On February 17, 2022, the Federal Trade Commission launched a proceeding to challenge bogus money-making claims used to lure consumers, workers and prospective entrepreneurs into risky business ventures that potentially turn into dead-end debt traps.
If finalized, a rule in this area would allow the FTC to recover redress for defrauded consumers, and seek harsh penalties against multilevel marketers, for-profit colleges, “gig economy” platforms, and other bad actors that prey on consumers’ hopes for economic advancement.
“Consumers, workers, and prospective entrepreneurs are being bombarded with so-called money-making opportunities that promise the world but leave them deeply in debt,” said FTC lawyer Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC will use every tool in its toolbox to deter this economic exploitation and compensate people who got conned.”
Whether seeking a new job, thinking of opening a business or participating in other money-making opportunities, or just looking to pursue an education, FTC attorneys are particularly concerned that consumers are being inundated with deceptive claims from businesses about how much money they will or could make.
Recently, FTC lawyers have taken aggressive law enforcement action against coaching or mentoring schemes, multi-level marketing companies, work-from-home, e-commerce, or other business opportunity scams, chain referral schemes, gig companies and employers, job scams, and businesses purporting to offer educational opportunities.
For example, the FTC sued multi-level marketing companies Herbalife and Advocare, alleging they promoted high earnings even though most participants made little or no money. In settlements with the FTC, Herbalife agreed to pay $200 million and Advocare agreed to pay $150 million in refunds to consumers.
The FTC also sued Amazon for allegedly using misleading earnings claims to solicit consumers to deliver packages on its Amazon Flex platform. Despite offering to pay Flex drivers between $18 and $25 per hour and claiming that drivers would “receive 100% of the tips,” Amazon allegedly pocketed over $60 million in tips from over 140,000 drivers. Amazon settled with the FTC, agreeing to turn over the full amount of the wrongly withheld tips for redress to the affected drivers.
Additionally, the FTC sued for-profit school DeVry University and its parent company, alleging that DeVry falsely claimed that its graduates averaged 15 percent higher incomes one year after graduation than graduates of other schools. The FTC lawsuit got significant financial relief for tens of thousands of DeVry students: $49.4 million in partial refunds and $50.6 million in debt relief.
While the Commission has returned hundreds of millions of dollars to consumers injured by such schemes, the recent Supreme Court decision in the AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act.
Thus, the FTC has now taken a first step toward ensuring that consumers targeted by these schemes can be compensated.
In the Advanced Notice of Proposed Rulemaking (ANPR) recently announced, the FTC has provided notice of a new potential rulemaking concerning false, misleading and unsubstantiated earnings claims. If the FTC adopts such a rule, the agency will have an important new tool to return money to consumers injured by deceptive income claims, and to hold bad actors accountable with staggering civil penalties.
n the ANPR, the FTC is seeking comment from the public about a wide variety of issues, including whether earnings claims are prevalent among all or only some industries, how a rule addressing earnings claims should be drafted, the benefits to consumers from such a rule and the costs to businesses, and whether the potential rule should address disclaimers, lifestyle claims, or liability for agents’ claims.
If, after reviewing the public comments in response to the ANPR, the FTC decides to proceed with proposing such a trade regulation rule, its next step would be to issue a notice of proposed rulemaking.
FTC Commissioner Christine S. Wilson issued a concurring statement.
Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP. He represents digital marketers that are subject to FTC CID investigations and enforcement actions.
Informational purposes only. Not legal advice. May be considered attorney advertising.