Despite what the “gurus” say, the FTC takes the position that there is no quick or easy path to success. Whether that is true or not, the FTC has sued several companies that purportedly taught consumers how to start a home-based Internet business—often advertising the potential to earn vast sums of money—and last week the FTC settled with a company allegedly helping newly formed Internet businesses market more effectively. However, despite ceasing new sales in 2017, it inevitably drew the FTC’s attention with a pitch that allegedly contained unsubstantiated earnings claims, high-pressure sales tactics, and elusive disclaimers, coupled with high chargeback rates and “gag clauses.”

On May 12, 2020, the FTC filed a Complaint for Permanent Injunction in the United States District Court for the Western District of Washington against Position Gurus, LLC for allegedly violating the FTC Act, the Telemarketing Sales Rule, and Consumer Review Fairness Act (“CRFA”). According to the Complaint, Defendants targeted consumers who had recently purchased purported business opportunities or had recently opened an account at Shopify or Volusian, both of which create, among other things, custom webpages that enable consumers to sell their products online. According to the FTC, after purchasing leads, Defendants called consumers, often misrepresenting an affiliation with the company that sold the original business opportunity, and offered products that would “substantially increase the visibility of and drive customer traffic to consumers’ e-commerce websites.” However, according to the FTC, this statement was false, and consumers rarely recouped the purchase costs of the marketing services.

As we have blogged about before, disclaimers may not eliminate the risk that the FTC finds a claim deceptive, and, in order to be effective, the disclaimers must be prominent. Here, the FTC found that the Defendants failed to highlight, or bring to consumers’ attention, disclaimers that qualified statements made during the sales calls. In addition, the FTC alleged that the Defendants’ form contracts violated the CRFA. Under the CRFA, form contracts must not contain “gag clauses” that prohibit consumers from writing or posting negative reviews. Defendants’ form contracts contained non-disparagement provisions that prohibited consumers from making any statement that “embarrass[es], criticize[s], or damage[s]” Defendants, and failure to abide resulted in liquidated damages. Moreover, the FTC frequently points to high chargeback rates as evidence of deceptive marketing. In this case, despite “vigorously defend[ing] chargebacks,” Defendants had a 38 percent chargeback rate.

Whether a business provides consumers with the ability to start an Internet-based business, or merely aids an established one, earnings claims must be substantiated, disclaimers must be prominent, and the number of chargebacks must reasonable. To do otherwise, can put you in a bad position.