FTC Cracking Down on Testimonials: What Affiliates Need to Know
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FTC Cracking Down on Testimonials: What Affiliates Need to Know

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The Federal Trade Commission (“FTC”) continues its assault on Internet-based false and deceptive advertising, including enforcement of recently published guidelines concerning the use of endorsements and testimonials.  On May 31, 2011, the FTC announced its first settlement with an individual consumer charged with deceptive representations made in relation to a product or service testimonial.

The matter pertains to a “pitchman” defrauding consumers via a money-making scheme by misrepresenting the earning potential of a so-called “wealth building” program called  “Winning in the Cash Flow Business.”  The defendants allegedly misled consumers about how much money they could make using the program and how quickly and easily they could make it. The initial cost of the program ranged between $40 and $160. Consumers “were later encouraged to spend hundreds or thousands of dollars more on additional products or services, such as multi-day seminars, coaching sessions, and promissory note holder lead lists.”

The Complaint was filed in the U.S. District Court for the District of Colorado and alleges that the defendants’ actions violated FTC Act §5, the Telemarketing Sales Rule (“TSR”), and the Colorado Consumer Protection Act.  In 2002, one of the defendants used a thirty-minute infomercial as the primary method to advertise the program.  It was broadcast nationwide.  The FTC also states that the program was marketed online, as well as through direct mail.  The infomercial claimed that consumers could earn substantial income successfully by finding, brokering, and earning commissions on seller-financed promissory notes.

The alleged false and misleading claims included “testimonials” purportedly from consumers claiming to have made “$1.2 million in 30 days,” “$79,000 in a few hours,” and “$262,216 part time.” The FTC and the state allege that this was far from the “typical consumer experience.”  One consumer in particular who provided a testimonial in an infomercial reached a settlement with the Agency amid charges that she falsely claimed earning $79,975.01 from one promissory note transaction using defendants’ program and that her total earnings were over $134,000.  The complaint alleges that the consumer made this statement, even though she earned $50,000 less than what she claimed.  She agreed to a consent judgment prohibiting her from making several types of misrepresentations in the future, and has agreed to cooperate with law enforcers in their case against the remaining defendants.

The Colorado Attorney General joined the FTC in prosecuting this case, both seeking to preclude the individual and corporate entities they control from continuing to make the allegedly misleading claims, as well as consumer redress.  The federal and state plaintiffs charged that consumer testimonials in the defendants’ advertising are inaccurate and do not reflect the results that customers are “likely to achieve” if they buy the program.  Instead, some of the testimonials reflect earnings claims that were total earnings figures accumulated over several years, rather than in one year.  Since the defendants made similar misrepresentations to consumers during sales calls, they also were charged with violating the FTC’s TSR.

What Affiliates Need to Know
With the recent increased state and federal regulatory scrutiny, everyone who markets a product or service online should be on notice – when someone is selling a program designed to help people make money they have to accurately describe how much consumers can expect to make and be truthful about how quickly they will be able to do so.

In fact, the FTC has recently announced that an update to federal advertising rules pertaining to Internet marketing is imminent.

The original Dot Com Disclosures were issued more than a decade ago and do not take into account technological advancements in the Internet, mobile marketing, and social marketing sectors.  So, while the FTC continues to vigilantly patrol online marketing and advertising practices, it also appears to be keeping an eye on current technological issues.  Regardless of the direction the “revamped” advertising rules may take, one requirement will remain a constant – clear & conspicuous disclosures so that consumers can make fully informed online purchasing decisions. Factors such as the context of the disclosure, its prominence, placement and proximity to the language it limits, are but a few critical considerations that must be mindfully addressed.

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Richard B. Newman is an highly-respected Internet Lawyer and FTC Defense Lawyer at Hinch Newman LLP. He has made a name for himself in the industry having been the lead attorney on several well known cases. He can be contacted at rnewman@hinchnewman.com

“Richard Newman is one of the top, most respected  attorneys for Interactive Advertising and Affiliate Law. He has his finger on the pulse of the industry.”- Pace Lattin, InsideOV

 

Written by Richard B. Newman

Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on Internet law, online marketing compliance, regulatory defense and digital media matters. His practice includes complex commercial litigation defense, SPAM law compliance and litigation defense, intellectual property transactional and litigation matters, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.

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