Monday, March 30, 2020

LendEDU Settles with FTC over Fraudulent Lead Generation and Services

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David O. Klein
David O. Klein
New media attorney that works on Internet time - because you work on Internet time. If you need that contract today and it is not ready until next week, the deal may fall through. David has his "finger on the pulse" of the industry, allowing his clients to get up to the minute legal advice, without paying for a learning curve.

In response to an administrative complaint filed by the Federal Trade Commission (“FTC”), Shop Tutors d/b/a LendEDU (“LendEDU”) has agreed to enter into a settlement agreement to address allegations that it violated federal marketing law.  Specifically, the FTC alleged that LendEDU violated Section 5 of the FTC Act by misleading prospective customers into believing that its website featured objective rankings of financial products and services, when, in fact, the rankings actually consisted of paid advertising.  On February 3, 2020, FTC Commissioner Rebecca Kelly Slaughter issued a statement in which she expressed concern over an “increasingly common online trend” in which “purportedly neutral rankings and recommendations . . . actually reflect paid product placement.”  

What marketing law issues does the LendEDU settlement address?   

LendEDU’s Alleged Marketing Law Violations

LendEDU is alleged to have violated Section 5 of the FTC Act, which targets “unfair methods of competition in or affecting commerce.”  LendEDU compares financial products and student loans by providing rankings and reviews of products and services featured on its website.  As described by the FTC, LendEDU promoted its website as a resource for consumers in search of financial products, such as loans and insurance.  In numerous instances, LendEDU has described the content on its website as “objective, honest, accurate, and unbiased.” However, the FTC alleged that “this content is not objective and, instead, is based on compensation from the companies.”  

In addition, the complaint alleges that LendEDU touted fake positive reviews on its website.  Specifically, of the 126 reviews posted on the site, the FTC alleged that 90% “were written or made up by LendEDU employees or their family, friends, or other associates. All of those reviews provided five-star ratings for the company.”   According to the FTC, almost all of the reviews praised the site’s features, such as the loan comparison tool, yet only eleven (11) of the 126 reviewers had actually used the site’s features. 

Pursuant to the terms of the settlement, LendEDU will need to:

  • Pay a $350,000 fine; 
  • Refrain from making any misrepresentations in the future, express or implied; and
  • Disclose any compensation that it receives for featuring content on its site.  

FTC’s Related Marketing Law Guidelines

As previously discussed, in recent years the FTC has adapted their Endorsement Guides to apply to websites and social media influencers.   Recently, the FTC provided clarification on their guidelines insofar as they relate to influencer disclosures, specifying that any influencer who endorses a product – and has any relationship with the brand she/he is endorsing (financial, employment, personal, family, etc.) – must clearly and conspicuously disclose that relationship in the subject endorsement posts.  In updating its Endorsement Guides to address influencer content, the FTC has signaled that it will act deliberately, in step with the rapidly-evolving marketing industry. 

How to Ensure that Your Business Complies with Federal and State Marketing Laws

This settlement, together with the Commissioner’s public statement, highlights the FTC’s continued interest in pursuing individuals and businesses that violate Section 5 of the FTC Act.  To ensure compliance, businesses must include clear, conspicuous, simple, and narrowly-tailored disclosure language in all product and service endorsements. In addition, businesses should pay particular attention to the influence that compensation has on any of the content that they feature and liberally provide related disclosures.    

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