The latest edition of the FTC’s recent practice of holding open meetings brings a potential rule regarding earnings claims to the forefront. During the FTC’s open meeting, the Commission unanimously approved issuing an Advance Notice of Proposed Rulemaking with respect to earnings claims. As the Commissioners pointed out in their comments (additional information below), the motivation for this rulemaking is to repair the FTC’s ability to recover monetary relief for consumers after the Supreme Court’s decision in AMG Capital Management.
Prior to the vote, the Commissioners allowed Melissa Dickey from the Division of Marketing Practices to give a presentation on the FTC’s historical experience with earnings claims and the Division’s recommendation. Ms. Dickey recommended that the Commission move forward with the rulemaking process, and pointed to two primary reasons. First, the Division views false, misleading, and unsubstantiated earnings claims as especially problematic to consumers who, as Ms. Dickey postulated, ultimately rely on these assurances and, as a result, end up in significant debt. Second, the Bureau believes that these earnings claims are widespread, and impact almost every community, especially during the pandemic era, where purported bad actors target those who are seeking to earn extra income while working remotely.
Chair Khan “strongly supported” the Division’s recommendation and added remarks before the vote. First, she took the position that earnings claims are especially prevalent in the gig economy, which she believes is more likely to affect various minority groups. She also voiced her concerns that false or misleading earnings claims could potentially aid companies in amassing market power, and that market power can potentially enable false or misleading earnings claims. Second, Chair Kahn emphasized that the Commission is exploring every tool at its disposal to compensate for authority it no longer has under Section 13b, and she believes a codified rule has the potential to help redress consumers when redress is not otherwise available under the Telemarketing Sales Rule or the Business Opportunity Rule.
Commissioners Philips and Slaughter seconded Chair Khan’s comments. Commissioner Philips added that he supports the effort to proceed with Section 18 rulemaking to promulgate a clear rule that addresses deceptive conduct and return money to consumers. Commissioner Slaughter added that it is important to gather evidence during the rulemaking process to craft a rule that best protects against false or deceptive earnings claims.
Perhaps the most distinct concurrence was from Commissioner Wilson. She emphasized (again) that she does not support “unleashing a tsunami of rulemaking” to address already-unlawful, unfair or deceptive acts or practices. Commissioner Wilson further noted that should there be a congressional fix to Section 13b, she would withdraw her support for this rulemaking and ask that the rulemaking be terminated. Otherwise, Commissioner Wilson did not oppose going forward with the rulemaking process for what she perceives as (1) the persistence of deceptive earnings claims despite decades of enforcement; and (2) consumers’ inability to analyze the costs and benefits of an opportunity without accurate representations.
The issue of what substantiation is necessary for earnings claims and whether and how disclaimers and disclosures can be used for companies making earnings claims, will be areas covered by the rulemaking. For those potentially impacted by this rulemaking, there is a 60-day window to submit comments. Let us know if we can help.