FTC Testimony: Where Marketers and Consumers Need to Be on Guard
Published: April 14, 2017
Author: Richard Newman
The FTC (Federal Trade Commission) is an independent government agency tasked with protecting America’s consumers. A few weeks ago, in testimony before the Senate Commerce Committee, the FTC spelled out several shady marketing practices that are directly in the commission’s cross-hairs. In this post, we’ll detail the FTC’s responsibilities and some common practices that they look to combat (consumers and marketers alike should be on guard).
The FTC has broad law enforcement responsibilities under the Federal Trade Commission Act and enforces a wide variety of other laws ranging from the Clayton Act to the Fair Credit Reporting Act. In total, the Commission has enforcement or administrative responsibilities under more than 70 laws. The agency enforces laws that prohibit unfair or deceptive business practices while seeking to avoid impeding legitimate business activity
On March 21, 2017, Acting Federal Trade Commission Chair Maureen K. Ohlhausen and Commissioner Terrell McSweeny testified before the Senate Committee on Commerce, Science, and Transportation’s Subcommittee on Consumer Protection, Product Safety, and Data Security about the Commission’s efforts to combat fraud (the focus of the Commission’s consumer protection mission). The Commissioners pointed out that the agency has obtained significant judgments in excess of $11.9 billion for consumers affected by deceptive and unfair practices in the past year.
Highlighting the Bureau of Consumer Protection’s work, the Commissioners reiterated that aggressive law enforcement in federal district court, seeking injunctive relief to stop unlawful business practices and monetary relief, is the critical component in the FTC’s efforts to fight fraud.
Of course, misleading “Try It for Free!” marketing campaigns are always at the top of the FTC’s list. The Restore Online Shoppers’ Confidence Act is designed to strengthen consumer protections related to subscription-based and recurring revenue marketing models.
In addition to ROSCA, more than 20 states have enacted statutes regulating automatic renewals.
Material terms of automatic renewal offers must be “clearly and conspicuously” disclosed prior to a consumer providing any billing information. Such terms often include, without limitation: the length of the trial period; the refund/cancellation policy; the fact that the subscription will automatically renew at regular intervals until cancelled; and the amount of charges that will be assessed and how they will appear.
Express informed consent to all material terms prior to charging a consumer is a must. Consumers should also be provided with a simple mechanism to stop recurring charges. Payment reminders and written acknowledgment of terms may be required.
During testimony, the FTC noted that in September 2016 the agency and the states of Illinois and Ohio returned almost $20 million to more than 145,000 consumers who were charged by a group of defendants in a deceptive negative option billing scheme. The Commission alleged that the defendants lured online consumers with “free” access to their credit scores and then charged them a recurring $29.95 monthly fee for credit monitoring they never ordered. The defendants marketed their credit monitoring programs through at least 50 websites. See here and here.
Interestingly, the FTC spent time discussing the proactive measures it takes to respond to threats that exploit recent technological changes and to keep abreast of the rapidly changing technological landscape.
For example, the Commission has extensively reviewed the issue of robocalls and the role that technology must play in order to bolster consumer protection. Additionally, the FTC’s Bureau of Consumer Protection has created an Office of Technology Research and Investigation designed, in part, to implement authentication tools designed to combat fraud perpetrated via spoofed email. See here for an FTC staff perspective regarding how businesses can help stop phishing and protect their brands using email authentication.
Going forward, the Commission has expressed that it intends to target fraud strategically and cooperate with federal, state, and international law enforcement agencies to broaden the agency’s reach. The FTC collects and analyzes consumer complaint information through its Consumer Sentinel Network, an online complaints database that provides federal, state and local law enforcement agencies with secure access to consumer complaints on a wide variety of fraud-related topics.
The Commission also collaborates with criminal law enforcement partners. In 2003, the Commission created its Criminal Liaison Unit; numerous individuals have since faced criminal charges and prison time as a result of the FTC’s prosecution referrals.
Testimony also included details on imposter scams, which topped the list of consumer complaints in 2016. In an effort to tackle offshore callers who impersonate the IRS and perpetrate other scams, the FTC has organized four summits, including three in India, to bring together the Indian call center industry, technology companies, as well as U.S. and Indian law enforcers.
Technical support scams are another form of impersonation scams that have been on the rise in recent years. Here, the individuals typically impersonate legitimate technical support companies or claim affiliation with large computer or software manufacturers. The Commission continues to target such operations and is actively consulting with state and federal authorities.
The Commissioners next addressed robocalls that pitch fraudulent goods or services. Last year, the FTC led a multinational crackdown on robocallers, working with domestic and international law enforcement partners to bring nearly 40 cases against operations believed to be responsible for billions of illegal robocalls, one of which allegedly touting bogus credit card interest rate reduction and debt relief services.
Prize promotion scams continue to defraud large numbers of consumers, according to the Commission. For example, the FTC has recently brought charges against a company alleged to have sent hundreds of thousands of phony prize notifications, tricking (mostly elderly) consumers into thinking they had won $1 million or more and needed to pay a $25 fee to collect the “prize.” The many consumers who paid the “fee” received nothing.
The Commission also has coordinated sweeps going after business opportunity, investment, and other deceptive money-making schemes. The FTC maintains a particular interest in matters where marketers attempt to deceive consumers who want to start a business or seek to generate additional income, such as entrepreneurs, service members and veterans, and seniors on fixed incomes.
Deceptive marketing practices that target consumers struggling to pay their mortgages and other debts (e.g., false representations to financially distressed homeowners and student loan borrowers that it would help modify their mortgage or student loan debt), fraudulent debt collection practices, deceptive marketing of health-related products (e.g., health or cognitive abilities), and money transfer services commonly used in many scams are also actively monitored and policed by the FTC
Contact an FTC defense lawyer if you would like to discuss the Commission’s enforcement, education and policy efforts, or if you are the subject of a local, state attorney general, or federal regulatory matter.
HINCH NEWMAN LLP. ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result.