Recently, the FTC settled with several companies that one person owned over the amount of minutes received in purchasing calling cards. The FTC charged in a complaint filed in the U.S. District Court for the District of New Jersey that consumers who purchased the calling cards did not receive the promised amount of minutes per card. The FTC alleged that the cards delivered an average of only 45% of the advertised minutes due to extra fees. Those extra fees could be found on the cards, but they were in fine print that was difficult to read.
The FTC claimed that the agency tested the cards extensively, and that 139 of 141 cards failed to deliver the number of minutes advertised on the point-of-sale posters. The FTC also alleged that the cards had hidden fees, such as “hang-up” fees and weekly fees.
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. These changes include:
- Paying a fine of $2.32 million;
- Being barred from misrepresenting the amount of time consumers will receive from prepaid calling cards;
- Being required to clearly and prominently disclose any fees or charges; and
- Needing to routinely monitor the advertising materials displayed by their distributors and the number of minutes of talk time their prepaid calling cards deliver to consumers.
Obviously, the difficult part of this settlement is the amount of the fine. $2.32 million is a lot for a small company to pay.
More can be read on the FTC’s website at: http://www.ftc.gov/opa/2012/02/millennium.shtm
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.