This article originally appeared in the July 2021 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.
Do you run a sales organization? Do you conduct door to door sales? If yes, and your sales personnel are compensated on commission (as most sales professionals are), then you should pay attention.
Sales drive business; however, overzealous and unchecked sales practices can undermine your business and subject your company to private lawsuits and regulatory actions. Regulatory actions, in particular, are a threat to any business – because of the virtually unlimited resources of state and federal governments and the extent of their discretionary authority to bring cases where the weight of evidence is generally in their favor.
This is what happened recently to Vivint Smart Home Inc., one of the leading security and automation service providers in the United States.
Inside the Vivint/FTC Settlement
In late April 2021, Vivint Smart Homes Inc., agreed to pay $20 million to resolve claims made by the Federal Trade Commission alleging that Vivint misused credit reports to help unqualified customers obtain financing for the company’s products and services.
In a complaint filed by the Department of Justice on behalf of the FTC in the U.S. District Court for the District of Utah, the FTC alleged that Vivint violated the Fair Credit Reporting Act (FCRA) by improperly obtaining credit reports in order to qualify potential customers for financing for its smart home monitoring and security products. The FTC also alleged that Vivint violated the FTC’s Red Flags Rule by failing to implement an identity theft prevention program, which is required of certain companies that regularly use or obtain credit reports.
The Commission alleged that rogue members of Vivint’s sales staff stole people’s personal information to approve prospective customers for loans. Specifically, the FTC alleged that Vivint sales representatives used the credit history of innocent consumers, without their knowledge or permission, to qualify other similarly-named prospective customers who otherwise might not have qualifying credit.
Worse, if the falsely qualified customers later defaulted on their loans, it is alleged that Vivint referred the innocent consumers to debt collectors – thereby potentially damaging the credit of the innocent consumers. Although Vivint terminated many of the rogue sales representatives involved, the FTC alleges that some were re-hired.
Out of the $20 million settlement, Vivint is obligated to pay a $15 million civil penalty and an additional $5 million to compensate injured consumers. This monetary settlement is reported to be the largest monetary judgment in an FTC Fair Credit Reporting Act case.
In addition to the monetary judgment, Vivint is required to implement an employee monitoring and training program, identity theft prevention program, and customer service task force to avoid further victims and further damages to existing victims. Finally, Vivint is subject to a biennial re ire by an independent third party to ensure the company is complying with the FCRA.
These are steep penalties – both monetarily and operationally. An oversight and audit program to check the company’s sales practices could have prevented this and could have protected the company from overzealous sales staff.
What about your company? Who monitors your sales practices? Are your sales personnel trained and informed of the consequences of fraudulent sales tactics? Are they sufficiently incentivized to abide by the rules?
Security integrators would be well advised to conduct a legal review of sales and other business practices – unless you have $20 million sitting around that you just feel like giving away as a penalty. Sell, sell, sell – but also be smart, smart, smart!
Timothy J. Pastore, Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. Reach him at (212) 551-7707 or by e-mail at [email protected].
