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Fed issues new fintech compliance bulletin
On December 17, the Federal Reserve Board (Fed) released a new issue of the Consumer Compliance Supervision Bulletin focusing on supervisory insights into consumer compliance issues related to fintech to assist financial institutions with assessing and managing risk associated with technological innovation. Among the topics covered in the bulletin, are (i) managing risk with fintech collaborations—the Fed stresses the importance of creating strong policies and procedures, as well as board and senior management oversight, comprehensive and tailored training, and risk monitoring; (ii) managing UDAP risks with online and mobile banking platforms—the Fed recommends a focus on ensuring consistency and accuracy in disclosures on the platforms and the regular monitoring of complaints; and (iii) managing possible fair lending risks resulting from targeted online marketing—the Fed suggests careful monitoring over marketing activities and vendors, as well as close review of filters used with internet advertising to prevent excluding populations with legally protected characteristics. The bulletin will be featured on the agency’s new fintech page previously covered by InfoBytes here.
FTC obtains $191 million from for-profit school for deceptive ads
On December 10, the FTC announced a settlement with a for-profit school and its parent company to resolve allegations that they employed deceptive advertisements in violation of the FTC Act that gave the impression that the school had relationships and job opportunities with various technology companies and tailored curricula to those jobs. In the complaint, the FTC claims the defendants relied upon false and misleading advertisements to attract prospective students that gave the impression that the school’s relationship with certain companies would create employment opportunities. In addition, the FTC alleges that while the defendants claimed the companies also worked with the school to develop its courses, in reality the partnerships were primarily marketing relationships that did not create jobs or curricula for the school’s students. Moreover, the FTC claims that some of these advertisements specifically targeted current and former military members and Hispanic consumers. Under the terms of the settlement, the school is required to pay $50 million in consumer redress and cancel approximately $141 million in student loan debts owed to the school by former students who first enrolled during the covered period.
The FTC’s press release notes, however, that the “settlement will not affect student borrowers’ federal or private loan obligations,” and directs borrowers to the Department of Education’s income-driven repayment plans for guidance on lowering monthly payments. The FTC also states that borrowers who believe they may have been defrauded or deceived can apply for loan forgiveness through the Borrower Defense to Repayment procedures.
FTC says British data analytics firm misled consumers about collection of personal information
On December 6, the FTC issued an unanimous opinion against a British consulting and data analytics firm, finding that the firm violated the FTC Act by engaging in “deceptive practices to harvest personal information from tens of millions of [a social media company’s] users.” The information—which was allegedly collected through an application that told users it would not harvest identifiable information—was then used to target potential voters. The opinion also found that the firm engaged in deceptive practices relating to its participation in the EU-U.S. Privacy Shield framework. The opinion follows an administrative complaint issued against the firm in July (previously covered by InfoBytes here). Under the terms of the administrative final order, the firm is prohibited from misrepresenting “the extent to which it protects the privacy and confidentiality of personal information as well as its participation in the EU-U.S. Privacy Shield framework and other similar regulatory or standard-setting organizations,” and it must apply Privacy Shield protections to personal information collected during its participation in the program or return or delete the information. Among other things, the firm also must delete or destroy the personal information collected from consumers through the app, as well as any other information or work product that originated from the information.
FTC, Utah file action against real estate seminar company
On November 5, the FTC and the Utah Division of Consumer Protection filed a complaint in the U.S. District Court for the District of Utah against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to purchase real estate training packages costing thousands of dollars. According to the complaint, the defendants violated the FTC Act, the Telemarketing Sales Rule, and Utah state law by marketing real estate training packages with false claims through the use of celebrity endorsements. The defendants’ marketing materials allegedly told consumers, among other things, that they would (i) receive strategies for making profitable real estate deals during seminars included in the packages; and (ii) learn how to access wholesale or deeply discounted properties. The complaint argues, however, that the promises were false and misleading, as, among other things, the seminars promoted additional workshops costing more than $1,100 to attend where consumers largely received general information about real estate investing, along with promotions for “advanced training” costing tens of thousands of dollars. In addition, the discounted properties were typically sold or brokered to consumers by the defendants at inflated prices with concealed markups, the complaint alleges. Among other things, the FTC and Utah Division of Consumer Protection seek monetary and injunctive relief against the defendants.
