Kick-Off Time for FTC Rulemaking on Earnings Claims
Last Thursday (February 10), the FTC announced that it “will vote” at its February 17 open meeting to issue an Advance Notice of Proposed Rulemaking (ANPR) on “deceptive earnings claims for business ventures, gig or other work opportunities, or educational, coaching or training offerings.” Here’s our take on what we can glean from this announcement and what we might expect as the rulemaking process moves forward:
- Issuing an ANPR requires a majority vote of the Commission, which is currently comprised of two Democrats and two Republicans. In announcing that it “will vote” to issue the ANPR, the FTC is expressing confidence that it has the votes to do so – i.e., at least one Republican plans to approve the ANPR.
- The announcement references a wide array of earnings claims and makes no mention of the Business Opportunity Rule, which was scheduled for its periodic regulatory review this year. This suggests that the FTC plans to issue a brand new rule regulating earnings claims across the marketplace, in addition to whatever it is planning for the Business Opportunity Rule. We will learn next week whether this is indeed the case.
- The announcement follows last October’s penalty offense notices concerning earnings claims for the gig economy. As we discuss here, the FTC put 1,100 companies offering “money-making opportunities” on notice that it intends to pursue civil penalties of up to $43,792 per violation for misrepresentations as to potential earnings and related claims. While the ANPR and the penalty offense notices may seem redundant, it is more likely a belt-and-suspenders approach, which will provide the FTC some flexibility if its use of its penalty offense authority is successfully challenged or if the rulemaking extends into 2023 or beyond.
- A key purpose of this rulemaking is to enable the FTC to obtain monetary relief for law violations involving earnings claims following the Supreme Court’s AMG While AMG held that the FTC cannot obtain monetary relief under Section 13(b), the ruling does not affect the FTC’s ability to obtain such relief when it is enforcing a rule.
- This is just the first step in what will be a very long process. As an Advanced Notice of Proposed Rulemaking, the announcement will not propose specific regulations at this time, but instead seek information and input on areas for potential regulation. Also, the FTC is proceeding here under its so-called “Magnuson-Moss” rulemaking authority which, as we describe here, requires many more steps and hurdles than a typical rulemaking under the Administrative Procedures Act (APA). Among other things, the FTC must conduct hearings and allow interested parties to present views and cross examine each other. It also must develop a record showing that each practice it seeks to regulate is unfair or deceptive and prevalent.” Even the standard for court review is more demanding than under the APA.
- As we move forward, there will be many opportunities for companies to ensure that their voices are heard. Effective advocacy will require familiarity with the Magnuson-Moss process and its many opportunities for providing input, as well as a thorough understanding of the deception and unfairness standards. Above all, advocacy will be most persuasive if supported by arguments based on facts and evidence, rather than generalities or exaggeration.
- Expect the FTC to stake out an aggressive position regarding disclosure of atypical earnings, asserting that nearly all earnings that exceed “supplemental income” are extraordinary and incapable of being adequately qualified with an appropriate disclosure to convey a non-misleading net impression. This position would contradict the FTC Endorsement & Testimonial Guides which state: "If the advertiser does not have substantiation that the endorser’s experience is representative of what consumers will generally achieve, the ad should clearly and conspicuously disclose the generally expected performance in the depicted circumstances, and the advertiser must possess and rely on adequate substantiation for that representation.” The rulemaking also is likely to address important issues such as how to substantiate earnings claims, prohibited lifestyle claims, and requirements around generally expected results disclosures. Consumer understanding will be a critical issue throughout the rulemaking process, with extrinsic evidence likely to play a significant role.
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