Four Keys to FTC Compliance in 2021
Whenever a new administration takes office, regardless of its particular political leaning, businesses and other organizations must anticipate and be prepared for regulatory changes. This is especially true when control of the House of Representative or Senate changes hands, as was the case in the 2020 election.
Starting in 2021, the regulatory landscape businesses face will likely look quite a bit different than it has for the past few years. Businesses can get a head start on ensuring continued compliance by adjusting their policies and practices in accordance with foreseeable changes. Many of these regulatory changes will come from the Federal Trade Commission (FTC).
The FTC is the federal agency charged with promoting consumer protection and ensuring fair competition. As a law enforcement agency, the Federal Trade Commission will initiate an investigation if it believes a business violated the law, which can lead to civil or criminal liability. Dr. Nick Oberheiden, Founding Attorney of Oberheiden, P.C., explains:
While the FTC’s jurisdiction extends throughout all consumer protection and anti-competitive business practices, in recent years the Commission has focused its efforts primarily in the areas of unfair and deceptive trade practices, identity theft, consumer data privacy, and anti-competitive mergers and acquisitions. It is important businesses take special care, looking forward, to make sure they are fully compliant, and remain complaint regardless of whatever regulatory changes lie ahead.
Below are four areas in which businesses should take particular care to review to make sure that they are FTC compliant in 2021 and beyond.
Engage in Mindful Marketing
Even under the current administration, the Federal Trade Commission started cracking down on aggressive and misleading marketing campaigns. This is expected to continue—and even increase—once Democrats officially control the White House and the House of Representatives. In part, the heightened focus on misleading marketing stems from the hard economic times many families are experiencing as a result of the COVID-19 pandemic.
Take, for example, the recent FTC enforcement action against the stock-tip platform, Raging Bull. In a complaint filed in December 2020, the Federal Trade Commission requested a permanent injunction based on the company’s allegedly false and misleading marketing tactics. Specifically, the FTC claims that Raging Bull took advantage of those looking to “beat the market” by misleading potential customers about the success of their “expert” traders. According to the Federal Trade Commission, the “expert” traders made the vast majority of their money from the subscription fees users paid to access the platform—not from trading stocks or options.
These challenging economic times are also leading some businesses to increase their charitable giving. Not only does this help those in need, but it can also go a long way to advance a brand’s image in the eyes of the public. However, collecting money at check-out or advertising that a customer’s purchase will result in a donation to a charitable organization may trigger certain disclosures and other requirements. This is not to say that businesses should avoid donating to or working with charities, only that these businesses must be sure that they are doing so in the appropriate manner.
Avoid Price Gouging
The lasting impact of the COVID-19 pandemic has created an ongoing demand for certain products and services. While the concern over price gouging was especially urgent earlier in the year, the possibility of a surge in COVID-19 cases and a return to the early-pandemic levels of demand for certain goods and services cannot be ruled out. Back in March, Democratic members from the House of Representative and the Senate wrote to the Federal Trade Commission to encourage the agency to exercise its emergency powers to curb price gouging. In May, a Democratic lawmaker proposed the COVID-19 Price Gouging Prevention Act which, while not yet law, may be an indication of what is to come in January 2021.
The focus of the Price Gouging Prevention Act considers:
Whether the current price charged for an item “grossly exceeds” the average price previously charged for the same item;
Whether a firm’s price “grossly exceeds” the price charged by other firms prior to January 2020; and
Whether the current price adequately reflects the additional costs to bring the good or service to market.
Price gouging is also subject to state-specific laws, which may impose additional burdens for businesses in certain states. For example, the Attorneys General in certain states has asked e-commerce platforms to assist in the prevention of price gouging. Businesses must be conscious of the increased focus on price gouging, and take care not to run afoul of these tightening regulations.
Use Clear Terms for Revenue-Driving Subscriptions
The number of businesses generating a significant percentage of their revenue from subscription services has increased dramatically over the past decades. Many businesses that used to rely on one-time purchases have shifted to a subscription model. While subscription models work well for businesses in that they offer predictable revenue and generally increase the rate of customer retention, the Federal Trade Commission and other federal agencies are inundated with customer complaints related to subscription-model businesses.
The chief concern with subscription models is the company’s disclosure of the automatic-renewal process. Often issues arise when a business offers a “free trial” that requires a credit card, which will then be billed automatically without further action by the customer. Businesses relying on subscription revenue must be sure that the consumer is notified of the fact that, if they do nothing, they will continue to be billed. This requires businesses to provide clear disclosures during the check-out process, outlining all terms and informing the consumer on how they can cancel the service. It is also important for businesses to obtain, usually through an acknowledgment, that the customer agrees with the terms.
The Federal Trade Commission and other state and federal regulatory agencies have pursued multi-million-dollar class-action lawsuits against businesses based on their inadequate disclosures pertaining to subscription models. Thus, for those businesses relying on this type of income, ensuring compliance is crucial.
Be Transparent When It Comes to Reviews and Endorsements
In the age of Google and Amazon, online reviews have become the primary way for consumers to evaluate a good or service before purchasing decisions. Online reviews are a double-edged sword for businesses: on one hand, it is extremely easy for customers to read hundreds or thousands of reviews about a product; however, on the other hand, it is easier than ever for an unsatisfied customer to leave many negative reviews across various platforms.
In the wake of the online-review boom, businesses must find a way to deal with their negative reviews. However, businesses can easily run afoul of consumer protection and truth-in-advertising laws when doing so. For example, businesses that engage in any of the below activities may be in violation:
Review gating – The process of discouraging customers from leaving a negative review on a platform that contains a significant number of positive reviews.
Review reorganizing – The process of making positive reviews appear first, and placing lower reviews towards the bottom of the list.
Negative-Review deletion – The process of deleting unfavorable reviews.
Additionally, organizations that rely on endorsements must make clear what, if anything, they are providing to the endorsing party. Failure to do so may result in a truth-in-advertising violation.
Given the fact that Democrats will control the White House and the House of Representatives for the first time in nine years, 2021 promises to be a year of regulatory reform. While the exact nuances of the changes cannot be known, it is possible to identify likely areas of reform. All businesses, especially those that rely on online advertising, subscription models, and endorsements, should look ahead and start now to ensure that they will be in total compliance.