Ad Law Insights - Legal and Regulatory Updates
Latest FTC and state attorneys general compliance, investigation and enforcement developments of concern to advertisers and marketers
Advertisers, beware.
On January 13, 2023, the Federal Trade Commission announced that as a result of a Federal Trade Commission lawsuit, investment advice company WealthPress has agreed to a proposed court order that would require it to refund more than $1.2 million to consumers and pay a $500,000 civil penalty for allegedly deceiving consumers with purportedly “outlandish and false claims about their services.”
The case marks the first time that the FTC has collected civil penalties against a company that received the Notice of Penalty Offenses regarding money-making opportunities sent last October, and the first civil penalties for violations of the Restore Online Shoppers’ Confidence Act. (ROSCA)
“We’ve brought several cases this year against companies making false earnings claims, and we won’t hesitate to bring more,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “WealthPress is now paying the price for deceiving its customers and ignoring our Notice of Penalty Offenses on money-making claims.”
The FTC’s complaint against WealthPress and its owners, Roger Scott and Conor Lynch, alleges that the company used deceptive claims to sell consumers investment advising services—often claiming that the services’ recommendations were based on a specific “system” or “strategy” created by a purported expert. The company charged consumers hundreds or even thousands of dollars for access to these services.
WealthPress sold consumers on their services with purported false claims about the likelihood consumers would make money by following the recommended trades, when in many cases consumers lost substantial sums of money.
The Business Opportunity Rule (“Bizz Opp Rule”) was first adopted in 2012. It applies to commercial arrangements where a seller solicits a prospective buyer to enter into a new business, the prospective purchaser makes a required payment, and the seller – expressly or by implication – makes certain kinds of claims. Without limitation, opportunities where a seller says it will help the buyer set up or run a business are covered. The Bizz Opp Rule generally exempts business opportunities that meet the definition of a “franchise.” Consult with an FTC defense attorney to see if that that applies to you.
A covered seller has three key legal responsibilities that involve providing the prospective purchaser with specific information to help them evaluate a business opportunity and associated risks, including a disclosure document and an earnings claims statement. The seller must also comply with general truth-in-advertising principles, including avoiding deceptive practices.
The Disclosure Document
First, the seller has to provide a buyer a one-page Disclosure Document. To keep things simple the seller should use the standard form.
The seller has to provide the Disclosure Document seven (7) days before the prospective buyer signs a contract or pays any money for the business opportunity. The Disclosure Document must list key pieces of information: (i) Identifying information (e.g., company name, business address, telephone number, the sales person’s name, and the date the document was provided to the prospective buyer;
Looking for advice on substantiating your company’s advertising claims? FTC staff just issued a new Health Products Compliance Guidance publication that merits careful attention. You may be wondering if the publication reflects major changes to the FTC’s 1998 guidance.
Yes.
And, no.
Say you have routinely consulted the FTC’s 1998 brochure. Dietary Supplements: An Advertising Guide for Industry, the new publication, is designed to take its place. For the most part, the legal fundamentals remain unchanged, but there are key revisions.
The new publication’s substantiation compliance guidance is not just for companies that sell dietary supplements.
One major change is the title, which is meant to make it clear that the guidance applies across the board to all health-related claims.
The new publication draws upon key compliance points conveyed by FTC actions brought since 1998.
When it comes to advertising claim substantiation, a lot has happened since 1998 – including more than 200 FTC law enforcement actions challenging false or deceptive health claims.
The new guides incorporate the lessons of those cases in numerous new examples – revisions designed to add a practical gloss on long-standing compliance fundamentals. In addition, the new publication reflects updates from other FTC guidance documents – for example, guidelines on endorsements and testimonials and the enforcement policy statement on homeopathic drugs.
The new publication aims to correct misunderstandings and “urban myths” that have circulated about FTC substantiation standards.
The Federal Trade Commission has recently announced that it is seeking public comment on potential updates and changes to the Green Guides for the Use of Environmental Claims. The Commission’s Green Guides help marketers avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act. The Commission seeks to update the guides based on increasing consumer interest in buying environmentally friendly products.
“Consumers are increasingly conscious of how the products they buy affect the environment, and depend on marketers’ environmental claims to be truthful,” said FTC attorney and Bureau of Consumer Protection Director Samuel Levine. “We look forward to this review process, and will make any updates necessary to ensure the Green Guides provide current, accurate information about consumer perception of environmental benefit claims. This will both help marketers make truthful claims and consumers find the products they seek.”
The Green Guides were first issued in 1992 and were revised in 1996, 1998, and 2012. They provide guidance on environmental marketing claims, including how consumers are likely to interpret particular claims and how marketers can substantiate these claims to avoid deceiving consumers.
The FTC is requesting general comments on the continuing need for the guides, their economic impact, their effect on the accuracy of various environmental claims, and their interaction with other environmental marketing regulations. The Commission also seeks information on consumer perception evidence of environmental claims, including those not in the guides currently.
On December 6, 2022, New York Governor Kathy Hochul signed legislation intended to crack down on unwanted telemarketing calls.
Legislation (S.8450-B/A.8319-C) requires telemarketers to give customers the option to automatically be added to the company’s do-not-call list at the beginning of certain telemarketing calls, right after the telemarketer’s name and solicitor’s name are provided, and before addressing the purpose of the call, etc.
Caveat, telemarketers that utilize pre-recorded messages must ensure that an automated means exists for consumers to have their telephone numbers suppressed. Consult with a state attorney general (AG) defense lawyer about the applicability of the new legislation, adjustment of scripts, and the implementation of appropriate disclosures and suppression protocols.
We are dialing up our efforts to give New Yorkers a break from unsolicited telemarketing calls,” Governor Hochul said. “For too long, New Yorkers have dealt with these nuisance calls, not knowing they can avoid these interactions by being added to a telemarketer’s do-not-call list. This new legislation will protect New Yorkers from receiving frustrating, unwanted calls by better providing information on do-not-call lists.”
Under existing law (Section 399-Z), telemarketers are required to inform individuals that they may request to be added to their company’s do-not-call list. However, not at the beginning. According to the NY Attornehy General’s office, consumers usually hang up before a telemarketer or recording has mentioned the do-not-call list, allowing telemarketers to continue calling them again and again.
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About This Blog and Hinch Newman’s Advertising + Marketing Practice
Hinch Newman LLP’s advertising and marketing practice includes successfully resolving some of the highest-profile Federal Trade Commission (FTC) and state attorneys general digital advertising and telemarketing investigations and enforcement actions. The firm possesses superior knowledge and deep legal experience in the areas of advertising, marketing, lead generation, promotions, e-commerce, privacy and intellectual property law. Through these advertising and marketing law updates, Hinch Newman provides commentary, news and analysis on issues and trends concerning developments of interest to digital marketers, including FTC and state attorneys general advertising compliance, civil investigative demands (CIDs), and administrative/judicial process. This blog is sponsored by Hinch Newman LLP.