FTC Reviews Rule on Earnings Claims

Does your business make claims that consumers can make money?

The FTC recently published an Advance Notice of Proposed Rulemaking to address claimed deceptive and unfair “earnings claims.”[1] While the FTC is still accepting and reviewing comments, it listed numerous recent cases in which it took issue with so-called earnings claims—which directly or indirectly promise that consumers can expect achieving a certain amount of income—in various different circumstances.

The FTC clarified its view on earnings claims under Section 5 of the FTC Act, which covers deceptive acts and practices, as follows:

• Liability turns on whether the net impression conveyed by representations—not merely their express terms—is unsubstantiated or otherwise misleading.
• Disclaimers do not bar liability, as they often fail to dispel a misleading impression created by other representations.
• Good faith or a lack of intent to deceive is not a defense.
• 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.
• A principal (individual) may be liable for deceptive claims made by its representatives or other agents.
• A company may be liable for providing deceptive marketing materials for others to use on its behalf (sometimes called providing “means and instrumentalities”).

While the FTC has relied on various other rules, including ROSCA (negative option and subscription billing), the Business Opportunity Rule, the Telemarketing Sales Rule, the Consumer Review Fairness Act, and the Franchise Rule, as examples, the FTC is now considering adopting an additional earnings claim rule to add requirements and set standards for companies making any earnings claims.

Given the potential monetary and injunctive relief consequences, it is key for businesses—especially those marketing or advertising using earnings claims, including owner and client testimonials—to seek compliance advice at the outset and, of course, if an action arises. Kronenberger Rosenfeld regularly advises clients with FTC compliance, investigations, and lawsuits.

[1]https://www.ftc.gov/news-events/blogs/business-blog/2022/02/deceptive-earnings-claims-would-new-rule-help-protect; https://www.ftc.gov/policy/federal-register-notices/16-cfr-part-462-trade-regulation-rule-use-earnings-claims