Deceptive or Unfair Earnings Claims, 13951-13958 [2022-04679]
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13951
Proposed Rules
Federal Register
Vol. 87, No. 48
Friday, March 11, 2022
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
FEDERAL TRADE COMMISSION
16 CFR Part 462
Deceptive or Unfair Earnings Claims
Federal Trade Commission.
Advance notice of proposed
rulemaking; request for public
comment.
AGENCY:
ACTION:
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I. Background
The Federal Trade
Commission (‘‘FTC’’ or ‘‘Commission’’)
is considering proposing a rule to
address deceptive or unfair marketing
using earnings claims. The Commission
is soliciting written comment, data, and
arguments concerning the need for such
a rulemaking. In addition, the
Commission solicits comment on how
the Commission can ensure the broadest
participation by affected interests in the
rulemaking process.
DATES: Comments must be received on
or before May 10, 2022.
ADDRESSES: Interested parties may file a
comment online or on paper by
following the instructions in the
Comment Submissions part of the
SUPPLEMENTARY INFORMATION section
below. Write ‘‘Earnings Claims ANPR,
R111003’’ on your comment, and file
your comment online at https://
www.regulations.gov. If you prefer to
file your comment on paper, mail your
comment to the following address:
Federal Trade Commission, Office of the
Secretary, 600 Pennsylvania Avenue
NW, Suite CC–5610 (Annex B),
Washington, DC 20580, or deliver your
comment to the following address:
Federal Trade Commission, Office of the
Secretary, Constitution Center, 400 7th
Street SW, 5th Floor, Suite 5610 (Annex
B), Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT:
Melissa Dickey (202–326–2662),
mdickey@ftc.gov, or Andrew Hudson
(202–326–2213), ahudson@ftc.gov,
Division of Marketing Practices, Bureau
of Consumer Protection, Federal Trade
Commission, Mailstop CC–5201, 600
Pennsylvania Avenue NW, Washington,
DC 20580.
SUMMARY:
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The
Commission is publishing this notice
pursuant to section 18 of the Federal
Trade Commission Act (FTC Act), 15
U.S.C. 57a, and the provisions of part 1,
subpart B of the Commission’s Rules of
Practice, 16 CFR 1.7 through 1.20. The
FTC Act authorizes the Commission to
promulgate, modify, and repeal trade
regulation rules that define with
specificity acts or practices that are
unfair or deceptive in or affecting
commerce within the meaning of
section 5(a)(1) of the FTC Act, 15 U.S.C.
45(a)(1).
SUPPLEMENTARY INFORMATION:
Misleading earnings claims have long
been a significant problem for
consumers.1 The use of such claims
both deprives consumers of the ability
to make informed decisions and unfairly
advantages bad actors in the
marketplace at the expense of honest
businesses. The promise of significant
earnings is a powerful inducement to
purchase or invest time or money.
The Commission has extensive law
enforcement experience challenging
misleading earnings claims under
section 5 of the FTC Act, 15 U.S.C. 45,2
resulting in a long line of federal court
opinions holding that the use of false,
unsubstantiated, or otherwise
misleading earnings claims violates
Section 5.3 The Commission has also
1 As discussed further below, consumers
encounter such claims in many contexts, including
in seeking work, business and other money-making
opportunities, education, and more.
2 See, e.g., Press Release, Federal Trade
Commission, Statement on the FTC’s ‘‘Operation
Income Illusion’’ sweep (2020), https://www.ftc.gov/
news-events/press-releases/2020/12/scammersleverage-pandemic-fears-ftc-law-enforcementpartners; Press Release, Federal Trade Commission,
Statement on the FTC’s ‘‘Operation Lost
Opportunity Sweep’’ (2012), https://www.ftc.gov/
news-events/press-releases/2012/11/ftc-expandsfight-against-deceptive-business-opportunityschemes; Press Release, Federal Trade Commission,
Statement on the FTC’s ‘‘Operation Bottom Dollar’’
enforcement sweep (2010), https://www.ftc.gov/
news-events/press-releases/2010/02/ftc-cracksdown-con-artists-who-target-jobless-americans;
Press Release, Federal Trade Commission,
Statement on the FTC’s ‘‘Operation Short Change’’
enforcement sweep (2009), https://www.ftc.gov/
news-events/press-releases/2009/07/ftc-cracksdown-scammers-trying-take-advantage-economicdownturn; Press Release, Federal Trade
Commission, Statement on the FTC’s ‘‘Biz Opp
Flop’’ sweep (2005), https://www.ftc.gov/newsevents/press-releases/2005/02/criminal-and-civilenforcement-agencies-launch-major-assault.
3 See, e.g., FTC v. John Beck Amazing Profits, 865
F. Supp. 2d 1052 (C.D. Cal. 2012) (summary
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issued litigated rulings in a number of
cases dealing with misleading earnings
claims and has repeatedly determined
that such claims violate Section 5.4
The cases establish, among other
things: (a) Earnings claims are
material; 5 (b) representations regarding
possible earnings are not mere puffery,6
and will usually imply that such
earnings are typical; 7 (c) the
representation that an amount or degree
of earnings is likely can be implied,
including through testimonials from
successful participants and examples of
judgment); FTC v. Grant Connect, LLC, 827 F. Supp.
2d 1199 (D. Nev. 2011) (summary judgment); FTC
v. Holiday Enterprises, No. 1:06–cv–2939, 2008 WL
953358 (N.D. Ga. Feb. 5, 2008) (summary
judgment); FTC v. Stefanchik, No. 04–cv–1852,
2007 WL 1058579 (W.D. Wash. Apr. 3, 2007)
(summary judgment); FTC v. Transnet Wireless
Corp., 506 F. Supp. 2d 1247 (S.D. Fla. 2007)
(summary judgment); FTC v. Tashman, 318 F.3d
1273 (11th Cir. 2003) (vacating judgment and
finding defendants liable on appeal); FTC v.
Medicor LLC, 217 F. Supp. 2d 1048 (C.D. Cal. 2002)
(summary judgment); FTC v. Five-Star Auto Club,
Inc., 97 F. Supp. 2d 502 (S.D.N.Y. 2000) (final
judgment after trial); FTC v. Minuteman Press, Inc.,
53 F. Supp. 2d 248 (E.D.N.Y. 1998) (judgment on
liability after trial); FTC v. Wolf, No. 94–cv–8119,
1996 WL 812940 (S.D. Fla. Jan. 31, 1996) (summary
judgment); FTC v. Nat’l Bus. Consultants, Inc., No.
89–cv–1740, 1990 WL 32967 (E.D. La. Mar. 20,
1990) (judgment after trial); FTC v. U.S. Oil and Gas
Corp., No. 83–cv–1702, 1987 U.S. Dist. LEXIS
16137 (S.D. Fl. 1987) (summary judgment); FTC v.
Kitco, 612 F. Supp. 1282 (D. Minn. 1985) (final
judgment after trial).
4 See Notice of Penalty Offense Authority
Concerning Money-Making Opportunities, available
at https://www.ftc.gov/MMO-notice.
5 John Beck Amazing Profits, 865 F. Supp. 2d at
1067–76 (claims of quick and easy substantial
income were material); see also, e.g., FTC v.
Noland, No. 2:20–cv–0047, 2020 WL 954958, *12–
14 (D. Ariz. Feb. 27, 2020); FTC v. World Patent
Mktg., No. 17–cv–20848, 2017 WL 3508639, *11–12
(S.D. Fla. Aug. 16, 2017); FTC v. Vemma Nutrition
Co., No. 15–cv–01578, 2015 WL 11118111, *5 (D.
Ariz. Sept. 18, 2015); Holiday Enterprises, No. 1:06–
cv–2939, 2008 WL 953358, *6–7; FTC v. Med.
Billers Network, Inc., 543 F. Supp. 2d 283, 306–08
(S.D.N.Y. 2008).
6 Grant Connect, 827 F. Supp. 2d at 1225–26
(rejecting puffery defense and finding claims that
‘‘[r]iches range from a few hundred dollars a month
to $50,000 or more a year!’’ were deceptive),
affirmed in relevant part at 763 F.3d 1094 (9th Cir.
2014); see also, e.g., FTC v. Febre, No. 94–cv–3625,
1996 WL 396117, *2 (N.D. Ill. Jul. 3, 1996); Noland,
No. 20–cv–00047, 2020 WL 954958, *12–13; World
Patent, No. 17–cv–20848, 2017 WL 3508639, *12.
7 Five-Star Auto Club, 97 F. Supp. 2d at 528 (‘‘[I]t
would have been reasonable for consumers to have
assumed that the promised rewards were achieved
by the typical [participant.]’’); see also, e.g.,
Tashman, 318 F.3d at 1276; Febre, No. 94–cv–3625,
1996 WL 396117, *2; National Dynamics Corp., 82
FTC 488, 512, 565 (1973) as modified at 85 FTC
1052 (1975).
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hypothetical or past profits; 8 and (d)
earnings claims must be substantiated—
that is, the maker must have a
reasonable basis for the claim before
making it.9 The well-settled law on
deception under section 5 of the FTC
Act applies fully to deceptive earnings
claims: (a) Liability turns on whether
the net impression conveyed by
representations—not merely their
express terms—is unsubstantiated or
otherwise misleading; 10 (b) disclaimers
do not bar liability, as they often fail to
dispel a misleading impression created
by other representations; 11 (c) as a
matter of law, good faith or a lack of
intent to deceive is not a defense; 12 (d)
a company may be liable for bait-andswitch advertising or the use of
‘‘misleading door openers,’’ ‘‘even if the
truth is subsequently made known;’’ 13
(e) a principal may be liable for
deceptive claims made by its
8 John Beck Amazing Profits, 865 F. Supp. 2d at
1072 (ads featuring testimonials created impression
that ‘‘a typical consumer can easily and quickly
earn thousands of dollars per week’’); see also, e.g.,
World Patent, No. 17–cv–20848, 2017 WL 3508639,
*12; Macmillan, Inc., 96 FTC 208, 301 (1980);
National Dynamics, 82 FTC at 511–13, 564 and as
modified at 85 FTC at 1057; Universal Credit
Acceptance Corp., 82 FTC 570, 669, 682–83 (1973);
Von Schrader Mfg., 33 FTC 58, 65 (1941).
9 Grant Connect, 827 F. Supp. 2d at 1214, 1226
(‘‘Examples of deceptive conduct violative of the
Act include unsubstantiated claims that consumers
can make a lot of money using the defendant’s
product . . . .’’); see also, e.g., FTC v. Digital
Altitude, LLC, No. 2:18–cv–0729, 2018 WL 1942392,
*7–10 (C.D. Cal. Mar. 9, 2018); John Beck Amazing
Profits, 865 F. Supp. 2d at 1067, 1071–72; Holiday
Enterprises, No. 1:06–cv–2939, 2008 WL 953358,
*6–7; Von Schrader, 33 FTC at 64.
10 Vemma, No. 2:15–cv–01578, 2015 WL
11118111, *6 (in determining whether marketing
made deceptive income claims, ‘‘[t]he ‘commonsense net impression’ of representations controls’’);
see also, e.g., World Patent, No. 17–cv–20848, 2017
WL 3508639, *11–12; John Beck Amazing Profits,
865 F. Supp. 2d at 1073; Med. Billers Network, 543
F. Supp. 2d at 306–07; Tashman, 318 F.3d at 1276;
Febre, No. 94–cv–3625, 1996 WL 396117, *4.
11 World Patent, No. 17–cv–20848, 2017 WL
3508639, *13–14 (rejecting disclaimer defense as
they ‘‘failed to change the net impression created
by Defendants’ salespeople who verbally promised
financial gain’’); see also, e.g., Vemma, No. 2:15–
cv–01578, 2015 WL 11118111, *6; John Beck
Amazing Profits, 865 F. Supp. 2d at 1072;
Stefanchik, No. 04–cv–1852, 2007 WL 1058579, *6;
Minuteman Press, 53 F. Supp. 2d at 262–63.
12 Five-Star Auto Club, 97 F. Supp. 2d at 526
(liability for misleading earnings claims under
Section 5 did not turn on ‘‘intent to defraud or
deceive,’’ or ‘‘bad faith’’); see also, e.g., Holiday
Enterprises, No. 1:06–cv–2939, 2008 WL 953358,
*6–7; Med. Billers Network, 543 F. Supp. 2d at 304;
Nat’l Bus. Consultants, No. 89–cv–1740, 1990 WL
32967, *9; Wolf, No. 94–cv–8119, 1996 WL 812940,
*5.
13 FTC Policy Statement on Deception (October
23, 1984) (appended to Cliffdale Assocs. Inc., 103
FTC 110, 180 & n.37 (1984); see also, e.g.,
Exposition Press, Inc. v. FTC, 295 F.2d 869, 873 (2d
Cir. 1961); Med. Billers Network, 543 F. Supp. 2d
at 307.
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representatives or other agents; 14 and (f)
a company may be liable for providing
deceptive marketing materials for others
to use on its behalf (sometimes called
providing ‘‘means and
instrumentalities’’).15
Despite the Commission’s aggressive
enforcement program,16 deceptive
earning claims continue to proliferate in
the marketplace. The FTC continues to
receive widespread reports from
consumers and informants of
misleading earnings claims. In AMG
Capital Mgmt., LLC v. FTC 17 the
Supreme Court ruled that the
Commission may not seek equitable
monetary relief under section 13(b) of
the FTC Act for violations of the FTC
Act or other statutes enforced by the
Commission.18 While the Commission
recently issued a Notice of Penalty
Offenses concerning earnings claims,19
14 Med. Billers Network, 543 F. Supp. 2d at 319–
20 (holding seller liable for telemarketer agent’s
earnings misrepresentations regardless of
telemarketer’s purported independent contractor
status); see also, e.g., Stefanchik, No. 04–cv–1852,
2007 WL 1058579, *6; FTC v. Skybiz.com, Inc., No.
01–cv–396, 2001 WL 1673645, *9 (N.D. Okla. Aug.
31, 2001), aff’d, 57 F. App’x 374 (10th Cir. 2003);
Five-Star Auto Club, 97 F. Supp. 2d at 527; U.S. Oil
and Gas, No. 83–cv–1702, 1987 U.S. Dist. LEXIS
16137, *48–49; Goodman v. FTC, 244 F.2d 584,
592–593 (9th Cir. 1957).
15 Five-Star Auto Club, 97 F. Supp. 2d at 530
(‘‘[Defendants] violated [the] FTC Act by providing
participants with deceptive means and
instrumentalities,’’ specifically, marketing materials
that included deceptive earnings claims, explaining
that ‘‘[a]s a matter of law, ‘those who put into the
hands of others the means by which they may
mislead the public, are themselves guilty of a
violation of Section 5 of the Federal Trade
Commission Act.’ ’’); see also, e.g., Vemma, No.
2:15–cv–01578, 2015 WL 11118111, *7.
16 See, e.g., FTC v. BINT Operations LLC, No.
4:21–cv–518 (filed E.D. Ark. 2021); FTC v. Moda
Latina BZ Inc., No. 2:20–cv–10832 (filed C.D. Cal.
