Mar 11 -- The Federal Trade Commission (“FTC” or “Commission”) is considering proposing a rule to address deceptive or unfair marketing using earnings claims. The Commission is soliciting written comment, data, and arguments concerning the need for such a rulemaking. In addition, the Commission solicits comment on how the Commission can ensure the broadest participation by affected interests in the rulemaking process. Comments must be received on or before May 10, 2022.
Misleading earnings claims have long been a significant problem for consumers. The use of such claims both deprives consumers of the ability to make informed decisions and unfairly advantages bad actors in the marketplace at the expense of honest businesses. The promise of significant earnings is a powerful inducement to purchase or invest time or money.
The Commission has extensive law enforcement experience challenging misleading earnings claims under section 5 of the FTC Act, 15 U.S.C. 45, resulting in a long line of federal court opinions holding that the use of false, unsubstantiated, or otherwise misleading earnings claims violates Section 5. The Commission has also issued litigated rulings in a number of cases dealing with misleading earnings claims and has repeatedly determined that such claims violate Section 5.
The cases establish, among other things: (a) Earnings claims are material; (b) representations regarding possible earnings are not mere puffery, and will usually imply that such earnings are typical; (c) the representation that an amount or degree of earnings is likely can be implied, including through testimonials from successful participants and examples of hypothetical or past profits; and (d) earnings claims must be substantiated—that is, the maker must have a reasonable basis for the claim before making it.
The well-settled law on deception under section 5 of the FTC Act applies fully to deceptive earnings claims: (a) Liability turns on whether the net impression conveyed by representations—not merely their express terms—is unsubstantiated or otherwise misleading; (b) disclaimers do not bar liability, as they often fail to dispel a misleading impression created by other representations; (c) as a matter of law, good faith or a lack of intent to deceive is not a defense; (d) a company may be liable for bait-and-switch advertising or the use of “misleading door openers,” “even if the truth is subsequently made known;” (e) a principal may be liable for deceptive claims made by its representatives or other agents; and (f) a company may be liable for providing deceptive marketing materials for others to use on its behalf (sometimes called providing “means and instrumentalities”).
Despite the Commission's aggressive enforcement program, deceptive earning claims continue to proliferate in the marketplace. The FTC continues to receive widespread reports from consumers and informants of misleading earnings claims. . . .
The Commission anticipates that a rule prohibiting the use of misleading earnings claims would enhance deterrence and help the Commission move quickly to stop illegal conduct. Such a rule also may further clarify for businesses what constitutes a deceptive earnings claim and what it means to have substantiation for an earnings claim.
In addition, a rule would enable the Commission to seek monetary relief for consumers harmed by deceptive earnings claims, as well as civil penalties against those who make the deceptive claims. . . .
The Commission believes that initiating a rulemaking to address the use of earnings claims could benefit consumers and could provide useful guidance without burdening businesses. The rule would be designed to deter the use of misleading earnings claims, inform market participants of their legal obligations by spelling out prohibitions plainly, and ensure the Commission can seek monetary relief for consumers deceived by misleading earnings claims.
The Commission requests input on whether and how it can most effectively use its authority under section 18 of the FTC Act, 15 U.S.C. 57a, to address certain deceptive or unfair acts or practices involving the use of false, unsubstantiated, or otherwise misleading earnings claims.
Request for Comments: Members of the public are invited to comment on any issues or concerns they believe are relevant or appropriate to the Commission's consideration of potential rulemaking in this area. The Commission requests that commenters also submit any relevant factual data upon which their comments are based. In addition to the issues raised above, the Commission solicits public comment on the [28 sets of] specific questions identified below. These questions are designed to assist the public and should not be construed as a limitation on the issues on which public comment may be submitted. . . .
FR notice: https://www.federalregister.gov/d/2022-04679