This is the last in a series of articles on FTC regulatory trends.
The Federal Trade Commission’s (FTC) newly appointed Chairwoman Edith Ramirez just issued the agency’s Annual Highlights Report. These highlights provide some useful insight into the FTC’s key enforcement priorities and trends thus making it a fitting topic for this last article in the series on regulatory trends.
At the top of the list is the FTC’s record breaking $ 741.5 million dollars in redress and disgorgement and $63.6 million dollars in civil penalties that the commission has ordered this year. While these numbers alone are staggering, they are even more alarming when compared to last year’s figures of $223.7 million dollars in disgorgement and redress and $ 9.75 million dollars in civil penalties. For those who follow FTC activity, these numbers should come as no shock. But for the marketing community, this is indeed a troubling development. There is no doubt that one of the most significant trends at the FTC in recent years has been a dramatic increase in the magnitude of monetary relief being ordered and the FTC’s insistence on full restitution even in cases involving only unsubstantiated ad claims and no consumer fraud. While at one time, advertisers who failed to substantiate product claims could get by simply with a consent decree requiring that they not engage in the same conduct in the future, those days are long gone. A knock on the door from the FTC will no longer result in slap on the wrist but will more likely result in a very stringent consent order with broad injunctive provisions and payment of as much money as the company can bear to pay. Seven-figure settlement and judgments are the new norm.
Two cases in point this year—Sketchers, which resulted in a $40 million consumer redress settlement and Reebok, which resulted in a $25 million settlement—illustrate the point. Advertisers need to be meticulous these days about claim substantiation and FTC compliance or the penalties will be severe—and this is not a trend we expect to change under the new administration.
The FTC’s list of top consumer complaint categories also provides useful guidance into where the FTC is likely to continue focusing its enforcement efforts. Identity theft represents the largest category of complaints at 18 percent and is certainly likely to fuel the FTC’s already aggressive privacy agenda. Other top complaint categories include debt collection (10 percent), banks and lenders (6 percent), prizes and sweepstakes (5 percent), and mobile and internet marketing (4 percent each). Not surprisingly, these complaint categories closely track the categories of initiatives and achievements that the FTC has elected to highlight in its report and it is these categories that likely provide the strongest indicator of where FTC enforcement action is likely to be focused in the coming months. These categories are as follows:
1. Protecting Consumer Privacy: The FTC in this report refers to itself as the top cop on the privacy beat, and there is no doubt that privacy and data security will continue to be a top priority for the FTC. Despite the absence of any general federal privacy legislation other than Children’s Online Privacy Protection Act (COPPA) and those impacting regulated industries such as Gramm Leach Bliely and Health Insurance Portability and Accountability Act (HIPPA), privacy and data security cases continue to dominate the FTC’s enforcement agenda. In its Report, the FTC highlights security breach cases brought against Wyndham and others, and of course the record breaking 22.5 million dollar case brought against Google for allegedly misrepresenting that it would not place tracking cookies or serve targeted ads to users of Apple’s Safari browser. Marketers should note that many of the privacy and data security cases brought this year resulted from allegations that the marketers failed to honor their privacy and data security promises. The lesson to marketers from these cases is clear—don’t overstate your security capabilities and make sure your actual data collection and use practices are properly aligned with your privacy promises.
2. Protecting Consumers in a Recovering Economy: The FTC is particularly sensitive to any advertising or marketing practices that prey on financially vulnerable consumers. The FTC has been aggressively targeting misleading mortgage ads, pay day lenders, debt collection practices, work at home and other programs that promise wealth or good fortune to consumers. Marketers of any product or service that is likely to appeal to consumers in financial distress can expect a high level of scrutiny.
3. Trending In Technology: The FTC report highlights Do Not Call enforcement and Robocalls as major components of the FTC’s enforcement agenda. The FTC has been aggressively pursuing enforcement against companies who violate FTC Do Not Call requirements and recent more stringent rules regarding Robocalls will provide the FTC with even more ammunition and targets for enforcement. In fact, the FTC’s determination to stop Robocalls is so strong that it recently conducted a contest in which a prize of $50,000 was awarded to the participant who developed the most innovative and effective solution to combat Robocalls.
4. Challenging Deceptive Advertising and Marketing: This past year saw numerous high profile enforcement actions brought by the FTC against companies that allegedly made false and misleading claims about the benefits and performance of their products. Key targets included Pom Wonderful, Your Baby Can Read, Sketchers and John Beck’s “Get Rich Quick” scheme. As noted above, what is most significant about these cases is the FTC’s insistence on consumer redress or disgorgement even where the products were shown to have an underlying benefit or value. Coupled with the FTC’s increasingly aggressive enforcement posture have been a number of efforts by the FTC to increase the substantiation standards. Earlier this year, the FTC brought a number of cases against 14 manufacturers of window replacements alleging that “up to claims” regarding energy savings required a showing that all or substantially all consumers would enjoy the maximum advertised savings. This is a marked departure from the long standing NAD precedent which required that “up to” savings claims be supported by a showing that ten percent of consumers would achieve the maximum savings.
This year also witnessed the epic battle between the FTC and Pom Wonderful in which Pom attempted to challenge the FTC’s insistence that health and safety claims be supported by two double blind placebo controlled studies. As reported in the first article in this series, while Pom was successful in Round One, the Commission upon appeal determined that at least one double blind placebo controlled study was required to support the specific types of health claims being made by Pom. This issue will undoubtedly continue to be battled in the courts for years to come. Meanwhile, regardless of what is happening in the courts, marketers of products with health or safety claims can expect the FTC to be looking for clinical studies to support those claims.
5. Monitoring Environmental Claims: This year saw the passage of the FTC’s long awaited Green Guides and a number of enforcement actions based on environmental claims. For example, the cases brought against the window manufacturers for making unsubstantiated energy savings claims were part of an environmental initiative by the FTC and the FTC has also challenged claims by paint manufacturers that their paints had not volatile organic compounds. With the Green Guides firmly in place and business education ongoing, future enforcement actions in this area are likely.
6. Marketing to Children: With kids increasingly using the internet and mobile devices, the FTC’s focus on technology has been coupled with increased efforts to protect children from unscrupulous marketing practices. The FTC’s revisions to the COPPA guidelines will create the opportunity for a far greater number of enforcement actions as the FTC has expanded its definition of personally identifiable information and its criteria for determining when sites will be deemed to be directed to kids. These developments in tandem with the FTC’s recently issued report on Mobile Apps directed to Kids will likely fuel increased enforcement action in the coming year.
While marketers continue to find new, exciting and innovative ways to market to consumers across multiple platforms and devices the challenges of regulatory compliance are increasing exponentially. The world of compliance has suddenly become far more complex with industry guidance coming in the form of Consent Orders, Public Workshops, Guidelines and Industry Reports. To truly understand the FTC’s current thinking and how your own company’s marketing practices are likely to fare in the eyes of the FTC it is important to stay abreast of all of these developments as important sources of guidance.