2020); FTC v. Digital Income System, Inc., No. 1:20–
cv–24721 (filed S.D. Fla. 2020); FTC v. OTA
Franchise Corp., No. 8:20–cv–287 (filed C.D. Cal.
2020); FTC v. Ragingbull.com, LLC, No. 1:20–cv–
3538 (filed D. Md. 2020); FTC v. National Web
Design, LLC, No. 2:20–cv–846 (filed D. Utah 2020);
FTC v. Noland, No. 2:20–cv–0047 (filed D. Ariz.
2020); FTC v. Position Gurus, LLC, No. 2:20–cv–710
(filed W.D. Wash. 2020); FTC v. 8 Figure Dream
Lifestyle LLC, No. 8:19–cv–1165 (filed C.D. Cal.
2019); FTC v. Zurixx LLC, No. 2:19–cv–713 (filed
D. Utah 2019); FTC v. Advocare, Int’l, L.P., No.
4:19–cv–715 (filed E.D. Tex. 2019); FTC v. Neora,
LLC, No. 3:20–cv–1979 (filed D.N.J. 2019,
transferred N.D. Tex.); FTC v. Fat Giraffe Mktg.
Group LLC, No. 2:19–cv–63 (filed D. Utah 2019);
FTC v. AWS, LLC, No. 2:18–cv–442 (filed D. Nev.
2018); FTC v. Sellers Playbook, Inc., No. 18–cv–
2207 (filed D. Minn. 2018); FTC v. Dluca, No. 0:18–
cv–60379 (filed S.D. Fla. 2018); FTC v. Mobe Ltd.,
No. 6:18–cv–862 (filed M.D. Fla. 2018); FTC v.
Vision Solution Marketing LLC, No. 2:18–cv–356
(filed D. Utah 2018); FTC v. Jason Cardiff, No. 5:18–
cv–2104 (filed C.D. Cal. 2018).
17 AMG Capital Mgmt., LLC v. FTC, 141 S. Ct.
1341 (2021).
18 15 U.S.C. 53(b).
19 Penalty Offenses Concerning Multi-Making
Opportunities (issued October 2021), available at
https://www.ftc.gov/enforcement/penalty-offenses/
money-making-opportunities.
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which will permit the Commission to
seek civil penalties for misleading
earnings claims in some cases, this
authority does not provide a basis for
the Commission to recover funds to
return to injured consumers.
The Commission anticipates that a
rule prohibiting the use of misleading
earnings claims would enhance
deterrence and help the Commission
move quickly to stop illegal conduct.
Such a rule also may further clarify for
businesses what constitutes a deceptive
earnings claim and what it means to
have substantiation for an earnings
claim.
In addition, a rule would enable the
Commission to seek monetary relief for
consumers harmed by deceptive
earnings claims, as well as civil
penalties against those who make the
deceptive claims. Specifically, section
19 of the FTC Act, 15 U.S.C. 57b,
authorizes the Commission to seek
‘‘rescission or reformation of contracts,
the refund of money or return of
property, [and] the payment of
damages,’’ among other things, to
redress harm caused by violations of
FTC rules, such as one prohibiting
deceptive earnings claims. And section
5 of the FTC Act, 15 U.S.C. 45(m),
allows the Commission to ‘‘recover civil
penalties’’ against those who violate
such a rule.
The Commission has previously
promulgated rules regulating the use of
earnings claims in certain industry
settings: The Franchise Rule,20 the
Business Opportunity Rule,21 and the
Telemarketing Sales Rule.22 However,
the scope of coverage of these rules is
limited. Numerous different types of
enterprises that do not clearly fall under
the scope of these existing rules
continue to use misleading earnings
claims to deceive consumers in
violation of section 5. The financial
consequences of this deception for
consumers are significant.23
20 Disclosure Requirements and Prohibitions
Concerning Franchising, 16 CFR part 436 (2007).
21 Business Opportunity Rule, 16 CFR part 437
(2012).
22 Telemarketing Sales Rule, 16 CFR part 310.
23 See, e.g., FTC v. OTA Franchise Corp., No.
8:20–cv–287 (filed C.D. Cal. 2020) (alleging
consumer harm of over $370 million); FTC v.
Neora, LLC, No. 3:20–cv–1979 (filed D.N.J. 2019,
transferred N.D. Tex.) (alleging consumer harm of
over $120 million); FTC v. Mobe, No. 6:18–cv–862,
Dkt. No. 257, Renewed Motion for Default
Judgment, at 5 (filed M.D. Fla. 2018) (alleging
consumer harm of over $318 million); FTC v. The
Tax Club, Inc., No. 13–cv–210 (filed S.D.N.Y. 2016)
(alleging consumer harm of over $200 million).
Individual losses can be substantial; for example,
tens of thousands of purchasers in the OTA
Franchise matter each paid over $10,000 for
purported courses on how to make money trading
in the financial markets.
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The Commission believes that
initiating a rulemaking to address the
use of earnings claims could benefit
consumers and could provide useful
guidance without burdening businesses.
The rule would be designed to deter the
use of misleading earnings claims,
inform market participants of their legal
obligations by spelling out prohibitions
plainly, and ensure the Commission can
seek monetary relief for consumers
deceived by misleading earnings claims.
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II. Objectives and Regulatory
Alternatives
The Commission requests input on
whether and how it can most effectively
use its authority under section 18 of the
FTC Act, 15 U.S.C. 57a, to address
certain deceptive or unfair acts or
practices involving the use of false,
unsubstantiated, or otherwise
misleading earnings claims.
The Commission is aware that such
claims are used by numerous companies
and individuals to entice prospective
purchasers, job-seekers, investors, or
other participants in widely varying
contexts. For example, the Commission
and other government agencies have
alleged that misleading earnings claims
have been used to tout offers as diverse
as coaching or mentoring,24 education,25
work-from-home, ‘‘gig’’ work, and other
job opportunities,26 multi-level
marketing opportunities,27 franchise,28
24 See, e.g., FTC v. OTA Franchise Corp., No.
8:20–cv–287 (filed C.D. Cal. 2020); FTC v.
Ragingbull.com, LLC, No. 1:20–cv–3538 (filed D.
Md. 2020); FTC v. Zurixx LLC, No. 2:19–cv–713
(filed D. Utah 2019); FTC v. Nudge LLC, No. 2:19–
cv–867 (filed D. Utah 2019); FTC v. Mobe Ltd., No.
6:18–cv–862 (filed M.D. Fla. 2018); FTC v. Digital
Altitude, No. 2:18–cv–0729 (filed C.D. Cal. 2018).
25 See, e.g., FTC v. Devry Education Group Inc.,
No. 2:16–cv–579 (filed C.D. Cal. 2016);
Commonwealth of Massachusetts v. ITT
Educational Services, Inc., No. 16–0411 (filed Mass.
Super. Ct. 2016); State of Colorado v. Center For
Excellence in Higher Education, Inc., No. 2014–cv–
34530 (filed Denver City And County Dist. Ct.
2014); Macmillan, Inc., 96 FTC 208 (1980).
26 See, e.g., Amazon.com, Inc., FTC Docket No. C–
4746 (filed 2021); FTC v. Moda Latina BZ Inc., No.
2:20–cv–10832 (filed C.D. Cal. 2020); FTC v. Fat
Giraffe Mktg. Group LLC, No. 2:19–cv–63 (filed D.
Utah 2019); FTC v. Uber Technologies, Inc., No.
3:17–cv–0261 (filed N.D. Cal. 2017); Encyclopaedia
Britannica, Inc., et al., 87 FTC 421, 450, 486–88,
531–32 (1976); Abel Allan Goodman Trading As
Weavers Guild, 52 FTC 982, 988 (1956), order
affirmed 244 F.2d 584 (9th Cir. 1957).
27 See, e.g., FTC v. Noland, No. 2:20–cv–0047
(filed D. Ariz. 2020); FTC v. Neora, LLC, No. 3:20–
cv–1979 (filed D.N.J. 2019, transferred N.D. Tex.);
FTC v. Advocare, Int’l, L.P., No. 4:19–cv–715 (filed
E.D. Tex. 2019); FTC v. Herbalife Int’l of America,
Inc., No. 2:16–cv–5217 (filed C.D. Cal. 2016); FTC
v. Vemma Nutrition Co., No. 2:15–cv–01578 (filed
D. Ariz. 2015).
28 See, e.g., United States v. We The People Forms
and Service Centers USA, Inc., No. 04–cv–10075
(filed C.D. Cal. 2004); FTC v. Government Careers
Network, Inc., et al., No. 01–cv–2286 (filed S.D.N.Y.
2001); FTC v. Minuteman Press, Inc., No. 93–cv–
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e-commerce 29 or other business
opportunities,30 chain referral
schemes,31 and other investment
opportunities,32 as well as other types of
business or money-making
opportunities.33 The Commission
requests that commenters provide other
information or evidence on the
prevalence of these practices in these
same contexts as well as any others.
The Commission also is interested in
exploring disclaimers: Specifically,
whether a disclaimer can be sufficient to
correct a misleading impression from an
atypical earnings claim,34 and, if so,
what features such a disclaimer must
have, and in what contexts will it
suffice. In the Commission’s experience,
we have not seen probative evidence
that disclaimers effectively cure atypical
earnings claims. In Commission
2496 (filed E.D.N.Y. 1993); FTC v. National
Business Consultants, No. 89–cv–1740 (filed E.D.
La. 1987).
29 See, e.g., FTC v. National Web Design, LLC, No.
2:20–cv–846 (filed D. Utah 2020); FTC v. AWS, LLC,
No. 2:18–cv–442 (filed D. Nev. 2018); FTC v. Sellers
Playbook, Inc., No. 18–cv–2207 (filed D. Minn.
2018); FTC v. Advertising Strategies, LLC, No. 2:16–
cv–3353 (filed D. Ariz. 2016); FTC v. The Online
Entrepreneur, Inc., No. 8:12–cv–2500 (filed M.D.
Fla. 2012).
30 See, e.g., FTC v. Digital Income System, Inc.,
No. 1:20–cv–24721 (filed S.D. Fla. 2020); FTC v. 8
Figure Dream Lifestyle LLC, No. 8:19–cv–1165 (filed
C.D. Cal. 2019); FTC v. Money Now Funding, LLC,
No. 2:13–cv–1583 (filed D. Ariz. 2013); FTC v.
American Business Builders, LLC, No. 2:12–cv–
2368 (filed D. Ariz. 2012); United States v. The
Zaken Corp., No. 2:12–cv–9631 (filed C.D. Cal.
2012); FTC v. Universal Advertising, Inc., No. 1:06–
cv–152 (filed D. Utah 2006).
31 See, e.g., FTC v. BINT Operations LLC, No.
4:21–cv–518 (filed E.D. Ark. 2021); FTC v. Dluca,
No. 0:18–cv–60379 (filed S.D. Fla. 2018); FTC v.
Evans, No. 4:03–cv–178 (E.D. Tex. 2003); FTC v.
Lightfoot, No. C 3–02–145 (filed S.D. Ohio 2002);
FTC v. Bigsmart.com LLC, No. 01–cv–466 (filed D.
Ariz. 2001); FTC v. Cano, No. 97–cv–7947 (filed
C.D. Cal. 1997).
32 See, e.g., SEC v. Senderov, No. 19–cv–5242
(filed E.D. Wa. 2019); SEC v. Peterson, No. 19–cv–
8334 (filed C.D. Cal. 2019); In re Spectrum Concepts
LLC, SEC No. 3–16358 (filed SEC 2015); In re
Pankaj Kumar Srivastava, SEC No. 3–1267 (filed
SEC 2014); SEC v. Butts, No. 13–23115 (filed S.D.
Fla. 2013); SEC v. Shavers, No. 4:13–cv–416 (filed
E.D. Tex. 2013).
33 See, e.g., FTC v. Position Gurus, LLC, No. 2:20–
cv–710 (filed W.D. Wash. 2020) (marketing and
other business-related services); FTC v. Montano,
No. 6:17–cv–2203 (filed M.D. Fla. 2017) (‘‘automatic
money systems’’ and ‘‘secret codes’’); FTC v. World
Patent Mktg., No. 17–cv–20848 (filed S.D. Fla. 2017)
(invention promotion); FTC v. Blue Saguaro
Marketing, LLC, No. 2:16–cv–3406 (filed D. Ariz.
2016) (grant scheme).
34 An atypical earnings claim is a representation,
express or implied, regarding profit, earnings, or
other financial gain, that does not reflect the
experience of the typical purchaser, employee,
independent contractor, or other participant
engaged in the money-making opportunity at issue.
Such claims often convey the message that the
represented earnings are typical—this is deceptive.
See notes 5 & 6, supra; FTC’s Guides Concerning
the Use of Endorsements and Testimonials in
Advertising (‘‘Endorsement Guides’’), 16 CFR
255.2(b).
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enforcement actions where defendants
have argued that disclaimers or
disclosures cured any deceptive
earnings claims, courts have repeatedly
found otherwise.35 Further, research by
the Commission has found that even
clear and prominent disclaimers of
‘‘Results not typical’’ or the stronger
‘‘These testimonials are based on the
experiences of a few people and you are
not likely to have similar results,’’ are
not sufficient to dispel the implication
that a testimonial depicts typical
results.36 Yet, some companies continue
to use disclaimers with such language.
Based on the foregoing, the Commission
seeks comment, information, and
evidence on whether a disclaimer can
be sufficient to correct an otherwise
misleading impression created by
earnings claims, and, if so, whether and
how the issue should be addressed in a
rule.
The Commission also wishes to
explore in this rulemaking whether
some or all entities and individuals
making earnings claims should be
required to give recipients specific
earnings information. The Franchise
and Business Opportunity Rules require
companies that make earnings claims to
furnish prospective members with a
disclosure document that includes
information about earnings.37 Should
similar provisions be implemented in an
earnings claim rule? How would it
effectively prevent or curb deception
regarding earnings? If so, what
information should such a disclosure
include? What would be the benefit to
consumers and the burden to business
of such a disclosure requirement? Given
the wide variety of commercial contexts
in which earnings claims may be used,
should a disclosure requirement apply
to only certain types of entities and
individuals or in certain contexts, or
should its application be limited in
some other way? For example, should
35 World Patent Mktg., No. 17–cv–20848, 2017
WL 3508639, *13–14 (even if disclaimers were
seen, ‘‘they failed to change the net impression
created by Defendants’ salespeople who verbally
promised financial gain’’); Vemma, No. 2:15–cv–
01578, 2015 WL 11118111, at *6–7 (disclaimers of
‘‘results not typical’’ not sufficient, as ‘‘consumer
may [still] reasonably believe that a statement of
unusual earning potential represents typical
earnings’’); Medicor, 217 F. Supp. 2d at 1053–54
(‘‘consumers could reasonably believe that the
statements of earnings potential represent typical or
average earnings’’ despite disclaimer); Minuteman
Press, 53 F. Supp. 2d at 262–63 (written disclaimers
contradicting oral earnings claims not sufficient, as
‘‘a reasonable consumer could legitimately
conclude that he or she was being furnished
important specific earnings information, subrosa, to
assist in the decision-making process
notwithstanding the general disclaimers in the
[contract]’’).
