FTC consumer protection year in review offers 2020 vision for your business
They say hindsight is 20/20, but what about foresight? We’re not ones to prognosticate, but a look at notable FTC cases and initiatives from the past year suggests some topics likely to be top of mind in months to come. Here is a non-exhaustive list of issues in our 2019 rearview mirror and likely visible through the 2020 windshield.
Consumer privacy. The FTC’s $5 billion enforcement action against Facebook made history and headlines, but the other notable part of the case is the monumental change the order mandates to Facebook’s privacy ecosystem. The Commission opinion in Cambridge Analytica reaffirms the proposition that like any other claim, a company’s privacy promises are viewed through the lens of established FTC consumer perception principles. A series of cases demonstrates the agency’s continued commitment to challenging false or misleading representations about businesses’ compliance with the EU-U.S. Privacy Shield Framework. Another important development is the FTC’s proposed settlement with Retina-X. It’s our first action against a marketer of stalking apps – software that allowed purchasers to monitor the mobile devices on which they’re installed, without users’ knowledge.
COPPA. Congress passed the Children’s Online Privacy Protection Act to ensure that when it comes to the collection of kids’ personal information online, parents are in the driver’s seat. The FTC settlement with YouTube – brought in conjunction with the New York Attorney General – alleges that the company collected kids’ personal data without parental consent, in violation of the COPPA Rule. The $170 million civil penalty broke the record for the largest remedy in an FTC COPPA case, set months before in our $5.7 million settlement with Musical.ly, now known as TikTok. If you’re a YouTube channel owner, read a special Business Blog post for tips on determining if your content is directed to children.
Data security. Is your company honoring its data security promises and taking reasonable steps to safeguard the sensitive information in its possession? The FTC, CFPB, and State AG actions against Equifax illustrate how consumers are injured when companies ignore reasonably foreseeable threats. The settlement, which totals between $575 million and $700 million – also reminds businesses that heeding warnings about known risks is more prudent (and cost-effective) than the alternative. Three threads tie together the FTC’s unrelated actions against LightYear Dealer Technologies and InfoTrax Systems. They both sell management software to specific industries. They both allegedly failed to take reasonable steps to secure their networks, resulting in damaging data breaches. And they’re both covered by similar new orders the FTC has introduced in recent data security cases. If you or your clients are players in the Internet of Things, the settlement of the FTC’s litigation against connected device company D-Link sends an unmistakable message: The future of the IoT marketplace depends on secure software development.
Endorsements, certifications, and influencers. Why is the FTC concerned about the accuracy of endorsements and certifications? Because they’re material to consumers. The FTC says Truly Organics’ claim that its personal care products were “certified organic” lathered up a double bubble of deception. First, its merchandise contained ingredients that weren’t organic. Second, the company falsely claimed that its products were certified by USDA’s National Organic Program. Other FTC developments focused on the use of endorsements in social media. The FTC’s action against Devumi alleges the company sold fake followers, phony subscribers, and bogus likes to companies and individuals that wanted to boost their social media presence. FTC-FDA warning letters to sellers of nicotine-laced liquid used for vaping had a lot to say about the legal obligation of influencers and advertisers in any industry to clearly disclose material connections. Looking for to-the-point tips on how to do that? Disclosures 101 for Social Media Influencers breaks it down to the basics.
Consumer reviews. A look back at cases involving consumer reviews illustrates some questionable practices for businesses to avoid. The FTC settled charges against snack box company UrthBox for misrepresenting that customer reviews were independent when the company had given people free products and other incentives to post positive reviews. The FTC’s proposed settlement with Sunday Riley Modern Skincare demonstrates that undisclosed “selfie” reviews violate the FTC Act, too. According to the FTC, company managers and employees posted reviews of their own products on the website of a major cosmetics retailer, using fake accounts to hide their identities. The FTC charged that Cure Encapsulations paid a third-party website to post fake reviews on its behalf on Amazon. (The FTC says the company’s weight loss promises were deceptive, too.) In a related development, 2019 saw an uptick in enforcement of the Consumer Review Fairness Act, which bans form contract provisions that restrict a consumer’s ability to post reviews about a seller’s goods, services, or conduct. We first announced settlements with an HVAC contractor, a flooring company, and a horseback riding business, and followed up with actions against a vacation rental operator and a property management company. The cases challenged illegal “confidentiality” or “non-disparagement” clauses that sometimes threatened consumers with financial penalties for posting reviews.
Health claims. Health-related misrepresentations remain a core enforcement priority. The FTC settled its lawsuit against Gerber Products Company, which had allegedly made deceptive claims about its Good Start Gentle baby formula. On the other end of the age spectrum, companies continue to target older Americans with purported remedies for joint pain, diabetes, digestive disorders, etc. Two actions – a $537,500 order against NatureCity and an $821,000 order against A.S. Research – stand for the proposition that there’s nothing #OKBoomer about promoting unproven treatments to boomer consumers. Pitching their products as “Viagra for the Brain,” Global Community Innovations promised improved memory, boosted cognition, and increased IQ. But the FTC says their claims were bogus and their supposed endorsements from people like Bill Gates and the late Dr. Stephen Hawking were blatant bunk. Warning letters to sellers of CBD products underscored the established principle that if advertisers make claims – express or implied – about the purported health effects of what they sell, they need sound science to support their statements.
FinTech. The pace of innovation can be dizzying, but long-standing consumer protection principles are the fixed stars in the FinTech firmament. That’s the message businesses should take from the FTC’s $3.85 million settlement with online lender Avant. The complaint alleged that Avant engaged in unfair and deceptive practices in how it marketed and serviced loans. Established standards also apply on crowdfunding platforms. According to the FTC’s pending action against iBackPack of Texas, the company raised over $800,000 in crowdfunding campaigns, but blew a big chunk of the money on personal expenses. In an action settled in 2019, the FTC says the marketers of programs called Bitcoin Funding Team and My7Network baited the trap with promises of crypto riches, but went old-school by marketing them through chain referrals, a form of pyramid scheme. Bookmark the FTC’s new FinTech page for the latest cases and resources.
Financial injury. Challenging illegal practices that hit people in the wallet is the FTC’s bread and butter, and 2019 will be known for cases that returned a substantial amount of bread to American consumers. The $191 million settlement with University of Phoenix focused on allegedly deceptive employment claims. Multi-level marketer AdvoCare paid $150 million to settle FTC charges it operated an illegal pyramid scheme. (Actions against two other AdvoCare promoters are pending.) AT&T will return $60 million to customers to resolve an FTC complaint that it made deceptive “unlimited data” promises. Career Education Corporation, operator of Colorado Technical University and American Intercontinental University, paid $30 million to settle charges it used deceptive lead generation tactics to market its schools. A settlement with Office Depot and Support.com included a financial remedy of $35 million for inducing consumers to buy pricey repair services based on false claims that in-store scans detected signs of malware on their computers. A stipulated order with the recidivist ringleader of a student loan debt relief scheme held him liable for $11 million in compensatory relief. A ruling against mortgage modification scammers imposed an $18.5 million judgment and banned them for life from the debt relief business. And an important bankruptcy ruling in an action involving a defendant in the BlueHippo case preserved a $14 million judgment from discharge.
Telemarketing. The war against robocalls continued in 2019 with Operation Call It Quits, a coordinated crackdown against con artists responsible for more than a billion illegal calls. In addition to actions announced by the FTC, 25 federal, state, and local law enforcement partners filed another 87 lawsuits, including five criminal cases. The FTC opened a new front in the 360° fight against unwanted calls by filing its first Telemarketing Sales Rule action against a VoIP service provider. According to the pending lawsuit, Globex Telecom played a key role in subjecting consumers to a barrage of illegal calls for a credit card interest rate reduction scheme. The FTC also announced settlements in litigation against a perpetrator who used robocalls to solicit donations to bogus veterans charities, big wigs behind a robocall dialing platform, and a group that set up shop just weeks after a federal court – at the request of the FTC and Florida AG – shut down another telemarketing ring where some of them worked. Another action resulted in a $3.3 million summary judgment against recidivists who blasted small businesses with a barrage of robocalls that falsely threatened their companies would be removed from Google search results.
The FTC isn’t alone in the battle against deception. In addition to law enforcers across the country, key partners in the effort are the millions of consumers who file reports to the Consumer Sentinel database. The FTC uses that empirical data to assist in law enforcement and to shed light on emerging scams. Using information from those reports, FTC issued Data Spotlights in 2019 revealing the staggering financial losses caused by romance scams, the rise of government imposter scams, and the different forms of fraud most frequently reported by millennials and consumers 60 and over. This year the FTC also introduced a new way to visualize and customize data: the agency’s interactive Tableau Public page.
The Bureau of Consumer Protection’s busy event calendar in 2019 could be indicative of issues of continuing interest in 2020. In addition to multiple Common Ground conferences that brought together consumer protection agencies and community groups, FTC staff hosted workshops on made in USA claims, the future of the COPPA Rule, class action notices, loot boxes in gaming, online ticket sales, repair restrictions on consumer products, small business financing, accuracy in consumer reporting, and PrivacyCon 2019. The variety of topics suggests two things to us: 1) the breadth of the FTC’s consumer protection mission, and 2) our ongoing interest in exploring emerging issues with advocates and experts who bring a wide variety of perspectives to the table.