FTC offers guidance for social media influencer disclosures
On November 5, the FTC released advertising disclosure guidance for online influencers, titled “Disclosures 101 for Social Media Influencers,” which outlines the FTC’s rules for disclosure of sponsored endorsements and provides influencers with tips and guidance covering effective and ineffective disclosures. The guidance reminds influencers that (i) they should disclose any financial, employment, personnel, or family relationship with the brand; (ii) disclosures should be “hard to miss,” by being placed on pictures, stated in the videos, and repeated throughout livestreams; and (iii) language in disclosures should be simple and clear, and in the same language as the endorsement itself.
For more information on the FTC’s activity covering testimonials and social media influencers, review the recent Buckley Insight, which summarizes several FTC enforcement actions involving online reviews and social media and provides key takeaways for companies considering online advertising and social media campaigns.
Buckley Insights: FTC focusing on testimonials and social media influencers
The FTC has stepped up its advertising related enforcement activity in recent months, particularly focusing on companies that fail to clearly and conspicuously disclose underlying connections between testimonial providers and product sellers. Summarized below are several recent FTC enforcement actions involving online reviews and social media, as well as some key takeaways for companies considering online advertising and social media campaigns.
Recent FTC Enforcement Actions
First, in its complaint against a skincare company, the FTC alleged that the company misled consumers by posting reviews written by company employees. Specifically, the FTC’s allegations included assertions that (i) product reviews posted on a retailer’s website were not “independent experiences or opinions of impartial ordinary users of the products” and therefore, were false or misleading under Section 5 of the FTC Act; and (ii) the failure to disclose the reviews were written by the owner or employees constitutes a deceptive act or practice under Section 5 of the FTC Act, because the information would “be material to consumers in evaluating the reviews of [the company] brand products in connection with a purchase or use decision.”
In a 3-2 vote the Commission approved an administrative consent order, which notably does not include any monetary relief for consumers. The order prohibits the company from misrepresenting the status of an endorser, which includes misrepresentations that the endorser or reviewer is an “independent or ordinary user of the product.” requires the company and owner to “clearly and conspicuously, and in close proximity to that representation, any unexpected material connection between such endorser and (1) any Respondent; or (2) any other individual or entity affiliated with the product.”
In dissent, two Commissioners objected to the lack of monetary relief, stating, “[t]hat monetary relief can be difficult to calculate should not deter the FTC from seeking it. When the agency’s estimates are uncertain, the Commission sometimes demands no monetary relief whatsoever, which leads to under-deterrence of blatant fraud and dishonesty. This needs to change.”
Second, the FTC also charged a now-defunct company and its owner with selling social media followers and subscribers to motivational speakers, law firm partners, investment professionals, and others who wanted to boost their credibility to potential clients, as well as to actors, athletes, and others who wanted to increase their social media appeal. According to the FTC, the company “provided such users of social media platforms with the means and instrumentalities for the commission of deceptive acts or practices,” in violation of Section 5(a) of the FTC Act.
The Commission unanimously voted to file the proposed court order, which bans the company from selling or assisting others in selling “social media influence.” The order, which was later approved by a federal district court, imposes a $2.5 million monetary judgment against the company owner, but suspends the majority upon the payment of $250,000.
In a business-focused blog post released in conjunction with the enforcement actions noted above, the FTC:
- Reminds marketers that when “people at the helm” are “calling the illegal shots,” the FTC will name them in their individual capacities in actions;
- Emphasizes that companies must instruct their employees and agents to clearly disclose in reviews any material connection to the product; and
- States that the truth-in-advertising provisions of the FTC Act apply to companies that claim to be “strictly B2B,” if they are providing others with the means and instrumentalities for deception.
Relatedly, in February 2019, the FTC approved final consent orders with two marketing companies for, among other things, misrepresenting paid endorsements as independent consumer opinions. The companies allegedly hired Olympic athletes to endorse a mosquito repellent on social media and formatted advertisements to appear as independent statements of impartial publications. The FTC argued that the company failed to disclose, or disclose adequately, that (i) the Olympians were paid to endorse the mosquito repellent; and (ii) the online consumer reviews were by individuals who were reimbursed for buying the product and included statements by the owner and employees of the public relations firm hired to promote the product.
The final consent orders (here and here) require that each company to cease the misrepresentations and notify future endorsers of their responsibility “to disclose clearly and conspicuously, and in close proximity to the endorsement, in any print, radio, television, online, or digital advertisement or communication, the endorser’s unexpected material connection to any Respondent or any other individual or entity affiliated with the product or service.”