36 Endorsement Guide 16 CFR 255.2(b) n. 105.
37 16 CFR 436.2 and 436.5(u); 16 CFR 437.2.
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its coverage exclude job postings and
help wanted ads? Should it apply only
to those whose claims cite atypical
earnings figures? Or should it be limited
on some other basis?
Relatedly, the Commission is
interested in exploring whether a rule
should address the use of real or
purported earnings data or statistics
from an industry or professional field in
the promotion of money-making
opportunities.38 In the Commission’s
experience, some such uses are
misleading. These seemingly objective
figures may create the impression that
the depicted level of sales or earnings is
typical in the industry or field, or for the
opportunity being advertised, and by
implication, that the prospective
purchaser, employee, or other
participant will achieve similar
results.39 The Commission seeks
comment on whether a prohibition on
such misleading ‘‘industry’’ earnings
claims should be included in a rule, and
if so, what the proper scope of its
coverage should be.
The Commission also seeks comment
on whether and how a rule can most
effectively provide clarity on the
substantiation a company must possess
before making an earnings claim, and
whether those who make earnings
claims should be required to keep
records to demonstrate how they have
substantiated the claims. In the
Commission’s experience, numerous
companies have taken positions that
appear to misunderstand the
substantiation obligation. For example,
the Commission is aware that,
historically, some multi-level marketing
companies have made earnings claims
to potential distributors without
knowing what expenses their
distributors incur. But earnings claims
that reflect gross income and omit
material expenses are misleading.40
38 For example, the Business Opportunity Rule
bars business opportunity sellers from
disseminating industry financial information to
prospective purchasers unless they have
substantiation that the information ‘‘reflects, or
does not exceed, the typical or ordinary’’
experience of purchasers. 16 CFR 437.4(c).
39 FTC v. Zurixx, No. 2:19–cv–0713, (filed D. Utah
2019), Second Amended Complaint, Dkt. 219, para.
62 & 88 (earnings claims included national averages
drawn from industry sources); Dkt. 12–15 (p.7)
(same); Dkt. 12–48 (p.35) (same); Med. Billers
Network, 543 F. Supp. 2d at 305–06 (earnings
claims based on industry statistics deceptively
implied that participants in defendants’
opportunity would make the depicted amounts); cf.
FTC Endorsement Guides, 16 CFR 255.2(b)
(representations of individual consumers’
experiences ‘‘will likely be interpreted as
representing that the . . . experience is
representative of what consumers will generally
achieve’’).
40 Febre, No. 94–cv–3625, 1996 WL 396117, *3–
5 (finding ads with earnings claims deceptive
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Before making an earnings claim, a
business must have a reasonable basis
for the claim 41—that means both gross
income and expenses incurred in
generating that income. As another
example, entities and individuals often
argue before the Commission that
earnings claims made in testimonials
are substantiated if the testimonialist
provides evidence that he or she
attained the results described in the
testimonial. But confirming that a
testimonialist is accurately describing
their own experience does not
substantiate a key message that such
representations usually convey—that
prospective participants can expect
similar results.42 Given the frequency
with which these and other similar
issues arise, the Commission is
considering how a rule might provide
clarity on the matter. How should a rule
define the evidence necessary to meet
the substantiation requirement? Also,
should a rule impose a recordkeeping
requirement for substantiation
evidence? Such requirements ensure
that the Commission can obtain the
evidence necessary to evaluate a
company’s claims that its earnings
representations are substantiated.43 If
because they failed to disclose expenses);
Encyclopaedia Britannica, 87 FTC at 445–50, 486–
87, 505, 510, 532. See also Med. Billers Network,
543 F. Supp. 2d at 315 (failure to disclose costs
necessary to earn income with product was a
deceptive telemarketing practice and violated the
Telemarketing Sales Rule); Southwest Sunsites, Inc.,
et al., 105 FTC 7, 99–102 (1985) (claims about
potential use of property were deceptive because
they implied the property was a good investment
but failed to disclose substantial expenses that
rendered the proposed uses uneconomical), aff’d
785 F.2d 1431, 1438 (9th Cir. 1986).
41 See, e.g., Grant Connect, 827 F. Supp. 2d at
1225–1226 (defendants ‘‘cannot fabricate a number
[in an earnings claim] and then fall back on the
defense that they would not have access to the
documentation to support that claim’’); Holiday
Enterprises, No. 1:06–cv–2939, 2008 WL 953358, at
*6–7 (granting summary judgement to FTC in part
because ‘‘defendants had no substantiation for
[their earnings] claims’’).
42 World Patent Mktg., No. 17–cv–20848, 2017
WL 3508639, *12 (‘‘success stories’’ in ads implied
purchasers would see similar results); John Beck
Amazing Profits, 865 F. Supp. 2d at 1072–73 (ad
with ‘‘numerous testimonials’’ conveyed
impression that ‘‘a typical consumer’’ would ‘‘earn
thousands of dollars per week’’); Cliffdale Assocs.,
Inc., 103 FTC 110, 171–72 (1984) (‘‘[b]y printing the
testimonials, respondents implicitly made
performance claims’’ that were deceptive;
‘‘irrespective of the veracity of the individual
consumer testimonials, respondents’ use of the
testimonials to make underlying claims that were
false and deceptive was, itself, deceptive’’);
Macmillan, 96 FTC at 301 (‘‘testimonials . . .
implied that the success portrayed therein was
ordinary and typical’’). See also FTC Endorsement
Guides, 16 CFR 255.2(b) (testimonials ‘‘will likely
be interpreted as representing that the . . .
experience is representative of what consumers will
generally achieve’’).
43 For example, the Business Opportunity Rule
requires retention of substantiation documents for
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the rule includes a recordkeeping
requirement, what must be kept? In
what form? For how long? What would
be the costs of such a requirement, and
are there ways to streamline the
requirement to minimize the costs on
businesses?
Additionally, the Commission seeks
comments on whether, if at all, lifestyle
claims should be addressed by a rule.
Lifestyle claims are claims that
participating in a money-making
opportunity will lead to a material
change in lifestyle—such as getting to go
on expensive vacations, quitting your
job, or buying a luxury car. These claims
are being used frequently on online
advertisements and social media. And
the Commission has initiated several
enforcement actions that involved
deceptive lifestyle claims.44 The
Commission, however, has never
comprehensively analyzed such claims,
instead addressing them on a case-bycase basis.45 Comment, evidence, and
information is therefore sought on (a)
whether and what lifestyle claims are
deceptive; (b) the benefits to businesses
and consumers from receiving guidance
on this topic; and (c) what evidence a
company must have before making a
lifestyle claim to substantiate it.
Finally, the Commission seeks
comment on, among other things, the
costs and benefits of a rule that would
address the above practices, and on
alternatives to such a rulemaking, such
as the publication of additional
consumer and business education. In
their replies, commenters should
provide any available evidence and data
that supports their position, such as
empirical data, consumer perception
studies, and consumer complaints.
III. Request for Comments
Members of the public are invited to
comment on any issues or concerns they
believe are relevant or appropriate to the
Commission’s consideration of potential
rulemaking in this area. The
Commission requests that commenters
also submit any relevant factual data
three years after an earnings claim is made. 16 CFR
437.7. The Franchise Rule and Business
Opportunity Rules both require that substantiation
materials be made available to consumers upon
request, thereby implicitly requiring retention of
substantiation documents. 16 CFR 436.9(d); 16 CFR
437.6(f).
44 See, e.g., FTC v. Neora, LLC, No. 3:20–cv–1979
(filed D.N.J. 2019, transferred N.D. Tex.); FTC v.
Advocare, Int’l, L.P., No. 4:19–cv–715 (filed E.D.
Tex. 2019); FTC v. Herbalife Int’l of America, Inc.,
No. 2:16–cv–5217 (filed C.D. Cal. 2016); FTC v.
Fortune Hi-Tech Mktg., Inc., No. 13–cv–578 (filed
N.D. Ill. 2013).
45 The Business Opportunity Rule’s definition of
earnings claims includes lifestyle claims, but only
if they imply a certain minimum level of earnings.
16 CFR 437.1(f).
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upon which their comments are based.
In addition to the issues raised above,
the Commission solicits public
comment on the specific questions
identified below. These questions are
designed to assist the public and should
not be construed as a limitation on the
issues on which public comment may
be submitted.
Questions
1. How widespread is the use of false,
unsubstantiated, or otherwise
misleading earnings claims by entities
or individuals in connection with the
offer or sale of a good or service,
participation in a job or other work
opportunity, or in a business,
investment, or other money-making
opportunity? Is the practice prevalent
among those who make earnings claims?
Are there certain business contexts or
industries in which the practice is
prevalent, or certain business contexts
or industries in which it is not? For
example, are deceptive earnings claims
prevalent among all businesses that
offer work or employment, or just
among those in certain industries? 46 If
so, describe the relevant industry or
business context and the basis for your
position. Provide any evidence, such as
empirical data, consumer perception
studies, or consumer complaints, that
demonstrates the extent of such
practices. Provide all evidence that
supports your answer.
2. Are there circumstances in which
the practices described in Question 1,
above, would not be deceptive or
unfair? If so, what are those
circumstances? Should the Commission
exclude such circumstances from the
scope of any rulemaking? Why or why
not? Provide all evidence that supports
your answer.
3. Do the practices described in
Question 1, above, cause injury to
consumers, and if so, how much? Do
such practices cause injury to other
businesses by unfairly disadvantaging
them? Provide any evidence that
quantifies or estimates these injuries if
possible, including the size of the
discrepancy between misleading
earnings claims and actual earnings.
Provide all evidence that supports your
answer.
4. Do the practices described in
Question 1, above, disproportionately
target or affect certain groups, including
communities of color or other
historically underserved communities?
46 See, e.g., Amazon.com, Inc., FTC Docket No. C–
4746 (filed 2021); FTC v. Uber Technologies, Inc.,
No. 3:17–cv–0261 (N.D. Cal. filed 2017);
Encyclopaedia Britannica, 87 FTC at 450, 486–88,
531–32; Abel Allan Goodman, 52 FTC at 988, order
affirmed 244 F.2d 584 (9th Cir. 1957).
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If so, why and how? Provide all
evidence that supports your answer.
5. Please provide any evidence
concerning consumer perception of, or
experience with, earnings claims that is
relevant to the practices described in
Question 1, above.
6. Is there a need for new regulatory
provisions to prevent the practices
described in Question 1, above? If yes,
why? If no, why not? What evidence
supports your answer?
7. How should a rule addressing the
practices described in Question 1,
above, be crafted to maximize the
benefits to consumers while minimizing
the costs to businesses? Provide all
evidence that supports your answer,
including any evidence that quantifies
the benefits to consumers, and the costs
to businesses.
8. Should the Commission consider
additional consumer, employee,
independent contractor, and business
education to reduce harm to consumers
associated with the practices described
in Question 1, above? If so, what should
such education materials include, and
how should the Commission
communicate that information to
consumers and businesses?
9. What alternatives to regulations
should the Commission consider to
address the practices described in
Question 1, above? Would those
alternatives obviate the need for
regulation? If so, why? If not, why not?
What evidence supports your answer?
10. Should a rule addressing the
practices described in Question 1,
above, define or describe the
substantiation required to make an
earnings claim? Why or why not? If so,
how should it do so? Should a rule
adopt the Business Opportunity Rule’s
language of ‘‘a reasonable basis’’ for a
claim at the time the claim is made, or
should it use some other definition? If
the latter, what? What are the benefits
to consumers, and costs to businesses,
and in particular small businesses, from
such a rule? Provide all evidence that
supports your answer, including any
evidence that quantifies the benefits to
consumers, and the costs to businesses,
and in particular small businesses.
11. Should a rule addressing the
practices described in Question 1,
above, require the preservation or
documentation of substantiation? Why
or why not? If so, what types of
recordkeeping requirements should be
required? What are the benefits to
consumers, and costs to businesses, and
in particular small businesses, from
such a rule? Provide all evidence that
supports your answer, including any
evidence that quantifies the benefits to
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consumers, and the costs to businesses,
and in particular small businesses.
12. What requirements, if any, should
a rule impose to address earnings claims
made by agents or others interacting
with prospective purchasers,
employees, independent contractors, or
participants on a company’s behalf, to
address the potential use of misleading
claims? How can the Commission
ensure that companies effectively
monitor the actions of such agents or
other persons? Should a rule addressing
the practices described in Question 1,
above, impose affirmative requirements
on companies regarding earnings claims
made by their agents or others acting
with them or on their behalf? Why or
why not? If so, how? What are the
benefits to consumers, and costs to
businesses from such a rule? Provide all
evidence that supports your answer,
including any evidence that quantifies
the benefits to consumers, and the costs
to businesses.
13. Are there circumstances in which
disclaimers or disclosures can
effectively dispel a misleading
impression regarding earnings or profits,
or prevent such an impression? If so,
describe such circumstances in detail,
including all necessary aspects of such
disclaimer or disclosure, such as
language, format, or the context in
which it is presented. Provide all
evidence that supports your answer, or
that otherwise addresses the
effectiveness of disclaimers or
disclosures.
14. In the cases the Commission has
brought, we have repeatedly seen
circumstances where earnings claims
convey the impression that the
represented earnings are typical. Are
there circumstances where they do not?
If so, describe such circumstances in
detail. Provide all evidence that
supports your answer.
15. How should the rule address
disclaimers? Are there any
circumstances in which a rule should
require a disclaimer, such as with
atypical earnings claims? Why or why
not? If so, describe such circumstances
in detail. How should a rule define or
describe such disclaimer? Should the
rule address conduct that may minimize
the effectiveness of any disclaimer, and
if so, how? What are the benefits to
consumers, and costs to businesses from
such a rule? Provide all evidence that
supports your answer, including any
evidence that quantifies the benefits to
consumers, and the costs to businesses.
16. Based on the Commission’s
enforcement experience, representations
of an expensive or otherwise desirable
lifestyle—such as images of or
references to mansions, yachts, luxury
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goods or automobiles, exotic or
otherwise desirable vacations, or even
just having more free time—convey the
impression that a money-making
opportunity can or will provide
participants sufficient income to afford
a similar lifestyle. Under what
circumstances, if any, do such
representations not convey such an
impression? Describe such
circumstances in detail. Provide all
evidence that supports your answer.
17. Should a rule addressing the
practices described in Question 1,
above, address the use of ‘‘lifestyle’’
claims of the type described in Question
15? Why or why not? If so, how? What
are the benefits to consumers, and costs
to businesses from such a rule? Provide
all evidence that supports your answer,
including any evidence that quantifies
the benefits to consumers, and the costs
to businesses.
18. Should a rule addressing the
practices described in Question 1,
above, exempt from its coverage
businesses or individuals that are
subject to the Business Opportunity
Rule, the Franchise Rule, or the
Telemarketing Sales Rule? Why or why
not? If so, how and to what extent?
What are the benefits to consumers, and
costs to businesses from such a rule?
Provide all evidence that supports your
answer, including any evidence that
quantifies the benefits to consumers,
and the costs to businesses.
19. If a rule addressing the practices
described in Question 1, above, is
adopted, should the Business
Opportunity Rule, the Franchise Rule,
or the Telemarketing Sales Rule be
amended? Why or why not? If so, how
and to what extent?
