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Thirteen months after proposing sweeping changes to its Endorsements and Testimonial Guides (Guides), the Federal Trade Commission (FTC) has finalized its revised guidelines and released an updated set of FAQs to help guide the industry with respect to the proper use of customer reviews, influencer marketing, and traditional endorsements and testimonials. 

The new Guides are over 80 pages. We will dive into specific sections in greater depth in the coming weeks, but here are some highlights:

Continue Reading FTC Finalizes Updated Endorsement and Testimonial Guides

In a bulletin published last week, the Consumer Financial Protection Bureau (CFPB) warned banks and other financial companies against impeding honest reviews of consumer financial products and services. Although it does not cite a specific study for financial products and services, the CFPB’s bulletin describes how online reviews impact other industries across the economy.

We have been covering the Federal Trade Commission’s (FTC) efforts to combat what it sees as rampant customer review fraud, and now the CFPB is preemptively addressing its growing concern with how online reviews will play into customers’ decision-making when they are choosing from among several financial providers.

At first glance, the CFPB’s foray into the deceptive use of online reviews might appear to come out of left field, but it reflects a more general theme of following the FTC’s playbook and scrutinizing financial service providers more holistically, including their marketing practices. The bulletin itself cites to several recent FTC settlements in this area as persuasive precedent for application of the CFPB’s UDAAP authority.

Continue Reading The CFPB Warns Companies Against Impeding or Manipulating Honest Customer Reviews

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.

About a month ago, we blogged about how the FTC brought its first-ever cases under the Consumer Review Fairness Act (CRFA) since the statute went into effect in 2017. Well, it looks like the FTC was just getting started, as it announced this week that it has issued administrative complaints and proposed orders against two more companies for allegedly violating the CRFA.

To briefly recap, the CRFA prohibits businesses from including “gag clauses” in their form contracts that bar consumers from writing or posting negative reviews. According to the FTC’s administrative complaint against Shore to Please Vacations LLC, the respondents did just that by including a disclaimer in its form contract for online vacation house rentals that stated “you agree not to defame or leave negative reviews (…as well as any review less than a ‘5 star’ or ‘absolute best’ rating) about this property and/or business,” and specified that “breaching this clause…will immediately result in minimum liquidated damages of $25,000.” Similarly, the FTC alleged that Staffordshire Property Management, LLC used form contracts that prohibited rental applicants from disparaging Staffordshire or publicizing any opinions or communications related to Staffordshire, the rental application, or the application process. Under the FTC’s proposed consent orders, both companies are prohibited from using non-disparagement clauses in standardized customer contracts, and they must notify affected consumers of their right to post honest reviews. In addition, Shore to Please Vacations is required to dismiss with prejudice a claim that it filed against a renter for violating its non-disparagement clause.

If this past month is any indication, this will not be the last we hear of CRFA-related complaints. If you haven’t already, check all of your form contracts to make sure they don’t contain gag clauses; they’re often baked into boilerplate language, so it’s easy to overlook or forget that they exist. Receiving negative reviews may be bad for business, but getting sued by the FTC is probably worse—so we recommend that you play fair and comply with the Consumer Review Fairness Act.

For the first time since the Consumer Review Fairness Act (CRFA) went into effect in March of 2017, the FTC has brought three separate actions enforcing the CRFA to halt the use of “gag clauses” – i.e., contract provisions that prohibit consumers from writing or posting negative reviews. The CRFA bans these types of non-disparagement clauses in consumer form contracts when the clauses are imposed on individuals without giving them a meaningful opportunity to negotiate. According to the FTC, an HVAC provider, a flooring company, and a horseback riding operation all violated this requirement. For example, the flooring company included language in its form contract that stated “By signing this purchase order you are agreeing under penalty of civil suit…not to publicly disparage or defame [the company] in any way or through any medium.” All three businesses have entered into settlement orders with the FTC, under which they are banned from using gag clauses in form contracts, and they must notify consumers who already signed their form contracts that the gag clauses are void and that the consumers have a right to publish their honest reviews, even if negative.

There are two other interesting facts to note regarding these cases. One is that the FTC did not allege in its complaints that the businesses knowingly violated the CRFA. In other words, the existence of the gag clause alone was enough for the FTC to take action, without having to establish a knowledge element. And second, in all three cases, the contracts specified that violation of the gag clause would have resulted in a civil lawsuit and/or damages. For instance, the horseback riding company’s form contract stated that its customers would be charged a minimum of $5,000 in damages if any disparaging statements were made. While these penalties may have increased the risk of regulatory scrutiny, it’s worth pointing out that they’re not necessary for the FTC to bring suit under the CRFA; the use of a non-disparagement clause that simply bars or restricts someone from writing or posting a review, even without the threat of a penalty, is enough to violate the Act. So if you’re entering into form contracts with consumers, don’t hamper their ability to review your products, services or conduct – and if you’re unhappy about this, well, you could always write a negative review about the CRFA.