Navigating FTC Settlements: Lessons Learned for Advertising Law Compliance
In a recent case, the Federal Trade Commission (FTC) reached a settlement with a group of companies, all owned by one individual, over discrepancies in the minutes offered with their calling cards. The complaint, filed in the U.S. District Court for the District of New Jersey, alleged that consumers did not receive the promised amount of minutes per card, with the cards delivering only 45% of the advertised minutes due to undisclosed extra fees.
The FTC, after extensive testing, reported that 139 out of 141 tested cards failed to deliver the advertised minutes, citing hidden fees such as “hang-up” fees and weekly charges. The fine print containing these fees, although present on the cards, was challenging for consumers to read.
All of this is defined as deceptive marketing of the products (calling cards) in violation of the Federal Trade Commission Act, 15 U.S.C. §41.
Instead of fighting the FTC allegations, the New Jersey companies decided to settle. They agreed to a Consent Order with the FTC, which is an agreement with the FTC in which a company will change its behavior in some manner in order to conform to FTC regulations.
The FTC deemed this practice as deceptive marketing, violating the Federal Trade Commission Act (15 U.S.C. §41). Instead of contesting the allegations, the New Jersey companies opted to settle. The terms of the Consent Order with the FTC included a $2.32 million fine, a prohibition on misrepresenting calling card minutes, a requirement to transparently disclose all fees, and ongoing monitoring of advertising materials and card performance.
FTC Fines: A Costly Lesson:
The settlement’s financial impact is substantial, with a $2.32 million fine—a significant burden for smaller businesses. To avoid such consequences, companies must prioritize compliance with FTC regulations, ensuring transparent communication of product details and adherence to advertising standards.
FTC Settlement Details and Further Reading:
For more details on this FTC settlement, visit FTC’s website.
Guidance for Businesses:
While the specific steps to avoid FTC fines depend on your unique business context, a fundamental principle is to avoid deceptive practices. Substantiate claims made in advertisements through expert testimony, evidence, tests, and studies. Carefully review your ads, preferably with legal expertise in advertising law, to ensure compliance and the ability to substantiate all claims.
How can my company avoid these FTC fines?
Ultimately, this answer depends upon your business. To say “avoid being deceptive” is simplistic and yet exactly what every business must do. Businesses make claims in advertising. Those claims must have substantiation. To substantiate (i.e., back up) the claims in your advertisements means utilizing expert testimony, extrinsic evidence, tests, studies, etc. in advertising. This is so whether the type of claim you’re making, or plan to make, is express or implied. Yes, you should be aware of what your ad may imply. So review your ads carefully–preferably with a lawyer with expertise in this area–and be sure that you can back up your ad claims.
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