20. Should a rule addressing the
practices described in Question 1,
above, exempt from its coverage any
other businesses or individuals? Why or
why not? If so, how and to what extent?
What are the benefits to consumers, and
costs to businesses from such a rule?
Provide all evidence that supports your
answer, including any evidence that
quantifies the benefits to consumers,
and the costs to businesses.
21. Should a rule addressing the
practices described in Question 1,
above, include an example earnings
disclosure statement that would not be
mandatory, but would provide guidance
for companies on how to make a lawful
earnings claim? Why or why not? If so,
what should be contained in the
example statement? What are the
benefits to consumers, and costs to
businesses from such a rule? Provide all
evidence that supports your answer,
including any evidence that quantifies
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the benefits to consumers, and the costs
to businesses.
22. Should a rule addressing the
practices described in Question 1,
above, require that an earnings claim
disclosure document be provided to
consumers prior to purchase, prior to
accepting an offer for work, or at any
other time? Why or why not? If so, how
should the rule define or describe the
required disclosure, the time(s) at which
it must be provided, the manner in
which it must be provided (so it cannot
be hidden or obscured by other
paperwork), the languages in which it
must be provided, and who must
provide it? What are the benefits to
consumers, and costs to businesses, and
in particular small businesses, from
such a rule? Provide all evidence that
supports your answer, including any
evidence that quantifies the benefits to
consumers, and the costs to businesses,
and in particular small businesses.
23. How prevalent is the deceptive or
misleading use of real or purported
industry earnings data or statistics in
the promotion of money-making
opportunities? Provide any evidence,
such as empirical data, consumer
perception studies, or consumer
complaints, that demonstrates the extent
of such practices. Provide all evidence
that supports your answer.
24. Do the practices described in
Question 21, above, cause injury to
consumers, and if so, how, and how
much? Provide any evidence that
quantifies or estimates that injury if
possible, including any non-financial or
indirect injuries to consumers, and
including the size of the discrepancy
between misleading earnings claims and
actual earnings. Provide all evidence
that supports your answer.
25. Should a rule addressing the
practices described in Question 1,
above, include a provision concerning
the use of real or purported industry
earnings data or statistics? Why or why
not? If so, how? Should the coverage of
such a provision be limited? If so, how
and why? Provide all evidence that
supports your answer, including any
evidence that quantifies the benefits to
consumers, and the costs to businesses.
26. Do existing laws and regulations
covering false, unsubstantiated, or
otherwise misleading earnings claims
affect businesses, particularly small
businesses? If so, how? Provide all
evidence that supports your answer.
27. Are there other commercial acts or
practices involving earnings claims that
are deceptive or unfair that should be
addressed in the proposed rulemaking?
If so, describe the practices. How
widespread are the practices? Provide
all evidence that supports your answer,
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and please answer Questions 2–9 with
respect to the practices.
28. Do current or impending changes
in technology or market practices affect
the need for rulemaking? If so, describe
the changes and how they affect
whether and how a rulemaking should
proceed. Provide all evidence that
supports your answer.
IV. Comment Submissions
You can file a comment online or on
paper. For the Commission to consider
your comment, we must receive it on or
before May 10, 2022. Write ‘‘Earnings
Claims ANPR, R111003’’ on your
comment. Your comment—including
your name and your state—will be
placed on the public record of this
proceeding, including, to the extent
practicable, on the https://
www.regulations.gov website.
Because of the public health
emergency in response to the COVID–19
outbreak and the agency’s heightened
security screening, postal mail
addressed to the Commission will be
subject to delay. We strongly encourage
you to submit your comments online
through the https://www.regulations.gov
website. To ensure the Commission
considers your online comment, please
follow the instructions on the webbased form.
If you file your comment on paper,
write ‘‘Earnings Claims Rulemaking,
R111003’’ on your comment and on the
envelope, and mail your comment to the
following address: Federal Trade
Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Suite
CC–5610 (Annex B), Washington, DC
20580, or deliver your comment to the
following address: Federal Trade
Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW,
5th Floor, Suite 5610 (Annex B),
Washington, DC 20024. If possible,
please submit your paper comment to
the Commission by courier or overnight
service.
Because your comment will be placed
on the public record, you are solely
responsible for making sure that your
comment does not include any sensitive
or confidential information. In
particular, your comment should not
contain sensitive personal information,
such as your or anyone else’s Social
Security number; date of birth; driver’s
license number or other state
identification number or foreign country
equivalent; passport number; financial
account number; or credit or debit card
number. You are also solely responsible
for making sure your comment does not
include any sensitive health
information, such as medical records or
other individually identifiable health
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April J. Tabor,
Secretary.
national and financial crises to exploit
the newly vulnerable. And
unfortunately, we’ve seen that in the
Covid–19 pandemic as well. The extent
of these scams is astounding. In a 2020
law enforcement crackdown the FTC
pursued over a billion dollars lost to
these schemes.1
Combating these schemes illuminates
something important about the agency’s
authority and our mission, too. Section
5’s requirement that earnings claims are
honest and substantiated reflects an
underappreciated obligation of the FTC:
To protect Americans as workers and
not simply as the consumers of products
and services. Markets cannot function
effectively without honest and
transparent pricing. That is just as true
for the labor market as it is for consumer
goods. False or misleading earnings
claims robs people of their investments,
their time, and the fair value of their
labor. It is also worth remembering:
Individuals who put their savings into
the stock market—often wealthier
individuals—can rely on the SEC to
police misrepresentations about
earnings claims with respect to those
investments. But less wealthy folks who
may pour their life savings into
promised business opportunities
deserve the protection of the federal
government as well; that is why we
must aggressively police misleading
earnings claims.
Two of our recent enforcement
actions demonstrate how this kind of
exploitation works in practice. Last year
the FTC settled with the owners and
operators of Moda Latina.2 The
company primarily targeted Latinas
with Spanish-language ads that made
false promises of significant earnings
reselling luxury products. Moda Latina’s
marketing campaign specifically
targeted Latina consumers interested in
starting work-at-home businesses.3 It
seems like none of the women targeted
in this scheme made money but were
instead cheated out of their time and
funds to buy useless goods. These kinds
of false claims crowd out honest
opportunities for people to start
businesses, making life even more
Statement of Commissioner Rebecca
Kelly Slaughter Regarding Advance
Notice of Proposed Rulemaking on the
Use of Earnings Claims
Unfair and deceptive earnings claims
underpin some of the worst and most
financially ruinous scams Americans
face. Pyramid schemes, phony
investments, and multi-level-marketing
all exploit people’s hopes—for financial
stability, for a chance to improve their
lives—with false promises. These
scammers often take advantage of
1 Press Release, Federal Trade Commission, As
Scammers Leverage Pandemic Fears, FTC and Law
Enforcement Partners Crack Down on Deceptive
Income Schemes Nationwide, December 14, 2020,
https://www.ftc.gov/newsevents/press-releases/
2020/12/scammers-leverage-pandemic-fears-ftclaw-enforcement-partners.
2 Press Release, Federal Trade Commission,
Operators of Bous Income Scam Targeting Latinas
Face FTC Settlement, March 2, 2021, https://
www.ftc.gov/news-events/press-releases/2021/03/
operators-bogus-income-scam-targeting-latinasface-ftc-settlement.
3 FTC v. Moda Latina BZ Inc., No. 2:20–cv–10832
(filed C.D. Cal. 2020), https://www.ftc.gov/system/
files/documents/cases/001_complaint.pdf.
information. In addition, your comment
should not include any ‘‘[t]rade secret or
any commercial or financial information
which . . . is privileged or
confidential’’—as provided in section
6(f) of the FTC Act, 15 U.S.C. 46(f), and
FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)
—including in particular competitively
sensitive information such as costs,
sales statistics, inventories, formulas,
patterns, devices, manufacturing
processes, or customer names.
Comments containing material for
which confidential treatment is
requested must be filed in paper form,
must be clearly labeled ‘‘Confidential,’’
and must comply with FTC Rule 4.9(c).
In particular, the written request for
confidential treatment that accompanies
the comment must include the factual
and legal basis for the request, and must
identify the specific portions of the
comment to be withheld from the public
record. See FTC Rule 4.9(c). Your
comment will be kept confidential only
if the General Counsel grants your
request in accordance with the law and
the public interest. Once your comment
has been posted publicly at
www.regulations.gov—as legally
required by FTC Rule 4.9(b)—we cannot
redact or remove your comment, unless
you submit a confidentiality request that
meets the requirements for such
treatment under FTC Rule 4.9(c), and
the General Counsel grants that request.
Visit the FTC website to read this
document and the news release
describing it. The FTC Act and other
laws that the Commission administers
permit the collection of public
comments to consider and use in this
proceeding as appropriate. The
Commission will consider all timely
and responsive public comments it
receives on or before May 10, 2022. For
information on the Commission’s
privacy policy, including routine uses
permitted by the Privacy Act, see
https://www.ftc.gov/site-information/
privacy-policy.
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13957
precarious for vulnerable workers and
would-be entrepreneurs.
I’m also deeply concerned about the
effect of the over-promises of the gig
economy on workers and the labor
market. Last year, the FTC settled with
Amazon over our charges that it robbed
its Amazon Flex drivers the full amount
of tips it promised to them.4 These gigeconomy workers signed up as drivers
to deliver goods and groceries order
through Amazon based on an advertised
hourly rate and the promise of receiving
‘‘100% of tips’’ they earned while
completing deliveries. After people had
already signed up to work for the
company, Amazon secretly changed its
payment scheme and ceased giving
drivers their tips while still representing
that it did so to these workers and to
consumers. In settlement the agency
recovered $61.7 million from Amazon,
the full amount of the tips the agency
believe Amazon withheld from them. By
misrepresenting these drivers’ takehome pay Amazon distorted both the
gig-driver labor market and the
consumer home delivery market in what
I believe we can fairly surmise was an
unlawful bid to increase its market
share and lower its labor costs.
Effective enforcement of Section 5’s
consumer protection obligations helps
make these markets for labor functional,
fair, and competitive. That’s why I’m
eager to begin a rulemaking inquiry on
earnings claims. I’m proud of the
decades of enforcement actions the
agency has undertaken to protect against
these unfair and deceptive practices.
But case by case enforcement has left
gaps unscrupulous actors can exploit.
Starting this inquiry means we can
now gather evidence on how best to
protect against these scams and begin to
think about how a possible trade
regulation rule could help level the
playing field between workers and those
that employ them. Pursuing rule
violations would also reopen an avenue
to return stolen money to consumers—
something we can no longer do under
section 13(b) until Congress steps in to
fix it.
I want to thank everyone that helped
bring this ANPR to the Commission
today, in particular Melissa Dickey,
Andrew Hudson and Kati Daffan in
DMP. I’d also like to thank Elisa Jillson,
the CTD for the Bureau, Kenny Wright
in the Office of the General Counsel,
Jason Adler and Guy Ward from the
MWRO, and David Givens, Douglas
4 Press Release, Federal Trade Commission,
Amazon to Pay $61.7 Million to Settle FTC Charges
it Withheld Some Customer Tips from Amazon Flex
Drivers, February 2, 2021, https://www.ftc.gov/
news-events/pressreleases/2021/02/amazon-pay617-million-settle-ftc-charges-it-withheld-some.
E:\FR\FM\11MRP1.SGM
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Federal Register / Vol. 87, No. 48 / Friday, March 11, 2022 / Proposed Rules
Smith, and Yan Lau, in the Bureau of
Economics for all their work.
lotter on DSK11XQN23PROD with PROPOSALS1
Concurring Statement of Commissioner
Christine S. Wilson on Advance Notice
of Proposed Rulemaking Concerning
Earnings Claims
Today, the Commission issues an
Advance Notice of Proposed
Rulemaking (‘‘ANPRM’’) to commence
proceedings to address the use of false,
unsubstantiated, or otherwise
misleading earnings claims. As
explained in this Federal Register
document, despite the Commission’s
aggressive enforcement efforts for
decades to combat deceptive earnings
claims, false claims about income
opportunities continue to proliferate.
While I remain skeptical of unleashing
a tsunami of rulemakings to address
common unfair or deceptive acts or
practices, I do not oppose seeking
comment on today’s ANPRM.
We contemplate this rule against the
backdrop of AMG Capital Mgmt., LLC v.
FTC.1 The Supreme Court’s recent
decision in AMG limits the
Commission’s authority to use section
13(b) of the FTC Act to obtain monetary
relief for consumers harmed by
misleading earnings claims. While a
rule would not prevent fraudsters from
engaging in deceptive earnings claims, it
would enhance the FTC’s ability to strip
them of their ill-gotten gains and return
that money to consumers. But for AMG,
I would be skeptical about the need for
rules regarding conduct frequently
targeted by the FTC’s extensive fraud
program. That said, a 13(b) fix would be
preferable to having the FTC pursue a
cornucopia of rules. And if a 13(b) fix
is enacted during the pendency of this
rulemaking, I likely would ask the
Commission to terminate the process.
In the wake of AMG, the exploration
of a potential Earnings Claims rule is
appropriate for two reasons. First,
whether false earnings claims are made
by frauds or legitimate businesses, no
benefit accrues to consumers or
competition. In fact, a 2020 FTC Data
Spotlight about ‘‘income scams’’ stated
that the median loss associated with
business and work-at-home
opportunities is $3,000.2 Consumer
losses related to deceptively marketed
investment seminars are even higher,
exceeding $16,000.3 For decades, the
1 AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341
(2021).
2 Emma Fletcher, Income scams: big promises, big
losses, FTC Consumer Protection Data Spotlight
(Dec. 10, 2020), available at https://www.ftc.gov/
system/files/attachments/blog_posts/%20scams
%3A%20big%20promises%2C%20big
%20losses%20/.final_.correctlink.pdf.
3 Id.
VerDate Sep<11>2014
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Commission has challenged deceptive
earnings claims in connection with
coaching and mentoring schemes, multilevel marketing (‘‘MLM’’) arrangements,
and work-from-home or other business
opportunity scams, to name a few.4
Despite decades of aggressive
enforcement and extensive consumer
and business education efforts,
deceptive earnings claims persist.
Second, consumers cannot analyze
the costs and benefits of investing
significant resources to pursue
coaching, training, MLM, or educational
opportunities without accurate
representations from sellers. But the
true value of these opportunities is best
assessed by the entities offering them. In
other words, we see significant
information asymmetries between
consumers and the entities that make
earnings claims. The monetary value of
an opportunity is likely the central,
material claim that consumers consider
before spending hundreds, thousands,
or even tens of thousands of dollars on
financial-improvement opportunities.
This ANPRM seeks information on how
to ensure that when disclosures are
made, they are substantiated.
For these reasons, I do not oppose an
ANPRM that explores ways to
incentivize establishing a reasonable
basis for earnings claims.
