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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.
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.
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.
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.
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.
On September 5, NYDFS announced a new investigation into the student debt relief industry. NYDFS is issuing subpoenas to eight student debt relief companies to investigate deceptive practices in the industry, including misrepresenting the ability to achieve debt relief and charging improper fees. According to NYDFS, “deceptive” student debt relief companies charge borrowers high fees to consolidate their multiple student loans, while the U.S. Department of Education will offer the same programs free of charge. NYDFS estimates that New York residents collectively owe over $86 billion in student loans.
On August 8, the FTC announced a settlement with an email management company, which requires the company to delete the personal information it obtained from consumers’ email receipts after allegedly misleading consumers about the company’s services. In the complaint, the FTC alleges that the company, which assisted consumers in unsubscribing from unwanted subscription emails, deceptively told consumers that it would “never touch [their] personal stuff,” when providing the company access to their emails, but in reality, the company would access inboxes to collect consumers’ e-receipts to sell the purchase information to other companies. Moreover, the complaint alleges that, even after consumers chose to decline to allow the company access to their email, the company persisted with deceptive messages, which resulted in “[o]ver 20,000 consumers chang[ing] their minds and decid[ing] to complete the sign-up process after viewing the messages.” The settlement requires the company to: (i) delete from its system, and its parent company’s system, the email receipts it collected from consumers, unless it obtains their affirmative consent to maintain the information; (ii) cease misrepresenting the way it collects, uses, stores, or shares the information it collects; and (iii) notify consumers who have signed up for the service, after viewing the deceptive messages, about how it collects and shares information.
On July 10, the New York attorney general announced a settlement with two ticket resale companies that allegedly deceived thousands of consumers by selling event tickets that the companies did not actually own. According to the announcement, the defendants’ practice of selling “speculative tickets” to consumers involved listing and selling tickets the companies did not possess and attempting to purchase such tickets only after a consumer had already placed an order. The attorney general claimed the defendants often charged premiums or inflated prices for tickets then “kept the difference between the price they actually paid and the price at which the speculative ticket was sold to a consumer.” Additionally, one of the defendants also allegedly misled consumers in instances when tickets could not be provided by blaming technical errors or vague supplier issues. While the defendants have not admitted any liability, under the terms of the settlement—subject to court approval—they have agreed to pay $1.55 million and adopt reforms designed to protect ticket purchasers in the future, including, where appropriate, providing clear and conspicuous disclosures stipulating that the ticket seller does not possess the listed tickets and is merely offering to obtain such tickets on a consumer’s behalf.
On May 2, the CFPB announced that it had filed a lawsuit against Utah-based credit repair telemarketers and their affiliates (defendants) for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). According to the complaint filed in the U.S. District Court for the District of Utah, the CFPB alleges the defendants charged consumers a fee for telemarketed credit repair services when they signed up for the services, and then monthly thereafter, without (i) waiting for the timeframe in which they represented their services would be provided to expire; and (ii) demonstrating that the promised results have been achieved, in the form of a consumer report issued more than six months after those results were achieved, as required by the TSR. Additionally, the CFPB alleges that certain defendants made false and misleading claims constituting deceptive acts under the CFPA. Specifically, the CFPB alleges those defendants marketed that guaranteed, or high-likelihood, loans or rent-to-own housing offers would be available through affiliates after signing up for credit repair services when in actuality, the products were not available. The CFPB is seeking restitution, civil money penalties, and injunctive relief against the defendants.
FTC obtains $2.7 million judgment against “free samples” operation; settles deceptive marketing matter
On April 11, the FTC announced that the U.S. District Court for the Northern District of Illinois ordered a New York-based office supply operation to pay $2.7 million to resolve allegations that the defendants targeted consumers, such as small businesses, hotels, municipalities, and charitable organizations, by deceptively misrepresenting the terms of their “free samples.” Specifically, the FTC alleged in 2017 that the defendants violated the Telemarketing and Consumer Fraud and Abuse Prevention Act (Telemarketing Act) and the Unordered Merchandise Statute by calling consumers with offers of free product and then billing the consumers after shipping the samples. In some instances, the FTC stated, consumers refused the offer of the free product, but the defendants sent it anyway. Once the samples were shipped, the FTC claimed the defendants sent follow-up invoices demanding payment for the product, and would then send dunning notices and place collection calls. Under the terms of the order, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of unordered merchandise, or from misrepresenting material facts, and are required to pay $2.7 million to be refunded to affected consumers.
Separately, on April 10, the FTC announced proposed settlements (see here and here) issued against twelve corporate and four individual defendants for allegedly claiming their “cognitive improvement” supplements increase brain power and performance. According to the complaint, the defendants’ deceptive acts and practices included using “sham news” websites to market false and misleading efficacy claims, such as fraudulent celebrity endorsements and fictitious clinical studies. Furthermore, the FTC alleged that, while the defendants claimed to offer a “100% Money Back Guarantee” on their supplements, consumers found it difficult or nearly impossible to get a refund, and that some consumers were allegedly charged for supplements they ordered but never received. The proposed settlements, among other things, prohibits the specified behavior and impose monetary judgments of $14,564,891 and $11,587,117, both of which will be partially suspended due to the defendants’ inability to pay.
On April 3, the FTC announced that the U.S. District Court for the District of Nevada ordered a publisher and conference organizer and his three companies (defendants) to pay more than $50.1 million to resolve allegations that the defendants made deceptive claims about the nature of their scientific conferences and online journals, and failed to adequately disclose publication fees in violation of the FTC Act. Among other things, the FTC alleged, and the court agreed, that the defendants misrepresented that their online academic journals underwent rigorous peer reviews but defendants did not conduct or follow the scholarly journal industry’s standard review practices and often provided no edits to submitted materials. The court determined that the defendants also failed to disclose material fees for publishing authors work when soliciting authors and often did not disclose fees until the work had been accepted for publication. The court also found that the defendants falsely advertised the attendance and participation of various prominent academics and researchers at conferences without their permission or actual affiliation.
In addition to the monetary judgment, the final order grants injunctive relief and (i) prohibits the defendants from making misrepresentations regarding their publications and conferences; (ii) requires that the defendants clearly and conspicuously disclose all costs associated with publication in their journals; and (iii) requires the defendants to obtain express written consent from any individual the defendants represent as affiliated with their products or services.
On the same day, the FTC also announced a settlement with a subscription box snack service to resolve allegations that the company violated the FTC Act by misrepresenting customer reviews as independent and failing to adequately disclose key terms of its “free trial” programs. Specifically, the FTC alleged that the company provided customers with free products and other incentives in exchange for posting positive online reviews and misrepresented that independent customers made the reviews or posts. The company also allegedly offered “free trial” snack boxes without adequately disclosing key terms of the offer, including the stipulation that if the trial was not canceled on time, the customer would be automatically enrolled as a subscriber and charged the “total amount owed for six months of snack box shipments.” The proposed order, among other things, prohibits the specified behavior and requires the company to pay $100,000 in consumer redress.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference