled delinquent insurance payments and the department that handled occupancy did not communicate with each other in those circumstances.

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Federal Reserve Bars Two Bank Executives From Working Within Industry

The Federal Reserve Board announced this enforcement action:

"Richard Henderson and Philip Cooper, who held senior positions at Regions Equipment Finance Corporation (REFCO), Regions' subsidiary, were recently indicted for bank bribery, wire fraud, money laundering, and conspiracy. According to the indictment, Henderson and Cooper conspired to defraud Regions and REFCO by directing REFCO to purchase insurance policies from a shell company that paid kickbacks to Henderson and Cooper. The indictment further alleges that Henderson and Cooper attempted to conceal those kickbacks by establishing additional shell companies to receive the kickbacks.

In issuing today's enforcement actions, the Board found that, given the indictment, Henderson's and Cooper's continued participation in any depository institution may impair public confidence in that institution. The prohibition is effective until the criminal charges against Henderson and Cooper are resolved or disposed of, or until the Board terminates the prohibition."

REFCO was founded in 1972 and is based in Birmingham, Alabama. It is a subsidiary of Regions Bank.


Ashley Madison Operators Agree to Settlement With FTC And States

Ashley Madison home page image

The operators of the AshleyMadison.com dating site have agreed to settlement with the U.S. Federal Trade Commission (FTC) for security lapses in a massive 2015 data breach. 37 million subscribers were affected and site's poor handling of its password-reset mechanism made accounts discover-able while the site had promised otherwise. The site was know for helping married persons find extra-marital affairs.

The FTC complaint against Avid Life Media Inc. sought relief and refunds for subscribers. The complaint alleged that the dating site:

"... Defendants collect, maintain, and transmit a host of personal information including: full name; username; gender; address, including zip codes; relationship status; date of birth; ethnicity; height; weight; email address; sexual preferences and desired encounters; desired activities; photographs; payment card numbers; hashed passwords; answers to security questions; and travel locations and dates. Defendants also collect and maintain consumers’ communications with each other, such as messages and chats... Until August 2014, Defendants engaged in a practice of using “engager profiles” — that is, fake profiles created by Defendants’ staff who communicate with consumers in the same way that consumers would communicate with each other—as a way to engage or attract additional consumers to AshleyMadison.com. In 2014, there were 28,417 engager profiles on the website. All but 3 of the engager profiles were female. Defendants created these profiles using profile information, including photographs, from existing members who had not had any account activity within the preceding one or more years... Because these engager profiles contained the same type of information as someone who was actually using the website, there was no way for a consumer to determine whether an engager profile was fake or real. To consumers using AshleyMadison.com, the communications generated by engager profiles were indistinguishable from communications generated by actual members... When consumers signed up for AshleyMadison.com, Defendants explained that their system is “100% secure” because consumers can delete their “digital trail”.

More importantly, the complaint alleged that the operators of the site failed to protect subscribers' information in several key ways:

"a. failed to have a written organizational information security policy;
b. failed to implement reasonable access controls. For example, they: i) failed to regularly monitor unsuccessful login attempts; ii) failed to secure remote access; iii) failed to revoke passwords for ex-employees of their service providers; iv) failed to restrict access to systems based on employees’ job functions; v) failed to deploy reasonable controls to identify, detect, and prevent the retention of passwords and encryption keys in clear text files on Defendants’ network; and vi) allowed their employees to reuse passwords to access multiple servers and services;
c. failed to adequately train Defendants’ personnel to perform their data security- related duties and responsibilities;
d. failed to ascertain that third-party service providers implemented reasonable security measures to protect personal information. For example, Defendants failed to contractually require service providers to implement reasonable security; and
e. failed to use readily available security measures to monitor their system and assets at discrete intervals to identify data security events and verify the effectiveness of protective measures."

The above items read like a laundry list of everything not to do regarding information security. Several states also sued the site's operators. Toronto, Ontario-based Ruby Corporation (Formerly called Avid Life media), ADL Media Inc. (based in Delaware), and Ruby Life Inc. (d/b/a Ashley Madison) were named as defendants in the lawsuit. According to its website, Ruby Life operates several adult dating sites: Ashley Madison, Cougar Life, and Established Men.

The Ashley Madison site generated about $47 million in revenues in the United States during 2015. The site has members in 46 countries, and almost 19 million subscribers in the United States created profiles since 2002. About 16 million of those profiles were male.

Terms of the settlement agreement require the operators to pay $1.6 million to settle FTC and state actions, and to implement a comprehensive data-security program with third-party assessments. About $828,500 is payable directly to the FTC within seven days, with an equal amount divided among participating states. If the defendants fail to make that payment to the FTC, then the full judgment of $8.75 million becomes due.

The defendants must submit to the FTC a compliance report one year after the settlement agreement. The third-party assessment programs starts within 180 days of the settlement agreement and continues for 20 years with reports every two years. The terms prohibit the site's operators and defendants from misrepresenting to persons in the United States how their online site and mobile app operate. Clearly, the use of fake profiles is prohibited.

The JD Supra site discussed the fake profiles:

"AshleyMadison/Ruby’s use of chat-bot-based fake or “engager profiles” that lured users into upgrading/paying for full memberships was also addressed in the complaint. According to a report in Fortune Magazine, men who signed up for a free AshleyMadison account would be immediately contacted by a bot posing as an interested woman, but would have to buy credits from AshleyMadison to reply.

Gizmodo, among many other sites, has examined the allegations of fake female bots or “engager profiles” used to entice male users who were using Ashley Madison’s free services to convert to paid services: “Ashley Madison created more than 70,000 female bots to send male users millions of fake messages, hoping to create the illusion of a vast playland of available women.” "

13 states worked on this case with the FTC: Alaska, Arkansas, Hawaii, Louisiana, Maryland, Mississippi, Nebraska, New York, North Dakota, Oregon, Rhode Island, Tennessee, Vermont, and the District of Columbia. The State of Tennessee's share was about $57,000. Vermont Attorney General William H. Sorrell said:

“Creating fake profiles and selling services that are not delivered is unacceptable behavior for any dating website... I was pleased to see the FTC and the state attorneys general working together in such a productive and cooperative manner. Vermont has a long history of such cooperation, and it’s great to see that continuing.”

The Office of the Privacy Commissioner of Canada and the Office of the Australian Information Commissioner reached their own separate settlements with the company. Commissioner Daniel Therrien of the Office of the Privacy Commissioner of Canada said:

“In the digital age, privacy issues can impact millions of people around the world. It’s imperative that regulators work together across borders to ensure that the privacy rights of individuals are respected no matter where they live.”

Australian Privacy Commissioner Timothy Pilgrim stated:

"My office was pleased to work with the FTC and the Office of the Canadian Privacy Commissioner on this investigation through the APEC cross-border enforcement framework... Cross-border cooperation and enforcement is the future for privacy regulation in the global consumer age, and this cooperative approach provides an excellent model for enforcement of consumer privacy rights.”

Kudos to the FTC for holding a company's feet (and its officers' and executives' feet) to the fire to protect consumers' information.