[FR Doc. 2022–04679 Filed 3–10–22; 8:45 am]
BILLING CODE 6750–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket Number USCG–2022–0085]
RIN 1625–AA00
Temporary Safety Zone; Tugs
Champion, Valerie B, Nancy Anne and
Barges Kokosing I, Kokosing III,
Kokosing IV Operating in the Straits of
Mackinac, MI
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
ACTION:
The Coast Guard is
establishing a temporary safety zone for
the navigable water within a 500-yard
radius of several tugs and barges in the
Straits of Mackinac. The safety zone is
needed to protect personnel, vessels,
and the marine environment from the
potential hazards created by the work,
SUMMARY:
4 See Section I of SUPPLEMENTARY INFORMATION,
supra. See also Notice of Penalty Offense Authority
Concerning Money-Making Opportunities, available
at https://www.ftc.gov/MMO-notice.
PO 00000
Frm 00008
Fmt 4702
Sfmt 4702
survey, and inspection conducted
within the Straits of Mackinac. Entry of
vessels or persons into the zone is
prohibited unless specifically
authorized by the Captain of the Port
Sault Sainte Marie or their designated
representative. Due to the lengthy
duration of this safety zone, the Coast
Guard is accepting and reviewing public
comments until March 31, 2022. While
this document is effective beginning
April 15, 2022, the Coast Guard reserves
the right to modify the safety zone if an
issue is raised by the public comments
that requires such a modification. We
invite your comments on this proposed
rulemaking.
DATES: Comments and related material
must be received by the Coast Guard on
or before April 11, 2022.
ADDRESSES: You may submit comments
identified by docket number USCG–
2022–0085 using the Federal Decision
Making Portal at https://
www.regulations.gov. See the ‘‘Public
Participation and Request for
Comments’’ portion of the
SUPPLEMENTARY INFORMATION section for
further instructions on submitting
comments.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this rule, call or
email LT Deaven S. Palenzuela, Sector
Sault Sainte Marie Waterways
Management Division, U.S. Coast Guard
at (906) 635–3223 or email
ssmprevention@uscg.mil.
SUPPLEMENTARY INFORMATION:
I. Table of Abbreviations
CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
§ Section
U.S.C. United States Code
II. Background, Purpose, and Legal
Basis
On February 3, 2022, the Project
Manager of Kokosing Industrial notified
the Coast Guard that they are contracted
by American Transmission Company
(ATC) for the pupose of protecting their
new 138kV submarine power cables
installed in the Straits of Mackinac RNA
in 2021. Pursuant to 33 CFR 165.944,
Kokosing sent the Coast Guard a letter
notifying their 2022 project proposal
and request to anchor and work inside
the regulated navigation area (RNA)
within one nautical mile of submerged
pipeline/cable.
The Captain of the Port Sault Sainte
Marie (COTP) has determined that
potential hazards associated with the
work, survey, and inspection of
underwater infrastructure within the
E:\FR\FM\11MRP1.SGM
11MRP1
]]>Agencies
[Federal Register Volume 87, Number 48 (Friday, March 11, 2022)]
[Proposed Rules]
[Pages 13951-13958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04679]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 87, No. 48 / Friday, March 11, 2022 /
Proposed Rules
[[Page 13951]]
FEDERAL TRADE COMMISSION
16 CFR Part 462
Deceptive or Unfair Earnings Claims
AGENCY: Federal Trade Commission.
ACTION: Advance notice of proposed rulemaking; request for public
comment.
-----------------------------------------------------------------------
SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
considering proposing a rule to address deceptive or unfair marketing
using earnings claims. The Commission is soliciting written comment,
data, and arguments concerning the need for such a rulemaking. In
addition, the Commission solicits comment on how the Commission can
ensure the broadest participation by affected interests in the
rulemaking process.
DATES: Comments must be received on or before May 10, 2022.
ADDRESSES: Interested parties may file a comment online or on paper by
following the instructions in the Comment Submissions part of the
SUPPLEMENTARY INFORMATION section below. Write ``Earnings Claims ANPR,
R111003'' on your comment, and file your comment online at https://www.regulations.gov. If you prefer to file your comment on paper, mail
your comment to the following address: Federal Trade Commission, Office
of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex B),
Washington, DC 20580, or deliver your comment to the following address:
Federal Trade Commission, Office of the Secretary, Constitution Center,
400 7th Street SW, 5th Floor, Suite 5610 (Annex B), Washington, DC
20024.
FOR FURTHER INFORMATION CONTACT: Melissa Dickey (202-326-2662),
[email protected], or Andrew Hudson (202-326-2213), [email protected],
Division of Marketing Practices, Bureau of Consumer Protection, Federal
Trade Commission, Mailstop CC-5201, 600 Pennsylvania Avenue NW,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION: The Commission is publishing this notice
pursuant to section 18 of the Federal Trade Commission Act (FTC Act),
15 U.S.C. 57a, and the provisions of part 1, subpart B of the
Commission's Rules of Practice, 16 CFR 1.7 through 1.20. The FTC Act
authorizes the Commission to promulgate, modify, and repeal trade
regulation rules that define with specificity acts or practices that
are unfair or deceptive in or affecting commerce within the meaning of
section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).
I. Background
Misleading earnings claims have long been a significant problem for
consumers.\1\ The use of such claims both deprives consumers of the
ability to make informed decisions and unfairly advantages bad actors
in the marketplace at the expense of honest businesses. The promise of
significant earnings is a powerful inducement to purchase or invest
time or money.
---------------------------------------------------------------------------
\1\ As discussed further below, consumers encounter such claims
in many contexts, including in seeking work, business and other
money-making opportunities, education, and more.
---------------------------------------------------------------------------
The Commission has extensive law enforcement experience challenging
misleading earnings claims under section 5 of the FTC Act, 15 U.S.C.
45,\2\ resulting in a long line of federal court opinions holding that
the use of false, unsubstantiated, or otherwise misleading earnings
claims violates Section 5.\3\ The Commission has also issued litigated
rulings in a number of cases dealing with misleading earnings claims
and has repeatedly determined that such claims violate Section 5.\4\
---------------------------------------------------------------------------
\2\ See, e.g., Press Release, Federal Trade Commission,
Statement on the FTC's ``Operation Income Illusion'' sweep (2020),
https://www.ftc.gov/news-events/press-releases/2020/12/scammers-leverage-pandemic-fears-ftc-law-enforcement-partners; Press Release,
Federal Trade Commission, Statement on the FTC's ``Operation Lost
Opportunity Sweep'' (2012), https://www.ftc.gov/news-events/press-releases/2012/11/ftc-expands-fight-against-deceptive-business-opportunity-schemes; Press Release, Federal Trade Commission,
Statement on the FTC's ``Operation Bottom Dollar'' enforcement sweep
(2010), https://www.ftc.gov/news-events/press-releases/2010/02/ftc-cracks-down-con-artists-who-target-jobless-americans; Press Release,
Federal Trade Commission, Statement on the FTC's ``Operation Short
Change'' enforcement sweep (2009), https://www.ftc.gov/news-events/press-releases/2009/07/ftc-cracks-down-scammers-trying-take-advantage-economic-downturn; Press Release, Federal Trade
Commission, Statement on the FTC's ``Biz Opp Flop'' sweep (2005),
https://www.ftc.gov/news-events/press-releases/2005/02/criminal-and-civil-enforcement-agencies-launch-major-assault.
\3\ See, e.g., FTC v. John Beck Amazing Profits, 865 F. Supp. 2d
1052 (C.D. Cal. 2012) (summary judgment); FTC v. Grant Connect, LLC,
827 F. Supp. 2d 1199 (D. Nev. 2011) (summary judgment); FTC v.
Holiday Enterprises, No. 1:06-cv-2939, 2008 WL 953358 (N.D. Ga. Feb.
5, 2008) (summary judgment); FTC v. Stefanchik, No. 04-cv-1852, 2007
WL 1058579 (W.D. Wash. Apr. 3, 2007) (summary judgment); FTC v.
Transnet Wireless Corp., 506 F. Supp. 2d 1247 (S.D. Fla. 2007)
(summary judgment); FTC v. Tashman, 318 F.3d 1273 (11th Cir. 2003)
(vacating judgment and finding defendants liable on appeal); FTC v.
Medicor LLC, 217 F. Supp. 2d 1048 (C.D. Cal. 2002) (summary
judgment); FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502
(S.D.N.Y. 2000) (final judgment after trial); FTC v. Minuteman
Press, Inc., 53 F. Supp. 2d 248 (E.D.N.Y. 1998) (judgment on
liability after trial); FTC v. Wolf, No. 94-cv-8119, 1996 WL 812940
(S.D. Fla. Jan. 31, 1996) (summary judgment); FTC v. Nat'l Bus.
Consultants, Inc., No. 89-cv-1740, 1990 WL 32967 (E.D. La. Mar. 20,
1990) (judgment after trial); FTC v. U.S. Oil and Gas Corp., No. 83-
cv-1702, 1987 U.S. Dist. LEXIS 16137 (S.D. Fl. 1987) (summary
judgment); FTC v. Kitco, 612 F. Supp. 1282 (D. Minn. 1985) (final
judgment after trial).
\4\ See Notice of Penalty Offense Authority Concerning Money-
Making Opportunities, available at https://www.ftc.gov/MMO-notice.
---------------------------------------------------------------------------
The cases establish, among other things: (a) Earnings claims are
material; \5\ (b) representations regarding possible earnings are not
mere puffery,\6\ and will usually imply that such earnings are typical;
\7\ (c) the representation that an amount or degree of earnings is
likely can be implied, including through testimonials from successful
participants and examples of
[[Page 13952]]
hypothetical or past profits; \8\ and (d) earnings claims must be
substantiated--that is, the maker must have a reasonable basis for the
claim before making it.\9\ The well-settled law on deception under
section 5 of the FTC Act applies fully to deceptive earnings claims:
(a) Liability turns on whether the net impression conveyed by
representations--not merely their express terms--is unsubstantiated or
otherwise misleading; \10\ (b) disclaimers do not bar liability, as
they often fail to dispel a misleading impression created by other
representations; \11\ (c) as a matter of law, good faith or a lack of
intent to deceive is not a defense; \12\ (d) 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;'' \13\ (e) a
principal may be liable for deceptive claims made by its
representatives or other agents; \14\ and (f) a company may be liable
for providing deceptive marketing materials for others to use on its
behalf (sometimes called providing ``means and
instrumentalities'').\15\
---------------------------------------------------------------------------
\5\ John Beck Amazing Profits, 865 F. Supp. 2d at 1067-76
(claims of quick and easy substantial income were material); see
also, e.g., FTC v. Noland, No. 2:20-cv-0047, 2020 WL 954958, *12-14
(D. Ariz. Feb. 27, 2020); FTC v. World Patent Mktg., No. 17-cv-
20848, 2017 WL 3508639, *11-12 (S.D. Fla. Aug. 16, 2017); FTC v.
Vemma Nutrition Co., No. 15-cv-01578, 2015 WL 11118111, *5 (D. Ariz.
Sept. 18, 2015); Holiday Enterprises, No. 1:06-cv-2939, 2008 WL
953358, *6-7; FTC v. Med. Billers Network, Inc., 543 F. Supp. 2d
283, 306-08 (S.D.N.Y. 2008).
\6\ Grant Connect, 827 F. Supp. 2d at 1225-26 (rejecting puffery
defense and finding claims that ``[r]iches range from a few hundred
dollars a month to $50,000 or more a year!'' were deceptive),
affirmed in relevant part at 763 F.3d 1094 (9th Cir. 2014); see
also, e.g., FTC v. Febre, No. 94-cv-3625, 1996 WL 396117, *2 (N.D.
Ill. Jul. 3, 1996); Noland, No. 20-cv-00047, 2020 WL 954958, *12-13;
World Patent, No. 17-cv-20848, 2017 WL 3508639, *12.
\7\ Five-Star Auto Club, 97 F. Supp. 2d at 528 (``[I]t would
have been reasonable for consumers to have assumed that the promised
rewards were achieved by the typical [participant.]''); see also,
e.g., Tashman, 318 F.3d at 1276; Febre, No. 94-cv-3625, 1996 WL
396117, *2; National Dynamics Corp., 82 FTC 488, 512, 565 (1973) as
modified at 85 FTC 1052 (1975).
\8\ John Beck Amazing Profits, 865 F. Supp. 2d at 1072 (ads
featuring testimonials created impression that ``a typical consumer
can easily and quickly earn thousands of dollars per week''); see
also, e.g., World Patent, No. 17-cv-20848, 2017 WL 3508639, *12;
Macmillan, Inc., 96 FTC 208, 301 (1980); National Dynamics, 82 FTC
at 511-13, 564 and as modified at 85 FTC at 1057; Universal Credit
Acceptance Corp., 82 FTC 570, 669, 682-83 (1973); Von Schrader Mfg.,
33 FTC 58, 65 (1941).
\9\ Grant Connect, 827 F. Supp. 2d at 1214, 1226 (``Examples of
deceptive conduct violative of the Act include unsubstantiated
claims that consumers can make a lot of money using the defendant's
product . . . .''); see also, e.g., FTC v. Digital Altitude, LLC,
No. 2:18-cv-0729, 2018 WL 1942392, *7-10 (C.D. Cal. Mar. 9, 2018);
John Beck Amazing Profits, 865 F. Supp. 2d at 1067, 1071-72; Holiday
Enterprises, No. 1:06-cv-2939, 2008 WL 953358, *6-7; Von Schrader,
33 FTC at 64.
\10\ Vemma, No. 2:15-cv-01578, 2015 WL 11118111, *6 (in
determining whether marketing made deceptive income claims, ``[t]he
`common-sense net impression' of representations controls''); see
also, e.g., World Patent, No. 17-cv-20848, 2017 WL 3508639, *11-12;
John Beck Amazing Profits, 865 F. Supp. 2d at 1073; Med. Billers
Network, 543 F. Supp. 2d at 306-07; Tashman, 318 F.3d at 1276;
Febre, No. 94-cv-3625, 1996 WL 396117, *4.
\11\ World Patent, No. 17-cv-20848, 2017 WL 3508639, *13-14
(rejecting disclaimer defense as they ``failed to change the net
impression created by Defendants' salespeople who verbally promised
financial gain''); see also, e.g., Vemma, No. 2:15-cv-01578, 2015 WL
11118111, *6; John Beck Amazing Profits, 865 F. Supp. 2d at 1072;
Stefanchik, No. 04-cv-1852, 2007 WL 1058579, *6; Minuteman Press, 53
F. Supp. 2d at 262-63.
\12\ Five-Star Auto Club, 97 F. Supp. 2d at 526 (liability for
misleading earnings claims under Section 5 did not turn on ``intent
to defraud or deceive,'' or ``bad faith''); see also, e.g., Holiday
Enterprises, No. 1:06-cv-2939, 2008 WL 953358, *6-7; Med. Billers
Network, 543 F. Supp. 2d at 304; Nat'l Bus. Consultants, No. 89-cv-
1740, 1990 WL 32967, *9; Wolf, No. 94-cv-8119, 1996 WL 812940, *5.
\13\ FTC Policy Statement on Deception (October 23, 1984)
(appended to Cliffdale Assocs. Inc., 103 FTC 110, 180 & n.37 (1984);
see also, e.g., Exposition Press, Inc. v. FTC, 295 F.2d 869, 873 (2d
Cir. 1961); Med. Billers Network, 543 F. Supp. 2d at 307.