Key Takeaways for Online Advertising and Social Media Campaigns:
- These complaints and consent orders incorporate the basic concepts of the FTC’s Endorsement Guides, which address how the prohibition against deceptive practices in section 5 of the FTC Act applies to endorsements and testimonials in advertising. As an FTC blog post puts it:
Suppose you meet someone who tells you about a great new product. She tells you it performs wonderfully and offers fantastic new features that nobody else has. Would that recommendation factor into your decision to buy the product? Probably.
Now suppose the person works for the company that sells the product – or has been paid by the company to tout the product. Would you want to know that when you’re evaluating the endorser’s glowing recommendation? You bet. That common-sense premise is at the heart of the Federal Trade Commission’s (FTC) Endorsement Guides.- The dissenting commissioners in the skincare product case suggested that the FTC should have obtained “monetary relief” for consumers rather than simply order the company to comply with the law in the future, implying that the company should have been required to make refunds to consumers. The FTC doesn’t have the power to obtain civil penalties for deceptive practices unless the practice violates a specific regulation or order, but many states do have that power.
- The FTC Endorsement Guides don’t have the force of law of a formal regulation but they influence enforcement decision of not only the FTC, but also other federal and state and local agencies. Some of the principles in the Guides have very wide application. For example:
- An endorsement “relating the experience” of one or more people is considered to be a representation that their experience is typical of what most people can achieve with a product or service.
- For example, an ad in which a consumer says “I saved $100 a month on my mortgage by going through XYZ Mortgage” is deemed to be a claim that most consumers will experience the same result.
- A statement that “results not typical,” or even “based on the experiences of a few people—you probably won’t have similar results” usually won’t cure the deceptive impact of a claim by an endorser that he or she achieved certain results, unless the advertiser can provide empirical testing “demonstrating that the net impression of its advertisement with such a disclaimer is non-deceptive.”
- As with any advertising claim, the implied claim of typicality in an endorsement must be substantiated, i.e., the advertiser must have data showing that the results actually are typical.
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If you have any questions about the enforcement actions noted above or marketing and advertising related issues, please contact a Buckley attorney with whom you have worked in the past.
FTC announces two actions involving fraudulent social media activity and online reviews
On October 21, the FTC announced two separate actions involving social media and online reviews. In its complaint against a skincare company, the FTC alleged that the company misled consumers by posting fake reviews on a retailer’s website and failed to disclose company employees wrote the reviews. The FTC asserted that the retailer’s customer review section is “a forum for sharing authentic feedback about products,” and the company and owner “represented, directly or indirectly, expressly or by implication, that certain reviews of [the company] brand products on the [retailer’s] website reflected the experiences or opinions of users of the products.” The FTC argued that the failure to disclose that the owner or employees wrote the reviews constitutes a deceptive act or practice under Section 5 of the FTC Act because the information would “be material to consumers in evaluating the reviews of [the company] brand products in connection with a purchase or use decision.” In a 3-2 vote, the Commission approved the administrative consent order, which notably does not include any monetary penalties. The order prohibits the company from misrepresenting the status of an endorser and requires the company and owner to disclose the material connection between the reviewer and the product in the future.
The FTC also entered into a proposed settlement with a now-defunct company and its owner for allegedly selling fake social media followers and subscribers to motivational speakers, law firm partners, investment professionals, and others who wanted to boost their credibility to potential clients; as well as to actors, athletes, and others who wanted to increase their social media appeal. According to the FTC, the company “provided such users of social media platforms with the means and instrumentalities for the commission of deceptive acts or practices,” in violation of Section 5(a) of the FTC Act. The Commission unanimously voted to approve the proposed court order, which bans the company from selling or assisting others in selling “social media influence.” The proposed order imposes a $2.5 million monetary judgment against the company owner, but suspends the majority upon the payment of $250,000.
