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FTC Cracking Down on Testimonials: What Affiliates Need to Know
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FTC Cracking Down on Testimonials: What Affiliates Need to Know

by Richard B. Newman2011-06-01

The Federal Trade Commission (“FTC”) continues its assault on Internet-based false and deceptive advertising, including enforcement of recently published guidelines concerning the use of endorsements and testimonials.  On May 31, 2011, the FTC announced its first settlement with an individual consumer charged with deceptive representations made in relation to a product or service testimonial.

The matter pertains to a “pitchman” defrauding consumers via a money-making scheme by misrepresenting the earning potential of a so-called “wealth building” program called  “Winning in the Cash Flow Business.”  The defendants allegedly misled consumers about how much money they could make using the program and how quickly and easily they could make it. The initial cost of the program ranged between $40 and $160. Consumers “were later encouraged to spend hundreds or thousands of dollars more on additional products or services, such as multi-day seminars, coaching sessions, and promissory note holder lead lists.”

The Complaint was filed in the U.S. District Court for the District of Colorado and alleges that the defendants’ actions violated FTC Act §5, the Telemarketing Sales Rule (“TSR”), and the Colorado Consumer Protection Act.  In 2002, one of the defendants used a thirty-minute infomercial as the primary method to advertise the program.  It was broadcast nationwide.  The FTC also states that the program was marketed online, as well as through direct mail.  The infomercial claimed that consumers could earn substantial income successfully by finding, brokering, and earning commissions on seller-financed promissory notes.

The alleged false and misleading claims included “testimonials” purportedly from consumers claiming to have made “$1.2 million in 30 days,” “$79,000 in a few hours,” and “$262,216 part time.” The FTC and the state allege that this was far from the “typical consumer experience.”  One consumer in particular who provided a testimonial in an infomercial reached a settlement with the Agency amid charges that she falsely claimed earning $79,975.01 from one promissory note transaction using defendants’ program and that her total earnings were over $134,000.  The complaint alleges that the consumer made this statement, even though she earned $50,000 less than what she claimed.  She agreed to a consent judgment prohibiting her from making several types of misrepresentations in the future, and has agreed to cooperate with law enforcers in their case against the remaining defendants.

The Colorado Attorney General joined the FTC in prosecuting this case, both seeking to preclude the individual and corporate entities they control from continuing to make the allegedly misleading claims, as well as consumer redress.  The federal and state plaintiffs charged that consumer testimonials in the defendants’ advertising are inaccurate and do not reflect the results that customers are “likely to achieve” if they buy the program.  Instead, some of the testimonials reflect earnings claims that were total earnings figures accumulated over several years, rather than in one year.  Since the defendants made similar misrepresentations to consumers during sales calls, they also were charged with violating the FTC’s TSR.

What Affiliates Need to Know
With the recent increased state and federal regulatory scrutiny, everyone who markets a product or service online should be on notice – when someone is selling a program designed to help people make money they have to accurately describe how much consumers can expect to make and be truthful about how quickly they will be able to do so.

In fact, the FTC has recently announced that an update to federal advertising rules pertaining to Internet marketing is imminent.

The original Dot Com Disclosures were issued more than a decade ago and do not take into account technological advancements in the Internet, mobile marketing, and social marketing sectors.  So, while the FTC continues to vigilantly patrol online marketing and advertising practices, it also appears to be keeping an eye on current technological issues.  Regardless of the direction the “revamped” advertising rules may take, one requirement will remain a constant – clear & conspicuous disclosures so that consumers can make fully informed online purchasing decisions. Factors such as the context of the disclosure, its prominence, placement and proximity to the language it limits, are but a few critical considerations that must be mindfully addressed.

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Richard B. Newman is an highly-respected Internet Lawyer and FTC Defense Lawyer at Hinch Newman LLP. He has made a name for himself in the industry having been the lead attorney on several well known cases. He can be contacted at rnewman@hinchnewman.com

“Richard Newman is one of the top, most respected  attorneys for Interactive Advertising and Affiliate Law. He has his finger on the pulse of the industry.”Pace Lattin, InsideOV

 

About The Author
Richard B. Newman
Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on Internet law, online marketing compliance, regulatory defense and digital media matters. His practice includes complex commercial litigation defense, SPAM law compliance and litigation defense, intellectual property transactional and litigation matters, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.
13 Comments
  • 2011-06-04 at 02:08

    This is crazy. Lying to your customers is such a short term profit. Karma will come back to bite you in the ass eventually.

  • 2011-06-04 at 23:49

    Pace, thanks for the great info. No new lessons learned here – if it is too good to be true, then it probably isn't true. Affiliate Marketing, or any other business for that matter, takes planning, learning, patience and persistence…traits most people don't have.

  • 2011-06-09 at 17:55

    Thanks for this very useful information. I was wondering when all the fake testimonials and fake money making scams will be dealt with.

  • 2011-06-10 at 03:35

    Say what you will about a lot of government agencies, but the FTC is getting this one right. I've heard a lot of people say that this stinks, when it's all about honest money making, and they still got a long way to go. Thank you for this article…

  • Twice Bitten
    2011-06-10 at 06:19

    I think the FTC should next turn its attention to the false claims made by many of those
    launching promotions of softwares that deliver instant results by just pressing a button.
    Such claims lure the unwary into making a purchase, only to realise that the software
    may not work effectively unless they buy the many upsells which are priced many times
    the original purchase price. Even then, the add-ons may not work.

  • Nobodyinparticular
    2011-06-22 at 12:44

    It is not all on the internet, i guess the "devil" should be searched on TV, newspapers and elsewhere as well?

  • 2011-07-27 at 18:14

    Hi, I am Chris from FootballAffiliates.com. With football season here we are looking for website owners who want to significantly increase what their site is earning. We offer a 50% commission (which is $23-25 per sale). Our product converts like crazy and really sells itself. Millions of people want to watch football online and our product fills their need. Most of our affiliates just place one of our banners on their site and they make anywhere from $25-$500 per day. Even if your website is not about football we’ve had people simply write one article and place a text link to our product and they earn hundreds per month. If you like more information please check out our high level description at FootballAffiliates.com or you can view our affiliate platform. If you have any questions I welcome them, please send me an email and we can discuss anything you would like to know. Thanks for your time. Chris

  • lindiA
    2011-08-06 at 00:33

    Thanks for the tip! I think that the most important thing to consider is that we should be wary of payday loans! Apparently, an internet marketer has been charged of fraudulent behavior in a Federal Trade Commission (FTC) complaint. As reported by the grievance, the business debited customers’ accounts without consent. The charges claim that customers were charged for things they didn’t want when they went to a website seeking a payday advance.

    Article FTC charges marketer with fraudulent practices

    See it for yourself! I think each of us should be aware of the disadvantages of having payday loans trusted over the internet. You can’t really trust online cash payments, unless you see it for yourself. It takes a lot of management in order to avoid frauds such as these. Don’t you think so?

What's your opinion?