\14\ Med. Billers Network, 543 F. Supp. 2d at 319-20 (holding
seller liable for telemarketer agent's earnings misrepresentations
regardless of telemarketer's purported independent contractor
status); see also, e.g., Stefanchik, No. 04-cv-1852, 2007 WL
1058579, *6; FTC v. Skybiz.com, Inc., No. 01-cv-396, 2001 WL
1673645, *9 (N.D. Okla. Aug. 31, 2001), aff'd, 57 F. App'x 374 (10th
Cir. 2003); Five-Star Auto Club, 97 F. Supp. 2d at 527; U.S. Oil and
Gas, No. 83-cv-1702, 1987 U.S. Dist. LEXIS 16137, *48-49; Goodman v.
FTC, 244 F.2d 584, 592-593 (9th Cir. 1957).
\15\ Five-Star Auto Club, 97 F. Supp. 2d at 530 (``[Defendants]
violated [the] FTC Act by providing participants with deceptive
means and instrumentalities,'' specifically, marketing materials
that included deceptive earnings claims, explaining that ``[a]s a
matter of law, `those who put into the hands of others the means by
which they may mislead the public, are themselves guilty of a
violation of Section 5 of the Federal Trade Commission Act.' '');
see also, e.g., Vemma, No. 2:15-cv-01578, 2015 WL 11118111, *7.
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Despite the Commission's aggressive enforcement program,\16\
deceptive earning claims continue to proliferate in the marketplace.
The FTC continues to receive widespread reports from consumers and
informants of misleading earnings claims. In AMG Capital Mgmt., LLC v.
FTC \17\ the Supreme Court ruled that the Commission may not seek
equitable monetary relief under section 13(b) of the FTC Act for
violations of the FTC Act or other statutes enforced by the
Commission.\18\ While the Commission recently issued a Notice of
Penalty Offenses concerning earnings claims,\19\ which will permit the
Commission to seek civil penalties for misleading earnings claims in
some cases, this authority does not provide a basis for the Commission
to recover funds to return to injured consumers.
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\16\ See, e.g., FTC v. BINT Operations LLC, No. 4:21-cv-518
(filed E.D. Ark. 2021); FTC v. Moda Latina BZ Inc., No. 2:20-cv-
10832 (filed C.D. Cal. 2020); FTC v. Digital Income System, Inc.,
No. 1:20-cv-24721 (filed S.D. Fla. 2020); FTC v. OTA Franchise
Corp., No. 8:20-cv-287 (filed C.D. Cal. 2020); FTC v.
Ragingbull.com, LLC, No. 1:20-cv-3538 (filed D. Md. 2020); FTC v.
National Web Design, LLC, No. 2:20-cv-846 (filed D. Utah 2020); FTC
v. Noland, No. 2:20-cv-0047 (filed D. Ariz. 2020); FTC v. Position
Gurus, LLC, No. 2:20-cv-710 (filed W.D. Wash. 2020); FTC v. 8 Figure
Dream Lifestyle LLC, No. 8:19-cv-1165 (filed C.D. Cal. 2019); FTC v.
Zurixx LLC, No. 2:19-cv-713 (filed D. Utah 2019); FTC v. Advocare,
Int'l, L.P., No. 4:19-cv-715 (filed E.D. Tex. 2019); FTC v. Neora,
LLC, No. 3:20-cv-1979 (filed D.N.J. 2019, transferred N.D. Tex.);
FTC v. Fat Giraffe Mktg. Group LLC, No. 2:19-cv-63 (filed D. Utah
2019); FTC v. AWS, LLC, No. 2:18-cv-442 (filed D. Nev. 2018); FTC v.
Sellers Playbook, Inc., No. 18-cv-2207 (filed D. Minn. 2018); FTC v.
Dluca, No. 0:18-cv-60379 (filed S.D. Fla. 2018); FTC v. Mobe Ltd.,
No. 6:18-cv-862 (filed M.D. Fla. 2018); FTC v. Vision Solution
Marketing LLC, No. 2:18-cv-356 (filed D. Utah 2018); FTC v. Jason
Cardiff, No. 5:18-cv-2104 (filed C.D. Cal. 2018).
\17\ AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).
\18\ 15 U.S.C. 53(b).
\19\ Penalty Offenses Concerning Multi-Making Opportunities
(issued October 2021), available at https://www.ftc.gov/enforcement/penalty-offenses/money-making-opportunities.
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The Commission anticipates that a rule prohibiting the use of
misleading earnings claims would enhance deterrence and help the
Commission move quickly to stop illegal conduct. Such a rule also may
further clarify for businesses what constitutes a deceptive earnings
claim and what it means to have substantiation for an earnings claim.
In addition, a rule would enable the Commission to seek monetary
relief for consumers harmed by deceptive earnings claims, as well as
civil penalties against those who make the deceptive claims.
Specifically, section 19 of the FTC Act, 15 U.S.C. 57b, authorizes the
Commission to seek ``rescission or reformation of contracts, the refund
of money or return of property, [and] the payment of damages,'' among
other things, to redress harm caused by violations of FTC rules, such
as one prohibiting deceptive earnings claims. And section 5 of the FTC
Act, 15 U.S.C. 45(m), allows the Commission to ``recover civil
penalties'' against those who violate such a rule.
The Commission has previously promulgated rules regulating the use
of earnings claims in certain industry settings: The Franchise
Rule,\20\ the Business Opportunity Rule,\21\ and the Telemarketing
Sales Rule.\22\ However, the scope of coverage of these rules is
limited. Numerous different types of enterprises that do not clearly
fall under the scope of these existing rules continue to use misleading
earnings claims to deceive consumers in violation of section 5. The
financial consequences of this deception for consumers are
significant.\23\
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\20\ Disclosure Requirements and Prohibitions Concerning
Franchising, 16 CFR part 436 (2007).
\21\ Business Opportunity Rule, 16 CFR part 437 (2012).
\22\ Telemarketing Sales Rule, 16 CFR part 310.
\23\ See, e.g., FTC v. OTA Franchise Corp., No. 8:20-cv-287
(filed C.D. Cal. 2020) (alleging consumer harm of over $370
million); FTC v. Neora, LLC, No. 3:20-cv-1979 (filed D.N.J. 2019,
transferred N.D. Tex.) (alleging consumer harm of over $120
million); FTC v. Mobe, No. 6:18-cv-862, Dkt. No. 257, Renewed Motion
for Default Judgment, at 5 (filed M.D. Fla. 2018) (alleging consumer
harm of over $318 million); FTC v. The Tax Club, Inc., No. 13-cv-210
(filed S.D.N.Y. 2016) (alleging consumer harm of over $200 million).
Individual losses can be substantial; for example, tens of thousands
of purchasers in the OTA Franchise matter each paid over $10,000 for
purported courses on how to make money trading in the financial
markets.
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[[Page 13953]]
The Commission believes that initiating a rulemaking to address the
use of earnings claims could benefit consumers and could provide useful
guidance without burdening businesses. The rule would be designed to
deter the use of misleading earnings claims, inform market participants
of their legal obligations by spelling out prohibitions plainly, and
ensure the Commission can seek monetary relief for consumers deceived
by misleading earnings claims.
II. Objectives and Regulatory Alternatives
The Commission requests input on whether and how it can most
effectively use its authority under section 18 of the FTC Act, 15
U.S.C. 57a, to address certain deceptive or unfair acts or practices
involving the use of false, unsubstantiated, or otherwise misleading
earnings claims.
The Commission is aware that such claims are used by numerous
companies and individuals to entice prospective purchasers, job-
seekers, investors, or other participants in widely varying contexts.
For example, the Commission and other government agencies have alleged
that misleading earnings claims have been used to tout offers as
diverse as coaching or mentoring,\24\ education,\25\ work-from-home,
``gig'' work, and other job opportunities,\26\ multi-level marketing
opportunities,\27\ franchise,\28\ e-commerce \29\ or other business
opportunities,\30\ chain referral schemes,\31\ and other investment
opportunities,\32\ as well as other types of business or money-making
opportunities.\33\ The Commission requests that commenters provide
other information or evidence on the prevalence of these practices in
these same contexts as well as any others.
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\24\ See, e.g., FTC v. OTA Franchise Corp., No. 8:20-cv-287
(filed C.D. Cal. 2020); FTC v. Ragingbull.com, LLC, No. 1:20-cv-3538
(filed D. Md. 2020); FTC v. Zurixx LLC, No. 2:19-cv-713 (filed D.
Utah 2019); FTC v. Nudge LLC, No. 2:19-cv-867 (filed D. Utah 2019);
FTC v. Mobe Ltd., No. 6:18-cv-862 (filed M.D. Fla. 2018); FTC v.
Digital Altitude, No. 2:18-cv-0729 (filed C.D. Cal. 2018).
\25\ See, e.g., FTC v. Devry Education Group Inc., No. 2:16-cv-
579 (filed C.D. Cal. 2016); Commonwealth of Massachusetts v. ITT
Educational Services, Inc., No. 16-0411 (filed Mass. Super. Ct.
2016); State of Colorado v. Center For Excellence in Higher
Education, Inc., No. 2014-cv-34530 (filed Denver City And County
Dist. Ct. 2014); Macmillan, Inc., 96 FTC 208 (1980).
\26\ See, e.g., Amazon.com, Inc., FTC Docket No. C-4746 (filed
2021); FTC v. Moda Latina BZ Inc., No. 2:20-cv-10832 (filed C.D.
Cal. 2020); FTC v. Fat Giraffe Mktg. Group LLC, No. 2:19-cv-63
(filed D. Utah 2019); FTC v. Uber Technologies, Inc., No. 3:17-cv-
0261 (filed N.D. Cal. 2017); Encyclopaedia Britannica, Inc., et al.,
87 FTC 421, 450, 486-88, 531-32 (1976); Abel Allan Goodman Trading
As Weavers Guild, 52 FTC 982, 988 (1956), order affirmed 244 F.2d
584 (9th Cir. 1957).
\27\ See, e.g., FTC v. Noland, No. 2:20-cv-0047 (filed D. Ariz.
2020); FTC v. Neora, LLC, No. 3:20-cv-1979 (filed D.N.J. 2019,
transferred N.D. Tex.); FTC v. Advocare, Int'l, L.P., No. 4:19-cv-
715 (filed E.D. Tex. 2019); FTC v. Herbalife Int'l of America, Inc.,
No. 2:16-cv-5217 (filed C.D. Cal. 2016); FTC v. Vemma Nutrition Co.,
No. 2:15-cv-01578 (filed D. Ariz. 2015).
\28\ See, e.g., United States v. We The People Forms and Service
Centers USA, Inc., No. 04-cv-10075 (filed C.D. Cal. 2004); FTC v.
Government Careers Network, Inc., et al., No. 01-cv-2286 (filed
S.D.N.Y. 2001); FTC v. Minuteman Press, Inc., No. 93-cv-2496 (filed
E.D.N.Y. 1993); FTC v. National Business Consultants, No. 89-cv-1740
(filed E.D. La. 1987).
\29\ See, e.g., FTC v. National Web Design, LLC, No. 2:20-cv-846
(filed D. Utah 2020); FTC v. AWS, LLC, No. 2:18-cv-442 (filed D.
Nev. 2018); FTC v. Sellers Playbook, Inc., No. 18-cv-2207 (filed D.
Minn. 2018); FTC v. Advertising Strategies, LLC, No. 2:16-cv-3353
(filed D. Ariz. 2016); FTC v. The Online Entrepreneur, Inc., No.
8:12-cv-2500 (filed M.D. Fla. 2012).
\30\ See, e.g., FTC v. Digital Income System, Inc., No. 1:20-cv-
24721 (filed S.D. Fla. 2020); FTC v. 8 Figure Dream Lifestyle LLC,
No. 8:19-cv-1165 (filed C.D. Cal. 2019); FTC v. Money Now Funding,
LLC, No. 2:13-cv-1583 (filed D. Ariz. 2013); FTC v. American
Business Builders, LLC, No. 2:12-cv-2368 (filed D. Ariz. 2012);
United States v. The Zaken Corp., No. 2:12-cv-9631 (filed C.D. Cal.
2012); FTC v. Universal Advertising, Inc., No. 1:06-cv-152 (filed D.
Utah 2006).
\31\ See, e.g., FTC v. BINT Operations LLC, No. 4:21-cv-518
(filed E.D. Ark. 2021); FTC v. Dluca, No. 0:18-cv-60379 (filed S.D.
Fla. 2018); FTC v. Evans, No. 4:03-cv-178 (E.D. Tex. 2003); FTC v.
Lightfoot, No. C 3-02-145 (filed S.D. Ohio 2002); FTC v.
Bigsmart.com LLC, No. 01-cv-466 (filed D. Ariz. 2001); FTC v. Cano,
No. 97-cv-7947 (filed C.D. Cal. 1997).
\32\ See, e.g., SEC v. Senderov, No. 19-cv-5242 (filed E.D. Wa.
2019); SEC v. Peterson, No. 19-cv-8334 (filed C.D. Cal. 2019); In re
Spectrum Concepts LLC, SEC No. 3-16358 (filed SEC 2015); In re
Pankaj Kumar Srivastava, SEC No. 3-1267 (filed SEC 2014); SEC v.
Butts, No. 13-23115 (filed S.D. Fla. 2013); SEC v. Shavers, No.
4:13-cv-416 (filed E.D. Tex. 2013).
\33\ See, e.g., FTC v. Position Gurus, LLC, No. 2:20-cv-710
(filed W.D. Wash. 2020) (marketing and other business-related
services); FTC v. Montano, No. 6:17-cv-2203 (filed M.D. Fla. 2017)
(``automatic money systems'' and ``secret codes''); FTC v. World
Patent Mktg., No. 17-cv-20848 (filed S.D. Fla. 2017) (invention
promotion); FTC v. Blue Saguaro Marketing, LLC, No. 2:16-cv-3406
(filed D. Ariz. 2016) (grant scheme).
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The Commission also is interested in exploring disclaimers:
Specifically, whether a disclaimer can be sufficient to correct a
misleading impression from an atypical earnings claim,\34\ and, if so,
what features such a disclaimer must have, and in what contexts will it
suffice. In the Commission's experience, we have not seen probative
evidence that disclaimers effectively cure atypical earnings claims. In
Commission enforcement actions where defendants have argued that
disclaimers or disclosures cured any deceptive earnings claims, courts
have repeatedly found otherwise.\35\ Further, research by the
Commission has found that even clear and prominent disclaimers of
``Results not typical'' or the stronger ``These testimonials are based
on the experiences of a few people and you are not likely to have
similar results,'' are not sufficient to dispel the implication that a
testimonial depicts typical results.\36\ Yet, some companies continue
to use disclaimers with such language. Based on the foregoing, the
Commission seeks comment, information, and evidence on whether a
disclaimer can be sufficient to correct an otherwise misleading
impression created by earnings claims, and, if so, whether and how the
issue should be addressed in a rule.
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\34\ An atypical earnings claim is a representation, express or
implied, regarding profit, earnings, or other financial gain, that
does not reflect the experience of the typical purchaser, employee,
independent contractor, or other participant engaged in the money-
making opportunity at issue. Such claims often convey the message
that the represented earnings are typical--this is deceptive. See
notes 5 & 6, supra; FTC's Guides Concerning the Use of Endorsements
and Testimonials in Advertising (``Endorsement Guides''), 16 CFR
255.2(b).
