Earlier this year, the Federal Trade Commission announced that the operators of a website that compares student loans and other financial products agreed to settle allegations that they misled consumers to believe their website provided objective product information, when in fact they offered higher rankings and ratings to companies that paid for placement.
In an administrative complaint against Delaware-based LendEDU and its operators, the FTC also alleged the company touted fake positive reviews of its LendEDU.com website. According to the FTC’s complaint, the operators of LendEDU.com falsely claimed that the website provided “objective,” “accurate,” and “unbiased” information about consumer financial products, such as student loans, personal loans, and credit cards. Specifically, the FTC alleges that LendEDU misrepresented that the information on its website was not affected by compensation from advertisers.
The complaint also alleges that LendEDU and its operators misrepresented that consumer reviews on its website and third-party websites reflected actual experiences of impartial consumers. In most instances, according to the FTC, those reviews were written or made up by LendEDU employees, their family or friends, or other individuals with personal or professional relationships with LendEDU.
The FTC further alleges that reviews about LendEDU’s website and customer service appear on third-party review platforms, including trustpilot.com, which allows users to select a star rating when reviewing a company. Of the 126 reviews on trustpilot.com, 90 percent were allegedly written or made up by LendEDU employees or their family, friends, or other associates, and all of these manufactured reviews provided five-star ratings for the company, according to the FTC.
“LendEDU told consumers that its financial product rankings were based on objective and unbiased information about the quality of the product being offered, but in fact LendEDU sold its rankings to the highest bidder,” said FTC attorney Andrew Smith, Director of the Bureau of Consumer Protection. “These misrepresentations undermine consumer trust, and we will hold lead generators like LendEDU accountable for their false promises of objectivity.”
The proposed settlement prohibits the company and its operators from making the same types of misrepresentations cited in the FTC’s complaint. It also requires the company to pay $350,000.
Commissioner Rebecca K. Slaughter issued a statement on the matter. “In this matter, our dedicated staff in the Division of Financial Practices assembled a powerful complaint that underscores how pay-to-play greed and deception have corrupted the ratings and rankings on which consumers increasingly rely to make informed purchasing choices online,” she stated. Commissioner Slaughter further stated that “…[A] cutting edge market practice … is becoming increasingly common online: purportedly neutral rankings and recommendations that actually reflect paid product placement.”
According to FTC defense lawyer Richard Newman, it is a violation of Section 5 of the FTC Act to fail to disclose adequately to consumers payment in exchange for certain website content, including rate tables, rankings and star ratings. Companies that engage in pay-to-play rankings and ratings are exposed to allegations that such conduct robs consumers of vital information, pollutes the online marketplaces and violates the law.
The proposed consent agreement package was subsequently placed in the Federal Register for public comment.
On May 26, 2020, after receiving two comments on the settlement, the FTC announced that it has decided to make the proposed consent order final.
The FTC is expected to continue its assault on paid-for rankings, ratings and review websites. The FTC Endorsement Guides provide that if there is a “material connection” between an endorser and an advertiser – in other words, a connection that might affect the weight or credibility that consumers give the endorsement – that connection should be “clearly and conspicuously” disclosed, unless it is already clear from the context of the communication. A material connection could be a business or family relationship, monetary payment, or the gift of a free product. Importantly, the Endorsement Guides apply to both marketers and endorsers.
Attorneys that focus on FTC practice are also seeing an uptick in the agency utilizing civil investigative demands (CIDs) to investigate factors behind rankings and placements, including underlying algorithms.
This subject matter should be of interest to digital marketers and lead generators involved in paid-for ratings, rankings, comparisons and/or review campaigns. If you or your company are interested in implementing preventative compliance measures, or have received an FTC subpoena, a civil investigative demand (CID), an access letter or have been named as a defendant in an enforcement lawsuit, contact experienced FTC practice counsel.
Richard B. Newman is a leading advertising practices attorney at Hinch Newman LLP. Follow him on National Law Review @ FTC Defense Lawyer and on Twitter @ FTC Defense Lawyer.
Informational purposes only. Not legal advice. May be considered attorney advertising.
