FTC's Action on Earnings Claims Has Important Lessons for All Advertisers

The Federal Trade Commission just announced that it reached a $1.7 million settlement with WealthPress, resolving allegations that the company deceived consumers with "outlandish and false claims" about its investment advisory services. 

If you're making earnings claims in your advertising, you'd better make sure, of course, that sure those claims are truthful and substantiated. This isn't the first time that the FTC has gone after false and misleading earnings claims and it's an area that's going to stay a top priority at the Commission.  As Samuel Levine, the FTC's Director of Consumer Protection, said, "We’ve brought several cases this year against companies making false earnings claims, and we won’t hesitate to bring more." 

Even if you're not making earnings claims in your advertising, there are some important aspects of this enforcement action that all advertisers should pay attention to.  

Notice of Penalty Offenses

In late 2021, the FTC said that it was reviving its little-known and little-used "Notice of Penalty Offenses" authority to put advertisers on notice of certain unlawful practices and that it planned to seek civil penalties from companies that continued to violate the law after getting the notices.  Since that time, the FTC has issued Notices of Penalty Offenses on a wide variety of topics, including money-making opportunities, reviews and endorsements, and bait & switch advertising. 

Significantly, in its complaint against WealthPress, the FTC alleged that WealthPress made false earnings claims even after the FTC had sent Notices of Penalty Offenses to the company.  The FTC charged, "despite receiving the Notices of Penalty Offenses, Defendants continue to make misleading earnings claims in marketing their trade recommendation services."  

The FTC has sent out a lot Notices of Penalty Offenses, to lots of different advertisers, identifying lots of different concerns.  If you got one of these Notices, and were wondering whether the FTC was watching, now you know.  And, this case provides at least 1.7 million reasons why you should take the warning seriously. 

Disclaimers

In mid-2022, the FTC announced that it was planning to revise its business guidance, ".com Disclosures:  How to Make Effective Disclosures in Digital Advertising."  The FTC said it was taking this action because, "some companies are wrongly citing the guides to justify practices that mislead consumers online."  The FTC sought public comment on a number of disclosure-related issues, including the use of hyperlinks and the use of disclosures when navigating a website to make a purchase.  

In the WealthPress complaint, the FTC expresses serious concerns about the company's disclaimers, saying that they were "ineffective" and failed prevent the company's earnings claims from being misleading and deceptive.  What did the FTC say was wrong with the disclaimers?  

The FTC said that, "To find the main disclaimer text on Defendants’ website, a consumer would have to scroll to the very bottom of Defendants’ website’s homepage and find and click a small text link. The link takes the user to a separate page displaying an extremely lengthy disclaimer, in legalistic wording, small print, and grey font."  The FTC had concerns about other disclaimers as well, saying that they "are similarly not prominent, clear, or conspicuous." 

What's the message here?  Don't wait until the FTC issues new dot-com disclosure guidance to fix your online disclosures.  It's not enough that the disclosures are there -- or somewhere.  As the FTC has expressed many times, in many different ways, the Commission expects that disclosures will prominent enough so that consumers will see, read, and understand them.  

ROSCA

Finally, we've heard a lot from the FTC about ROSCA and negative options in the last few years. In 2021, for example, the FTC issued a new "Enforcement Policy Statement For Negative Option Marketing," and we've seen some significant enforcement since then -- including the case against WealthPress.  The FTC said that its enforcement action against the company was the first case where the agency has gotten civil penalties for violations of ROSCA. 

So, yes, comply with ROSCA.  That's an important take-away here. 

But don't let this enforcement action pass you by without checking out the interesting concurring statement from Commissioner Christine S. Wilson, which addresses ROSCA's requirement that "all material terms of the transaction" be disclosed before obtaining the consumer's billing information. While she's on the same page as the rest of the Commissioners in this case, she cautions that, "I do not believe that all material information about goods or services necessarily constitutes a 'material term' of a transaction."