\35\ World Patent Mktg., No. 17-cv-20848, 2017 WL 3508639, *13-
14 (even if disclaimers were seen, ``they failed to change the net
impression created by Defendants' salespeople who verbally promised
financial gain''); Vemma, No. 2:15-cv-01578, 2015 WL 11118111, at
*6-7 (disclaimers of ``results not typical'' not sufficient, as
``consumer may [still] reasonably believe that a statement of
unusual earning potential represents typical earnings''); Medicor,
217 F. Supp. 2d at 1053-54 (``consumers could reasonably believe
that the statements of earnings potential represent typical or
average earnings'' despite disclaimer); Minuteman Press, 53 F. Supp.
2d at 262-63 (written disclaimers contradicting oral earnings claims
not sufficient, as ``a reasonable consumer could legitimately
conclude that he or she was being furnished important specific
earnings information, subrosa, to assist in the decision-making
process notwithstanding the general disclaimers in the
[contract]'').
\36\ Endorsement Guide 16 CFR 255.2(b) n. 105.
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The Commission also wishes to explore in this rulemaking whether
some or all entities and individuals making earnings claims should be
required to give recipients specific earnings information. The
Franchise and Business Opportunity Rules require companies that make
earnings claims to furnish prospective members with a disclosure
document that includes information about earnings.\37\ Should similar
provisions be implemented in an earnings claim rule? How would it
effectively prevent or curb deception regarding earnings? If so, what
information should such a disclosure include? What would be the benefit
to consumers and the burden to business of such a disclosure
requirement? Given the wide variety of commercial contexts in which
earnings claims may be used, should a disclosure requirement apply to
only certain types of entities and individuals or in certain contexts,
or should its application be limited in some other way? For example,
should
[[Page 13954]]
its coverage exclude job postings and help wanted ads? Should it apply
only to those whose claims cite atypical earnings figures? Or should it
be limited on some other basis?
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\37\ 16 CFR 436.2 and 436.5(u); 16 CFR 437.2.
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Relatedly, the Commission is interested in exploring whether a rule
should address the use of real or purported earnings data or statistics
from an industry or professional field in the promotion of money-making
opportunities.\38\ In the Commission's experience, some such uses are
misleading. These seemingly objective figures may create the impression
that the depicted level of sales or earnings is typical in the industry
or field, or for the opportunity being advertised, and by implication,
that the prospective purchaser, employee, or other participant will
achieve similar results.\39\ The Commission seeks comment on whether a
prohibition on such misleading ``industry'' earnings claims should be
included in a rule, and if so, what the proper scope of its coverage
should be.
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\38\ For example, the Business Opportunity Rule bars business
opportunity sellers from disseminating industry financial
information to prospective purchasers unless they have
substantiation that the information ``reflects, or does not exceed,
the typical or ordinary'' experience of purchasers. 16 CFR 437.4(c).
\39\ FTC v. Zurixx, No. 2:19-cv-0713, (filed D. Utah 2019),
Second Amended Complaint, Dkt. 219, para. 62 & 88 (earnings claims
included national averages drawn from industry sources); Dkt. 12-15
(p.7) (same); Dkt. 12-48 (p.35) (same); Med. Billers Network, 543 F.
Supp. 2d at 305-06 (earnings claims based on industry statistics
deceptively implied that participants in defendants' opportunity
would make the depicted amounts); cf. FTC Endorsement Guides, 16 CFR
255.2(b) (representations of individual consumers' experiences
``will likely be interpreted as representing that the . . .
experience is representative of what consumers will generally
achieve'').
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The Commission also seeks comment on whether and how a rule can
most effectively provide clarity on the substantiation a company must
possess before making an earnings claim, and whether those who make
earnings claims should be required to keep records to demonstrate how
they have substantiated the claims. In the Commission's experience,
numerous companies have taken positions that appear to misunderstand
the substantiation obligation. For example, the Commission is aware
that, historically, some multi-level marketing companies have made
earnings claims to potential distributors without knowing what expenses
their distributors incur. But earnings claims that reflect gross income
and omit material expenses are misleading.\40\ Before making an
earnings claim, a business must have a reasonable basis for the claim
\41\--that means both gross income and expenses incurred in generating
that income. As another example, entities and individuals often argue
before the Commission that earnings claims made in testimonials are
substantiated if the testimonialist provides evidence that he or she
attained the results described in the testimonial. But confirming that
a testimonialist is accurately describing their own experience does not
substantiate a key message that such representations usually convey--
that prospective participants can expect similar results.\42\ Given the
frequency with which these and other similar issues arise, the
Commission is considering how a rule might provide clarity on the
matter. How should a rule define the evidence necessary to meet the
substantiation requirement? Also, should a rule impose a recordkeeping
requirement for substantiation evidence? Such requirements ensure that
the Commission can obtain the evidence necessary to evaluate a
company's claims that its earnings representations are
substantiated.\43\ If the rule includes a recordkeeping requirement,
what must be kept? In what form? For how long? What would be the costs
of such a requirement, and are there ways to streamline the requirement
to minimize the costs on businesses?
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\40\ Febre, No. 94-cv-3625, 1996 WL 396117, *3-5 (finding ads
with earnings claims deceptive because they failed to disclose
expenses); Encyclopaedia Britannica, 87 FTC at 445-50, 486-87, 505,
510, 532. See also Med. Billers Network, 543 F. Supp. 2d at 315
(failure to disclose costs necessary to earn income with product was
a deceptive telemarketing practice and violated the Telemarketing
Sales Rule); Southwest Sunsites, Inc., et al., 105 FTC 7, 99-102
(1985) (claims about potential use of property were deceptive
because they implied the property was a good investment but failed
to disclose substantial expenses that rendered the proposed uses
uneconomical), aff'd 785 F.2d 1431, 1438 (9th Cir. 1986).
\41\ See, e.g., Grant Connect, 827 F. Supp. 2d at 1225-1226
(defendants ``cannot fabricate a number [in an earnings claim] and
then fall back on the defense that they would not have access to the
documentation to support that claim''); Holiday Enterprises, No.
1:06-cv-2939, 2008 WL 953358, at *6-7 (granting summary judgement to
FTC in part because ``defendants had no substantiation for [their
earnings] claims'').
\42\ World Patent Mktg., No. 17-cv-20848, 2017 WL 3508639, *12
(``success stories'' in ads implied purchasers would see similar
results); John Beck Amazing Profits, 865 F. Supp. 2d at 1072-73 (ad
with ``numerous testimonials'' conveyed impression that ``a typical
consumer'' would ``earn thousands of dollars per week''); Cliffdale
Assocs., Inc., 103 FTC 110, 171-72 (1984) (``[b]y printing the
testimonials, respondents implicitly made performance claims'' that
were deceptive; ``irrespective of the veracity of the individual
consumer testimonials, respondents' use of the testimonials to make
underlying claims that were false and deceptive was, itself,
deceptive''); Macmillan, 96 FTC at 301 (``testimonials . . . implied
that the success portrayed therein was ordinary and typical''). See
also FTC Endorsement Guides, 16 CFR 255.2(b) (testimonials ``will
likely be interpreted as representing that the . . . experience is
representative of what consumers will generally achieve'').
\43\ For example, the Business Opportunity Rule requires
retention of substantiation documents for three years after an
earnings claim is made. 16 CFR 437.7. The Franchise Rule and
Business Opportunity Rules both require that substantiation
materials be made available to consumers upon request, thereby
implicitly requiring retention of substantiation documents. 16 CFR
436.9(d); 16 CFR 437.6(f).
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Additionally, the Commission seeks comments on whether, if at all,
lifestyle claims should be addressed by a rule. Lifestyle claims are
claims that participating in a money-making opportunity will lead to a
material change in lifestyle--such as getting to go on expensive
vacations, quitting your job, or buying a luxury car. These claims are
being used frequently on online advertisements and social media. And
the Commission has initiated several enforcement actions that involved
deceptive lifestyle claims.\44\ The Commission, however, has never
comprehensively analyzed such claims, instead addressing them on a
case-by-case basis.\45\ Comment, evidence, and information is therefore
sought on (a) whether and what lifestyle claims are deceptive; (b) the
benefits to businesses and consumers from receiving guidance on this
topic; and (c) what evidence a company must have before making a
lifestyle claim to substantiate it.
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\44\ See, e.g., FTC v. Neora, LLC, No. 3:20-cv-1979 (filed
D.N.J. 2019, transferred N.D. Tex.); FTC v. Advocare, Int'l, L.P.,
No. 4:19-cv-715 (filed E.D. Tex. 2019); FTC v. Herbalife Int'l of
America, Inc., No. 2:16-cv-5217 (filed C.D. Cal. 2016); FTC v.
Fortune Hi-Tech Mktg., Inc., No. 13-cv-578 (filed N.D. Ill. 2013).
\45\ The Business Opportunity Rule's definition of earnings
claims includes lifestyle claims, but only if they imply a certain
minimum level of earnings. 16 CFR 437.1(f).
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Finally, the Commission seeks comment on, among other things, the
costs and benefits of a rule that would address the above practices,
and on alternatives to such a rulemaking, such as the publication of
additional consumer and business education. In their replies,
commenters should provide any available evidence and data that supports
their position, such as empirical data, consumer perception studies,
and consumer complaints.
III. Request for Comments
Members of the public are invited to comment on any issues or
concerns they believe are relevant or appropriate to the Commission's
consideration of potential rulemaking in this area. The Commission
requests that commenters also submit any relevant factual data
[[Page 13955]]
upon which their comments are based. In addition to the issues raised
above, the Commission solicits public comment on the specific questions
identified below. These questions are designed to assist the public and
should not be construed as a limitation on the issues on which public
comment may be submitted.
Questions
1. How widespread is the use of false, unsubstantiated, or
otherwise misleading earnings claims by entities or individuals in
connection with the offer or sale of a good or service, participation
in a job or other work opportunity, or in a business, investment, or
other money-making opportunity? Is the practice prevalent among those
who make earnings claims? Are there certain business contexts or
industries in which the practice is prevalent, or certain business
contexts or industries in which it is not? For example, are deceptive
earnings claims prevalent among all businesses that offer work or
employment, or just among those in certain industries? \46\ If so,
describe the relevant industry or business context and the basis for
your position. Provide any evidence, such as empirical data, consumer
perception studies, or consumer complaints, that demonstrates the
extent of such practices. Provide all evidence that supports your
answer.
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\46\ See, e.g., Amazon.com, Inc., FTC Docket No. C-4746 (filed
2021); FTC v. Uber Technologies, Inc., No. 3:17-cv-0261 (N.D. Cal.
filed 2017); Encyclopaedia Britannica, 87 FTC at 450, 486-88, 531-
32; Abel Allan Goodman, 52 FTC at 988, order affirmed 244 F.2d 584
(9th Cir. 1957).
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2. Are there circumstances in which the practices described in
Question 1, above, would not be deceptive or unfair? If so, what are
those circumstances? Should the Commission exclude such circumstances
from the scope of any rulemaking? Why or why not? Provide all evidence
that supports your answer.
3. Do the practices described in Question 1, above, cause injury to
consumers, and if so, how much? Do such practices cause injury to other
businesses by unfairly disadvantaging them? Provide any evidence that
quantifies or estimates these injuries if possible, including the size
of the discrepancy between misleading earnings claims and actual
earnings. Provide all evidence that supports your answer.
4. Do the practices described in Question 1, above,
disproportionately target or affect certain groups, including
communities of color or other historically underserved communities? If
so, why and how? Provide all evidence that supports your answer.
5. Please provide any evidence concerning consumer perception of,
or experience with, earnings claims that is relevant to the practices
described in Question 1, above.
6. Is there a need for new regulatory provisions to prevent the
practices described in Question 1, above? If yes, why? If no, why not?
What evidence supports your answer?
7. How should a rule addressing the practices described in Question
1, above, be crafted to maximize the benefits to consumers while
minimizing the costs to businesses? Provide all evidence that supports
your answer, including any evidence that quantifies the benefits to
consumers, and the costs to businesses.
8. Should the Commission consider additional consumer, employee,
independent contractor, and business education to reduce harm to
consumers associated with the practices described in Question 1, above?
If so, what should such education materials include, and how should the
Commission communicate that information to consumers and businesses?
9. What alternatives to regulations should the Commission consider
to address the practices described in Question 1, above? Would those
alternatives obviate the need for regulation? If so, why? If not, why
not? What evidence supports your answer?
10. Should a rule addressing the practices described in Question 1,
above, define or describe the substantiation required to make an
earnings claim? Why or why not? If so, how should it do so? Should a
rule adopt the Business Opportunity Rule's language of ``a reasonable
basis'' for a claim at the time the claim is made, or should it use
some other definition? If the latter, what? What are the benefits to
consumers, and costs to businesses, and in particular small businesses,
from such a rule? Provide all evidence that supports your answer,
including any evidence that quantifies the benefits to consumers, and
the costs to businesses, and in particular small businesses.
11. Should a rule addressing the practices described in Question 1,
above, require the preservation or documentation of substantiation? Why
or why not? If so, what types of recordkeeping requirements should be
required? What are the benefits to consumers, and costs to businesses,
and in particular small businesses, from such a rule? Provide all
evidence that supports your answer, including any evidence that
quantifies the benefits to consumers, and the costs to businesses, and
in particular small businesses.
12. What requirements, if any, should a rule impose to address
earnings claims made by agents or others interacting with prospective
purchasers, employees, independent contractors, or participants on a
company's behalf, to address the potential use of misleading claims?
How can the Commission ensure that companies effectively monitor the
actions of such agents or other persons? Should a rule addressing the
practices described in Question 1, above, impose affirmative
requirements on companies regarding earnings claims made by their
agents or others acting with them or on their behalf? Why or why not?
If so, how? What are the benefits to consumers, and costs to businesses
from such a rule? Provide all evidence that supports your answer,
including any evidence that quantifies the benefits to consumers, and
the costs to businesses.
13. Are there circumstances in which disclaimers or disclosures can
effectively dispel a misleading impression regarding earnings or
profits, or prevent such an impression? If so, describe such
circumstances in detail, including all necessary aspects of such
disclaimer or disclosure, such as language, format, or the context in
which it is presented. Provide all evidence that supports your answer,
or that otherwise addresses the effectiveness of disclaimers or
disclosures.
14. In the cases the Commission has brought, we have repeatedly
seen circumstances where earnings claims convey the impression that the
represented earnings are typical. Are there circumstances where they do
not? If so, describe such circumstances in detail. Provide all evidence
that supports your answer.
15. How should the rule address disclaimers? Are there any
circumstances in which a rule should require a disclaimer, such as with
atypical earnings claims? Why or why not? If so, describe such
circumstances in detail. How should a rule define or describe such
disclaimer? Should the rule address conduct that may minimize the
effectiveness of any disclaimer, and if so, how? What are the benefits
to consumers, and costs to businesses from such a rule? Provide all
evidence that supports your answer, including any evidence that
quantifies the benefits to consumers, and the costs to businesses.
