Significantly, this recent announcement should be viewed in the context of other steps recently taken by the FTC against other industries.
On February 17, 2022, the Federal Trade Commission (FTC) published an Advance Notice of Proposed Rulemaking (ANPR) and a request for public comment regarding a proposed rule to address what the agency calls “deceptive or unfair marketing” that relies upon false claims about potential earnings. The FTC launched the proceeding to challenge “bogus” money-making claims that lure consumers, workers and prospective entrepreneurs into “risky business ventures that often turn into dead-end debt traps.”
Businesses that engage in marketing by using earnings projections or that utilize marketing companies that may make such projections on behalf of a business should follow this FTC rulemaking closely, as it is likely to expand the current understanding of what constitutes deceptive or unfair statements about earnings in the marketplace. In particular, statements about earnings outcomes are already high-risk for educational service entities subject to oversight by the U.S. Department of Education and/or individual states’ unfair and deceptive trade practice laws, but the FTC’s powers of enforcement could lead to additional consequences and liability for such statements and influence other enforcement agencies’ interpretation of what constitutes an actionable statement.
According to the FTC, deceptive earnings claims proliferate in the marketplace. The ANPR represents the FTC’s increased focus on “schemes” that rely upon false, misleading and unsubstantiated earnings claims. The FTC seeks to recover redress for defrauded consumers and assess penalties against multilevel marketers, gig economy platforms, for-profit colleges and other “bad actors” who the FTC believes are preying upon consumers’ hopes for economic advancement.
Significantly, this recent announcement should be viewed in the context of other steps recently taken by the FTC against other industries. Those actions include the Notice of Penalty Offenses Concerning Money-Making Opportunities and the Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct in the Education Marketplace, both published in October 2021. (See our previous Alert.) The ANPR reflects the FTC’s areas of concern, and companies should implement appropriate compliance measures going forward.
Purpose of the ANPR
The FTC requests input on a number of issues to determine whether and how to use its statutory authority to address the identified deceptive and unfair acts or practices involving the use of false, unsubstantiated or otherwise misleading earnings claims. The FTC is also interested in potential policy solutions, including enhanced disclosures and requirements that those making earnings claims provide recipients with specific earnings information.
In addition, the FTC is interested in whether a rule should address the use of real or purported earnings data or statistics from an industry or professional field in the promotion of money-making opportunities and how to most effectively provide clarity on the level of substantiation required by a company making such claims. Further, the ANPR seeks comments on whether, if at all, lifestyle claims―i.e., claims that participating in a money-making opportunity will lead to a material change in lifestyle―should be addressed by a rule.
Finally, the FTC seeks comment on the costs and benefits of a rule that would address the agency’s concerns and on alternatives to such rulemaking, including the publication of additional consumer and business education.
Request for Comments
The ANPR provides 28 questions for which they are seeking public comment and input. The public is invited to comment on any of the issues or concerns that they believe are relevant and/or appropriate to the FTC’s consideration of any potential rulemaking in this area. Additionally, the FTC requests that commenters submit any relevant factual data upon which their comments are based. The key questions in the ANPR are:
How widespread is the use of false, unsubstantiated or otherwise misleading earnings claims by entities or individuals in connection with the offer or sale of a good or service, participation in a job or other work opportunity, or in a business, investment or other money-making opportunity?
Do the practices described in Question 1 disproportionately target or affect certain groups, including communities of color or other historically underserved communities?
Should a rule addressing the practices described in Question 1 define or describe the substantiation required to make an earnings claim? Should a rule adopt the Business Opportunity Rule’s language of “a reasonable basis” for a claim at the time the claim is made, or should it use some other definition? What are the benefits to consumers and costs to businesses, and in particular small businesses, from such a rule?
Should a rule addressing the practices described in Question 1 require the preservation or documentation of substantiation? If so, what types of recordkeeping requirements should be required?
What requirements, if any, should a rule impose to address earnings claims made by agents or others interacting with prospective purchasers, employees, independent contractors or participants on a company’s behalf to address the potential use of misleading claims? How can the Commission ensure that companies effectively monitor the actions of such agents or other persons?
Are there circumstances in which disclaimers or disclosures can effectively dispel a misleading impression regarding earnings or profits, or prevent such an impression?
How should the rule address disclaimers? Are there any circumstances in which a rule should require a disclaimer, such as with atypical earnings claims?
Should a rule addressing the practices described in Question 1 address the use of “lifestyle” claims?
Should a rule addressing the practices described in Question 1 include an example earnings disclosure statement that would not be mandatory, but would provide guidance for companies on how to make a lawful earnings claim?
The public has 60 days to comment on the ANPR either through mail or, as the FTC prefers, online at regulations.gov. Interested parties are directed to write “Earnings Claims ANPR, R111003” on their comment and to include their name and state of residence.
For More Information
If you have any questions about this Alert, please contact John D. Huh, Jonathan Helwink, any of the attorneys in our Trial Practice Group, any of the attorneys in our Antitrust and Competition Group, any of the attorneys in our Higher Education Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.