Recent FTC Proposed Rules, Policy Guidance Updates and Warning Letters

The Federal Trade Commission has a long-standing practice of issuing policy statements and reports in an effort to put digital marketers on notice of CID investigation and enforcement priorities.

For example, in 2021, FTC attorneys warned marketers about the utilization of deceptive tactics in conjunction with automatically renewing subscription services.  The agency policy statement, designed to place marketers on notice that sign-ups must be clear and fully consensual, material terms conspicuous presented, and cancellation mechanisms simple to effectuate, calls attention to a newly issued enforcement policy statement regarding negative option marketing that prohibits illegal “dark patterns” that trick consumers into subscription services.

“Today’s enforcement policy statement makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.  “Firms that deploy dark patterns and other dirty tricks should take notice.”

The FTC approved the issuance of the enforcement policy statement with a 3-1 vote, with Commissioner Christine S. Wilson voting no and issuing a dissenting statement.  Commissioner Noah Joshua Phillips also issued a separate concurring statement.

The FTC will continue to take aggressive investigative and civil penalty enforcement action against marketers that utilize deceptive automatic renewal subscriptions, continuity plans and free-trial conversion plans.

Without limitation, all material terms of the product or service, including how much it costs, deadlines by which the consumer must act to stop further charges, the amount and frequency of such charges, how to cancel, and information about the product or service itself that is needed to stop consumers from being deceived about the characteristics of the product or service must be clearly, conspicuously and prominently disclosed.

The consumer’s express informed consent prior to charging them for a product or service must be obtained.  This includes obtaining the consumer’s acceptance of the negative option feature separately from other portions of the entire transaction.  Including information that interferes with, detracts from, contradicts, or otherwise undermines the consumer’s ability to provide their express informed consent is prohibited.

Additionally, an easy and simply cancellation mechanism must be provided to the consumer.  Cancellation mechanisms should be at least as easy to use as the method the consumer used to buy the product or service in the first place.

Importantly, the Federal Trade Commission aggressively enforces the Restore Online Shoppers’ Confidence Act against digital marketers that offer Internet-based automatic renewals and subscriptions, individual states also have their own automatic renewal and subscription laws that impose onerous requirements.

Also in 2021, the Federal Trade Commission announced that the agency disseminated warning letters to over 1,000 companies, putting them on notice that false money-making claims could lead to big monetary civil penalties for companies from multi-level marketers to providers of “gig” work.

“Preying on consumers and workers with bogus promises of big earnings should never be profitable,” said Samuel Levine.  “Today’s announcement helps ensure that companies that cheat struggling Americans will pay a heavy price.”

Notices of Penalty Offense allow the agency to seek civil penalties against a company that engages in conduct that it knows is unlawful, and that has been found unlawful in a previous FTC administrative order, other than a consent order.

The Notice sent to the companies outlines a number of practices that the FTC determined to be unfair or deceptive in prior administrative cases.  Broadly, the cases found that it was unlawful to make false, misleading, or deceptive representations concerning the profits or earnings that may be anticipated by a participant in a money-making opportunity.  This includes, for example, representations that participants will make a profit, or that represented profits are typical. The Notice also describes other practices that the FTC has determined to be unfair or deceptive, such as falsely telling consumers they do not need experience to earn income or that they must act immediately to participate.

Companies receiving the Notice also received a copy of the recently issued Notice of Penalty Offenses concerning endorsements and testimonials, as companies frequently use testimonials to advertise money-making opportunities.  Together, the notices make clear that it is illegal to use testimonials to mislead consumers about the rewards of participating in a money-making opportunity.

The notices were sent to a broad array of businesses that cover a wide range of money-making opportunities, including multi-level marketing, “gig” employers, investment and business coaching, franchises, business opportunities, and others.

Penalty Offense Notices for bogus reviews and misleading endorsements were also sent to hundreds of companies in 2021, which can trigger steep penalties for recipients who use endorsements to deceive consumers.

According to the FTC, the rise of social media has blurred the line between authentic content and advertising, leading to an explosion in deceptive endorsements across the marketplace. Fake online reviews and other deceptive endorsements often tout products throughout the online world.

Consequently, the FTC has now used its Penalty Offense Authority to remind advertisers of the law and deter them from breaking it.  By sending a Notice of Penalty Offenses to more than 700 companies, the agency placed them on notice they could incur significant civil penalties—up to $43,792 per violation—if they use endorsements in ways that run counter to prior FTC administrative cases.

“Fake reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses,” said Samuel Levine.  “Advertisers will pay a price if they engage in these deceptive practices.”

The Notice sent to the companies outlines a number of practices that the FTC determined to be unfair or deceptive in prior administrative cases.  These include, but are not limited to: falsely claiming an endorsement by a third party; misrepresenting whether an endorser is an actual, current, or  recent user; using an endorsement to make deceptive performance claims; failing to disclose an unexpected material connection with an endorser; and misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.

Companies receiving the notice represent an array of large companies, top advertisers, leading retailers, top consumer product companies, and major advertising agencies.  See here for tips for ad agencies and review sites concerning the FTC’s proposed Endorsement Guide Rule and contemplated updates to its Dot.com disclosure guidance.

Richard B. Newman is an FTC defense attorney at Hinch Newman LLP.

Informational purposes only. Not legal advice. May be considered attorney advertising.