16. Based on the Commission's enforcement experience,
representations of an expensive or otherwise desirable lifestyle--such
as images of or references to mansions, yachts, luxury
[[Page 13956]]
goods or automobiles, exotic or otherwise desirable vacations, or even
just having more free time--convey the impression that a money-making
opportunity can or will provide participants sufficient income to
afford a similar lifestyle. Under what circumstances, if any, do such
representations not convey such an impression? Describe such
circumstances in detail. Provide all evidence that supports your
answer.
17. Should a rule addressing the practices described in Question 1,
above, address the use of ``lifestyle'' claims of the type described in
Question 15? Why or why not? If so, how? What are the benefits to
consumers, and costs to businesses from such a rule? Provide all
evidence that supports your answer, including any evidence that
quantifies the benefits to consumers, and the costs to businesses.
18. Should a rule addressing the practices described in Question 1,
above, exempt from its coverage businesses or individuals that are
subject to the Business Opportunity Rule, the Franchise Rule, or the
Telemarketing Sales Rule? Why or why not? If so, how and to what
extent? What are the benefits to consumers, and costs to businesses
from such a rule? Provide all evidence that supports your answer,
including any evidence that quantifies the benefits to consumers, and
the costs to businesses.
19. If a rule addressing the practices described in Question 1,
above, is adopted, should the Business Opportunity Rule, the Franchise
Rule, or the Telemarketing Sales Rule be amended? Why or why not? If
so, how and to what extent?
20. Should a rule addressing the practices described in Question 1,
above, exempt from its coverage any other businesses or individuals?
Why or why not? If so, how and to what extent? What are the benefits to
consumers, and costs to businesses from such a rule? Provide all
evidence that supports your answer, including any evidence that
quantifies the benefits to consumers, and the costs to businesses.
21. Should a rule addressing the practices described in Question 1,
above, include an example earnings disclosure statement that would not
be mandatory, but would provide guidance for companies on how to make a
lawful earnings claim? Why or why not? If so, what should be contained
in the example statement? What are the benefits to consumers, and costs
to businesses from such a rule? Provide all evidence that supports your
answer, including any evidence that quantifies the benefits to
consumers, and the costs to businesses.
22. Should a rule addressing the practices described in Question 1,
above, require that an earnings claim disclosure document be provided
to consumers prior to purchase, prior to accepting an offer for work,
or at any other time? Why or why not? If so, how should the rule define
or describe the required disclosure, the time(s) at which it must be
provided, the manner in which it must be provided (so it cannot be
hidden or obscured by other paperwork), the languages in which it must
be provided, and who must provide it? What are the benefits to
consumers, and costs to businesses, and in particular small businesses,
from such a rule? Provide all evidence that supports your answer,
including any evidence that quantifies the benefits to consumers, and
the costs to businesses, and in particular small businesses.
23. How prevalent is the deceptive or misleading use of real or
purported industry earnings data or statistics in the promotion of
money-making opportunities? Provide any evidence, such as empirical
data, consumer perception studies, or consumer complaints, that
demonstrates the extent of such practices. Provide all evidence that
supports your answer.
24. Do the practices described in Question 21, above, cause injury
to consumers, and if so, how, and how much? Provide any evidence that
quantifies or estimates that injury if possible, including any non-
financial or indirect injuries to consumers, and including the size of
the discrepancy between misleading earnings claims and actual earnings.
Provide all evidence that supports your answer.
25. Should a rule addressing the practices described in Question 1,
above, include a provision concerning the use of real or purported
industry earnings data or statistics? Why or why not? If so, how?
Should the coverage of such a provision be limited? If so, how and why?
Provide all evidence that supports your answer, including any evidence
that quantifies the benefits to consumers, and the costs to businesses.
26. Do existing laws and regulations covering false,
unsubstantiated, or otherwise misleading earnings claims affect
businesses, particularly small businesses? If so, how? Provide all
evidence that supports your answer.
27. Are there other commercial acts or practices involving earnings
claims that are deceptive or unfair that should be addressed in the
proposed rulemaking? If so, describe the practices. How widespread are
the practices? Provide all evidence that supports your answer, and
please answer Questions 2-9 with respect to the practices.
28. Do current or impending changes in technology or market
practices affect the need for rulemaking? If so, describe the changes
and how they affect whether and how a rulemaking should proceed.
Provide all evidence that supports your answer.
IV. Comment Submissions
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before May 10, 2022.
Write ``Earnings Claims ANPR, R111003'' on your comment. Your comment--
including your name and your state--will be placed on the public record
of this proceeding, including, to the extent practicable, on the
https://www.regulations.gov website.
Because of the public health emergency in response to the COVID-19
outbreak and the agency's heightened security screening, postal mail
addressed to the Commission will be subject to delay. We strongly
encourage you to submit your comments online through the https://www.regulations.gov website. To ensure the Commission considers your
online comment, please follow the instructions on the web-based form.
If you file your comment on paper, write ``Earnings Claims
Rulemaking, R111003'' on your comment and on the envelope, and mail
your comment to the following address: Federal Trade Commission, Office
of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex B),
Washington, DC 20580, or deliver your comment to the following address:
Federal Trade Commission, Office of the Secretary, Constitution Center,
400 7th Street SW, 5th Floor, Suite 5610 (Annex B), Washington, DC
20024. If possible, please submit your paper comment to the Commission
by courier or overnight service.
Because your comment will be placed on the public record, you are
solely responsible for making sure that your comment does not include
any sensitive or confidential information. In particular, your comment
should not contain sensitive personal information, such as your or
anyone else's Social Security number; date of birth; driver's license
number or other state identification number or foreign country
equivalent; passport number; financial account number; or credit or
debit card number. You are also solely responsible for making sure your
comment does not include any sensitive health information, such as
medical records or other individually identifiable health
[[Page 13957]]
information. In addition, your comment should not include any ``[t]rade
secret or any commercial or financial information which . . . is
privileged or confidential''--as provided in section 6(f) of the FTC
Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2) --
including in particular competitively sensitive information such as
costs, sales statistics, inventories, formulas, patterns, devices,
manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request, and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted publicly at www.regulations.gov--as legally required by FTC
Rule 4.9(b)--we cannot redact or remove your comment, unless you submit
a confidentiality request that meets the requirements for such
treatment under FTC Rule 4.9(c), and the General Counsel grants that
request.
Visit the FTC website to read this document and the news release
describing it. The FTC Act and other laws that the Commission
administers permit the collection of public comments to consider and
use in this proceeding as appropriate. The Commission will consider all
timely and responsive public comments it receives on or before May 10,
2022. For information on the Commission's privacy policy, including
routine uses permitted by the Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
By direction of the Commission.
April J. Tabor,
Secretary.
Statement of Commissioner Rebecca Kelly Slaughter Regarding Advance
Notice of Proposed Rulemaking on the Use of Earnings Claims
Unfair and deceptive earnings claims underpin some of the worst and
most financially ruinous scams Americans face. Pyramid schemes, phony
investments, and multi-level-marketing all exploit people's hopes--for
financial stability, for a chance to improve their lives--with false
promises. These scammers often take advantage of national and financial
crises to exploit the newly vulnerable. And unfortunately, we've seen
that in the Covid-19 pandemic as well. The extent of these scams is
astounding. In a 2020 law enforcement crackdown the FTC pursued over a
billion dollars lost to these schemes.\1\
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\1\ Press Release, Federal Trade Commission, As Scammers
Leverage Pandemic Fears, FTC and Law Enforcement Partners Crack Down
on Deceptive Income Schemes Nationwide, December 14, 2020, https://www.ftc.gov/newsevents/press-releases/2020/12/scammers-leverage-pandemic-fears-ftc-law-enforcement-partners.
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Combating these schemes illuminates something important about the
agency's authority and our mission, too. Section 5's requirement that
earnings claims are honest and substantiated reflects an
underappreciated obligation of the FTC: To protect Americans as workers
and not simply as the consumers of products and services. Markets
cannot function effectively without honest and transparent pricing.
That is just as true for the labor market as it is for consumer goods.
False or misleading earnings claims robs people of their investments,
their time, and the fair value of their labor. It is also worth
remembering: Individuals who put their savings into the stock market--
often wealthier individuals--can rely on the SEC to police
misrepresentations about earnings claims with respect to those
investments. But less wealthy folks who may pour their life savings
into promised business opportunities deserve the protection of the
federal government as well; that is why we must aggressively police
misleading earnings claims.
Two of our recent enforcement actions demonstrate how this kind of
exploitation works in practice. Last year the FTC settled with the
owners and operators of Moda Latina.\2\ The company primarily targeted
Latinas with Spanish-language ads that made false promises of
significant earnings reselling luxury products. Moda Latina's marketing
campaign specifically targeted Latina consumers interested in starting
work-at-home businesses.\3\ It seems like none of the women targeted in
this scheme made money but were instead cheated out of their time and
funds to buy useless goods. These kinds of false claims crowd out
honest opportunities for people to start businesses, making life even
more precarious for vulnerable workers and would-be entrepreneurs.
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\2\ Press Release, Federal Trade Commission, Operators of Bous
Income Scam Targeting Latinas Face FTC Settlement, March 2, 2021,
https://www.ftc.gov/news-events/press-releases/2021/03/operators-bogus-income-scam-targeting-latinas-face-ftc-settlement.
\3\ FTC v. Moda Latina BZ Inc., No. 2:20-cv-10832 (filed C.D.
Cal. 2020), https://www.ftc.gov/system/files/documents/cases/001_complaint.pdf.
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I'm also deeply concerned about the effect of the over-promises of
the gig economy on workers and the labor market. Last year, the FTC
settled with Amazon over our charges that it robbed its Amazon Flex
drivers the full amount of tips it promised to them.\4\ These gig-
economy workers signed up as drivers to deliver goods and groceries
order through Amazon based on an advertised hourly rate and the promise
of receiving ``100% of tips'' they earned while completing deliveries.
After people had already signed up to work for the company, Amazon
secretly changed its payment scheme and ceased giving drivers their
tips while still representing that it did so to these workers and to
consumers. In settlement the agency recovered $61.7 million from
Amazon, the full amount of the tips the agency believe Amazon withheld
from them. By misrepresenting these drivers' take-home pay Amazon
distorted both the gig-driver labor market and the consumer home
delivery market in what I believe we can fairly surmise was an unlawful
bid to increase its market share and lower its labor costs.
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\4\ Press Release, Federal Trade Commission, Amazon to Pay $61.7
Million to Settle FTC Charges it Withheld Some Customer Tips from
Amazon Flex Drivers, February 2, 2021, https://www.ftc.gov/news-events/pressreleases/2021/02/amazon-pay-617-million-settle-ftc-charges-it-withheld-some.
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Effective enforcement of Section 5's consumer protection
obligations helps make these markets for labor functional, fair, and
competitive. That's why I'm eager to begin a rulemaking inquiry on
earnings claims. I'm proud of the decades of enforcement actions the
agency has undertaken to protect against these unfair and deceptive
practices. But case by case enforcement has left gaps unscrupulous
actors can exploit.
Starting this inquiry means we can now gather evidence on how best
to protect against these scams and begin to think about how a possible
trade regulation rule could help level the playing field between
workers and those that employ them. Pursuing rule violations would also
reopen an avenue to return stolen money to consumers--something we can
no longer do under section 13(b) until Congress steps in to fix it.
I want to thank everyone that helped bring this ANPR to the
Commission today, in particular Melissa Dickey, Andrew Hudson and Kati
Daffan in DMP. I'd also like to thank Elisa Jillson, the CTD for the
Bureau, Kenny Wright in the Office of the General Counsel, Jason Adler
and Guy Ward from the MWRO, and David Givens, Douglas
[[Page 13958]]
Smith, and Yan Lau, in the Bureau of Economics for all their work.
Concurring Statement of Commissioner Christine S. Wilson on Advance
Notice of Proposed Rulemaking Concerning Earnings Claims
Today, the Commission issues an Advance Notice of Proposed
Rulemaking (``ANPRM'') to commence proceedings to address the use of
false, unsubstantiated, or otherwise misleading earnings claims. As
explained in this Federal Register document, despite the Commission's
aggressive enforcement efforts for decades to combat deceptive earnings
claims, false claims about income opportunities continue to
proliferate. While I remain skeptical of unleashing a tsunami of
rulemakings to address common unfair or deceptive acts or practices, I
do not oppose seeking comment on today's ANPRM.
We contemplate this rule against the backdrop of AMG Capital Mgmt.,
LLC v. FTC.\1\ The Supreme Court's recent decision in AMG limits the
Commission's authority to use section 13(b) of the FTC Act to obtain
monetary relief for consumers harmed by misleading earnings claims.
While a rule would not prevent fraudsters from engaging in deceptive
earnings claims, it would enhance the FTC's ability to strip them of
their ill-gotten gains and return that money to consumers. But for AMG,
I would be skeptical about the need for rules regarding conduct
frequently targeted by the FTC's extensive fraud program. That said, a
13(b) fix would be preferable to having the FTC pursue a cornucopia of
rules. And if a 13(b) fix is enacted during the pendency of this
rulemaking, I likely would ask the Commission to terminate the process.
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\1\ AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).
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In the wake of AMG, the exploration of a potential Earnings Claims
rule is appropriate for two reasons. First, whether false earnings
claims are made by frauds or legitimate businesses, no benefit accrues
to consumers or competition. In fact, a 2020 FTC Data Spotlight about
``income scams'' stated that the median loss associated with business
and work-at-home opportunities is $3,000.\2\ Consumer losses related to
deceptively marketed investment seminars are even higher, exceeding
$16,000.\3\ For decades, the Commission has challenged deceptive
earnings claims in connection with coaching and mentoring schemes,
multi-level marketing (``MLM'') arrangements, and work-from-home or
other business opportunity scams, to name a few.\4\ Despite decades of
aggressive enforcement and extensive consumer and business education
efforts, deceptive earnings claims persist.
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\2\ Emma Fletcher, Income scams: big promises, big losses, FTC
Consumer Protection Data Spotlight (Dec. 10, 2020), available at
https://www.ftc.gov/system/files/attachments/blog_posts/%20scams%3A%20big%20promises%2C%20big%20losses%20/.final_.correctlink.pdf.
\3\ Id.
\4\ See Section I of SUPPLEMENTARY INFORMATION, supra. See also
Notice of Penalty Offense Authority Concerning Money-Making
Opportunities, available at https://www.ftc.gov/MMO-notice.
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Second, consumers cannot analyze the costs and benefits of
investing significant resources to pursue coaching, training, MLM, or
educational opportunities without accurate representations from
sellers. But the true value of these opportunities is best assessed by
the entities offering them. In other words, we see significant
information asymmetries between consumers and the entities that make
earnings claims. The monetary value of an opportunity is likely the
central, material claim that consumers consider before spending
hundreds, thousands, or even tens of thousands of dollars on financial-
improvement opportunities. This ANPRM seeks information on how to
ensure that when disclosures are made, they are substantiated.
For these reasons, I do not oppose an ANPRM that explores ways to
incentivize establishing a reasonable basis for earnings claims.
[FR Doc. 2022-04679 Filed 3-10-22; 8:45 am]
BILLING CODE 6750-01-P
