Signaling that more aggressive enforcement against deceptive marketers is coming, the FTC just issued a "Notice of Penalty Offenses" to 70 for-profit educational institutions, putting them on formal notice that certain practices violate the law. The letters warn the schools to review the Notice and to take "any steps necessary to ensure that your company's practices do not violate the law."
What is a "Notice of Penalty Offenses"?
Under the FTC's Section 5 authority, the FTC can send companies a "Notice of Penalty Offenses." This Notice lists certain types of conduct that the FTC has determined, in prior administrative orders, violates the FTC Act. Once a company receives the Notice, if it then engages in the prohibited conduct, it can be subject to civil penalties of up to $43,792 per violation.
Why is this significant? Ordinarily, when an advertiser engages in unfair or deceptive acts or practices, the FTC doesn't have the authority to impose penalties. And, after decades of getting financial relief through restitution, the U.S. Supreme Court recently took that authority away as well.
Interestingly, the fact that a marketer has received a Notice of Penalty Offenses from the FTC doesn't mean that the FTC has determined that the marketer has violated the law. Rather, the FTC sends these notices "to ensure that companies understand the law -- and that they are deterred from breaking it."
This isn't the only way that the FTC can provide guidance to marketers about what types of practices violate the law. The FTC can, for example, send regular warning letters, hold workshops, and issue official guides or other types of business guidance. The FTC can also send staff to business conferences, to help educate the business community about the types of practices that are deceptive or unfair (though those types of appearances are, apparently, not allowed anymore).
Why is today's move so significant? For many years, the FTC has devoted substantial resources to providing business guidance to help companies comply with the law. And, when companies cross the line, the FTC -- except in the most egregious cases -- has looked to quickly settle cases through settlement orders that focus on preventing the conduct from recurring. The FTC's move to rely on Notices of Penalty Offensive is a big warning sign to industry that the FTC plans (at least in some cases) to use stop giving companies two bites at the apple -- and that if you violate the law after being warned, the FTC is going to expect you to pay substantial penalties. The FTC said that because civil penalties "can exceed what a wrongdoer earned through their misconduct, penalties send a clear message that preying on consumers will not be profitable."
Should marketers assume that this move is just about the education industry? Absolutely not. As FTC Senior Attorney wrote in the FTC's business blog, "other companies can conclude that the FTC will use every tool at its disposal to protect consumers from deceptive and unfair practices."
What concerns did the FTC express about educational institutions?
In its Notice of Penalty Offenses to the for-profit educational community, the FTC indicated that it is cracking down on false promises that educational institutions make about their graduates' job and earnings prospects. FTC Chair Lina M. Khan said, "“For too long, unscrupulous for-profit schools have preyed on students with impunity, facing no penalties when they defraud their students and drive them into debt. The FTC is resurrecting a dormant authority to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers. Working closely with our state and federal partners, we’ll be monitoring this market carefully.”
Relying on cases that the FTC brought decades ago, the FTC said that the following practices violate Section 5 of the FTC Act:
- It is an unfair or deceptive trade practice to misrepresent, directly or by implication, the need or demand for consumers who have graduated from, or completed courses at, a specific institution.
- It is an unfair or deceptive trade practice to misrepresent, directly or by implication, the employment prospects of an institution’s graduates, the ease with which an institution’s graduates will be able to obtain employment or the opportunities for employment in any field in which a course of instruction is offered.
- It is an unfair or deceptive trade practice to misrepresent, directly or by implication, the types of jobs available to an institution’s graduates or for which they would be qualified upon completion of an institution’s courses or program
- It is an unfair or deceptive trade practice to misrepresent, directly or by implication, the number or percentage of consumers attending any course or completing any program or degree who have obtained employment, or the field or nature of such employment
- It is an unfair or deceptive trade practice to misrepresent, directly or by implication, the amount of money consumers who have graduated from, or have completed courses at, an institution will or may earn.
- It is an unfair or deceptive trade practice to misrepresent, directly or by implication, the qualifications or requirements necessary to obtain employment in the fields for which an institution offers training, including whether experience or additional education is required or advantageous for employment in any field or for any position.
- It is an unfair or deceptive trade practice to misrepresent, directly or by implication, an institution’s capabilities or facilities for assisting graduates or students of any course in finding employment, or the assistance actually provided to graduates in finding employment, including the existence of a job placement service.
And, in an unusual move at the FTC these days, the FTC voted 5-0 to authorize the sending of the Notices.
"The FTC is resurrecting a dormant authority to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers" -- FTC Chair Lina M. Khan