After last year's U.S. Supreme Court decision limiting the Federal Trade Commission's ability to obtain financial relief, the FTC has been forced to look for new ways to give teeth to its enforcement actions.
Last fall, the FTC said that it planned to start using its little-known and little-used Penalty Offense Authority, which gives the FTC the ability to obtain civil penalties in cases where the marketer knew that its conduct was unfair or deceptive and where the FTC had already issued a written decision that such conduct was, in fact, unfair or deceptive. The FTC then quickly issued Notices of Penalty Offenses on Money-Making Opportunities, Endorsements, and Education, warning marketers of business opportunities and for-profit educational institutions, as well as anyone using endorsements in their advertising, that they had better ensure that their practices comply with the law.
Then, last week, in a surprise move, the FTC brought enforcement actions using its Penalty Offense Authority that were not based on these Notices of Penalty Offenses, but that were instead based on earlier action taken by the FTC. As part of the announcement of those actions, the FTC said that it is "reviving additional Notices of Penalty Offenses that were issued in the 1970s or 1980s but remain valid and relevant today." These notices cover textiles, energy savings, fur products, home improvement products, auto rentals, bait and switch, toys, and weight reduction. The FTC warned, "Businesses in these industries should familiarize themselves with the Commission's determination in these areas." It's not clear, however, whether the FTC plans to look at the practices of the companies that received those notices decades ago, whether the FTC plans to send these notices out again to select companies, or whether it plans to take other action in order to invoke its "Penalty Offense Authority."
Here are some of the highlights from these older Notices.
In 1978, the FTC issued a Notice of Penalty Offenses Concerning Automobile Rental Practices. This Notice is largely focused on the advertising of car rental prices. The FTC said that, when car rental companies advertise prices, they should conspicuously disclose all other charges that renters may be required to pay "to ensure that the consumer will not be deceived by the advertisement as to the costs of renting the car." The FTC also warned car rental companies about engaging in "bait and switch" practices as well (discussed below).
Bait & Switch
In 1975, the FTC issued a Notice of Penalty Offenses Concerning Bait and Switch Sales Practices, which declared "bait and switch" practices to be illegal. In the Notice, the FTC defined "bait and switch" as "the advertising of a product without the bona fide intention to sell it, for the purpose of establishing contract with a prospective customer in order to induce or 'switch' him to purchase another product." The FTC said the following types of "bait and switch" practices are illegal:
- Disparaging an advertised product for the purpose of switching a customer to the purchase of another product;
- Advertising a product whose actual appearance or performance discourages its purchase by being below the quality advertised;
- Switching a customer to a higher priced product by refusing to show or to sell the advertised product;
- Switching a customer to another product by claiming that the advertised product is unavailable or by failing to have the advertised product available in reasonable quantity; and
- Switching a customer to another product by refusing to take orders for delivery or failing to make delivery, if an order is taken, within a reasonable period of time.
In 1979, the FTC issued a Notice of Penalty Offenses Concerning Energy Savings Claims. In the Notice, the FTC said that the following practices are unfair or deceptive in connection with the advertising of home improvement materials or products:
- Falsely representing the fuel or energy savings expected; and
- Representing energy savings or reductions in fuel bill prices when consumers will not ordinarily realize such savings or reductions.
In 1978, the FTC issued a Notice of Penalty Offenses Concerning Labeling, Invoicing and Advertising of Fur Products. The Notice contains information about the types of practices the FTC believes are illegal in connection with the marketing and sale of fur, including things such as, improperly identifying the fur, not disclosing that the fur was second-hand, failing to disclose when fur has been dyed, failing to disclose when the fur contains "paws, tails, bellies or waste," and using misleading pricing claims.
In 1977, the FTC issued a Notice of Penalty Offenses Concerning the Advertising and Sale of Home Improvement Products. The Notice identifies a number of practices that it says are unfair or deceptive in connection with the advertising and sale of residential siding, storm windows and doors, swimming pools, and other home improvement products, including:
- Engaging in "bait and switch" practices;
- Falsely advertising that a product is being offered at a special price or for a limited time;
- Falsely advertising that consumers will receive a "free gift";
- Falsely representing expected fuel or energy savings from residential siding;
- Falsely representing the seller's relationship with the manufacturer;
- Falsely representing the durability or maintenance characteristics of a product; and
- Falsely representing that because a home may be used as a "model home," that the home will be available at a reduced price.
The FTC issued an undated Notice of Penalty Offenses Concerning Textile Fiber Products. The Notice identifies a number of practices, in connection with the marketing of textile fiber products, that the FTC says violate both the FTC Act and the Textile Act, including the mislabeling or misidentification of textile fiber products and misrepresenting the amount by which a fabric will shrink when washed.
In 1976, the FTC issued a Notice of Penalty Offenses Regarding the Advertising and Packaging of Toys. In the Notice, the FTC said that it's unfair or deceptive to:
- Misrepresent the performance of a toy; and
- Use oversized containers, or to use pictures, depictions, or written materials on containers, to create a false and misleading impression of the contents or quantities contained in them.
In 1983, the FTC issued a Notice of Penalty Offenses Concerning Promotion of Products and Plans for Weight Control. The Notice identifies a number of practices that the FTC says are deceptive, including:
- Advertising that the use of appetite suppressants enables a person to lose weight or fat without dieting or restricting caloric intake;
- Falsely representing that a product has a unique ingredient;
- Using testimonials to falsely represent the typical experience of users of the product; and
- Making weight loss claims without proper scientific evidence to back them up.
While some of the practices identified in these Notices may not be the biggest concern right now (whether your fur coat contains tails or paws, for example), there's a lot here that marketers should pay attention to, if they want to avoid FTC scrutiny in the future.
"Businesses in these industries should familiarize themselves with the Commission's determination in these areas"