FTC temporarily halts real estate workshops due to deceptive marketing
On October 4, the FTC announced that the U.S. District Court for the District of Utah granted a temporary restraining order against a Utah-based company and its affiliates (collectively, “defendants”) for allegedly using deceptive marketing to persuade consumers to attend real estate events costing thousands of dollars. According to the complaint, filed by the FTC and the Utah Division of Consumer Protection, the defendants violated the FTC Act, the Consumer Review Fairness Act (CRFA), and Utah state law, by marketing real estate events with false claims, using celebrity endorsements. The defendants allegedly told consumers they will (i) earn thousands of dollars in profits from real estate investment “flips” by using the defendants’ products; (ii) receive 100 percent funding for their real estate investments, regardless of credit history; and (iii) receive a full refund if they do not make “‘a minimum of three times’” the price of the workshop within six months. The complaint argues that these statements are false or unsubstantiated, and that consumers seeking refunds from the defendants often only received a partial refund on the condition they would not speak to the FTC or other state regulators about the defendants’ products. Among other things, the temporary court order prohibits the defendants from continuing to make unsupported marketing claims and from interfering with consumers’ ability to review their products.
FTC lawsuits allege student loan scams
On September 12, the FTC announced two separate suits filed in the U.S. District Court for the Central District of California against various entities and individuals who allegedly engaged in deceptive practices when promoting student loan debt relief schemes.
In the first complaint, filed jointly with the Minnesota attorney general, a debt relief company and its owners (collectively, the “Minnesota defendants”) were alleged to have violated the FTC Act, TILA, the Telemarketing Sales Rule (TSR), and various state laws, by charging consumers who sought student loan payment reduction programs an advance fee of over $1,300 while falsely representing that the payment would go toward their student loans. The advance fee, the FTC contends, was allegedly financed through high-interest loans from a third-party finance company identified as a co-defendant in both complaints. The stipulated order entered against the Minnesota defendants prohibits them from, among other things: (i) making material misrepresentations related to their financial products and services, or any other kind of product or service; (ii) making unsubstantiated claims about their financial products and services; (iii) engaging in unlawful telemarketing practices; or (iv) collecting payments on accounts sold prior to the order’s date. The stipulated order also requires the Minnesota defendants to notify its customers that none of their prior payments have gone towards a Department of Education repayment program or towards their student loans, and orders the payment of $156,000, with the total judgment of approximately $4.2 million suspended due to inability to pay.
The FTC filed a second complaint against a separate student loan debt relief operation for allegedly engaging in deceptive and abusive practices through similar actions, including charging consumers advance fees of up to $1,400 and enrolling consumers in the same finance company’s high-interest loan program. The action against the second student loan debt relief operation is ongoing.
Both complaints also charge the finance company with violating the assisting and facilitating provision of the TSR by providing substantial assistance to both sets of defendants even though it knew, or consciously avoided knowing, that they were engaging in deceptive and abusive telemarketing practices. The FTC also alleges that the finance company violated TILA when it failed to clearly and conspicuously make certain required disclosures concerning its closed-end credit offers. Separate stipulated orders were entered by the FTC in each case (see here and here) against the finance company. The orders’ terms require the finance company to pay a combined $1 million out of a nearly $28 million judgment, with the rest suspended due to inability to pay, as well as relinquish its rights to collect on any outstanding loans. Among other things, the orders also permanently ban the finance company from engaging in transactions involving secured or unsecured debt relief products and services or making misrepresentations regarding financial products and services.
FTC settles with lead generator
On August 27, the FTC announced a settlement with an Illinois-based educational services company and its subsidiaries (defendants) to resolve deceptive marketing allegations in violation of the FTC Act and the Telemarketing Sales Rule. In the complaint, the FTC claimed the defendants used third-party lead generators that posed as military recruiters or job-finding services to encourage consumers to provide contact information via websites. The websites did not clearly inform the consumers that the personal information entered into online forms might be sold or used in training or educational programs. Rather, the FTC asserted that the lead generators falsely informed consumers that their information would not be shared. According to the FTC, the defendants then purchased these leads to call consumers in an attempt to enroll them in post-secondary schools, with many of these calls made to consumers on the National Do Not Call Registry. While the defendants did not carry out the deceptive practices to generate the leads, the FTC stated that the defendants established control over the marketing materials and reviewed telemarketing scripts that allegedly directed lead generators to falsely identify themselves as military recruiters. The FTC’s press release emphasized that “[t]his case demonstrates that the FTC will seek to hold advertisers liable for the deceptive or illegal practices of their affiliates, publishers, or other lead generators. We expect companies purchasing leads to implement strong vendor management programs and stay on the right side of the law.” Under the terms of the settlement, the defendants are: (i) ordered to pay $30 million; (ii) required to implement a system to review any marketing materials used by lead generators; (iii), prohibited from calling numbers on the National Do Not Call Registry without obtaining written consent; and (iv) banned from falsely stating that they represent the military or prospective employers.