The Federal Trade Commission’s consumer protection division has some key issues in its sites for 2006, including childhood obesity, rebates and other marketing tactics.
C. Lee Peeler, the deputy director for the bureau of consumer protection at The Federal Trade Commission, offered an update on the commission’s top priorities, as well as enforcement actions during a keynote speech at the PMA Law Conference, held earlier this month in Chicago.
Peeler applauded the success of the national do-not-call registry, now with 100 million phone numbers, and said the commission has announced 16 cases and obtained 11 settlements, collecting a little over $800,000 in civil penalties and suspended another $800,000 due to defendants limited ability to pay. Peeler said the registry continues to be a top enforcement priority.
“If we were required to post road signs on the do-not-call highway, they would read ‘large civil penalties to come,’” Peeler said.
Rebates have been another continuing focus of the consumer protection bureau, with particular concerns about whether advertised rebates are being paid in a timely manner and whether consumers are even getting their rebates as promised.
In one recent high-profile case, the FTC challenged both the manufacturer who failed to pay timely rebates, and for the first time, a nationwide retailer, CompUSA, advertising the rebates. The FTC alleged that CompUSA knew that the manufacturer was having trouble paying rebates, but continued to advertise the incentives. CompUSA was ordered to make good on the manufacturer’s promised rebates and to pay thousands of consumer rebates, ranging from $15 to $100. The computer superstore was also required to overhaul its rebate program. CompUSA is prohibited from advertising rebates unless it can prove, through a prior or existing relationship, that the manufacturers pays rebates in a timely manner. If no record exists, CompUSA must conduct a financial analysis that the manufacturer can pay the offered rebate.
“Not withstanding these enforcement actions, our complaint data indicated that failure to pay rebates on time is an area of continuing concern to consumers,” Peeler said. “Therefore, you can expect to see more FTC enforcement activity in this area in 2006.”
Negative option and “free trial” promotions are other areas of long-standing concern to the FTC, he said.
With a negative option plan the consumer must affirmatively act to prevent further sales and without clear, conspicuous and truthful disclosures, the offers can be confusing, even deceptive. Most notably, clearly disclosing material terms of the offer and obtaining consumers’ informed consent are key, he said.
In a recent 10-day trial, a court found that a magazine subscription telemarketer who used negative option offers in the sale misrepresented and failed to adequately disclose the costs and conditions of its agreements and buying club memberships. The judge issued a tentative ruling holding the telemarketer liable for more than $7 million in civil penalties and disgorgement. The case was filed by the U.S. Department of Justice and the FTC.
Peeler said that the number of false weight loss claims were down and credited the commission’s ‘Red Flags’—weight loss ad guidelines—published two years ago, which challenged print and broadcast media to stop false ads from running.
“A year after first asking the media for help, we found that the percentage of ads with Red Flag claims had fallen from almost 50% to 15%,” Peeler said. “Now 15% is still too high, but the progress is remarkable.” He called for continued effort by the media.
As for consumer privacy, Peeler said that businesses, educational institutions and government have lost, misplaced or had stolen, more than 50 million consumer files this year alone, in addition to 10 million reports of identity theft. The FTC’s enforcement program encourages companies to put in place solid information security practices. The FTC has filed five cases to date alleging that the defendants promised to take reasonable steps to protect consumers’ sensitive information, but did not. A sixth case, settled last summer against BJ’s Wholesale Club, a Fortune 500 company with more than $6 billion in annual sales, claimed that the company did not adequately secure customer data. BJ’s was required to establish a comprehensive security program, including regular assessments of the program by an independent auditor.
“We wanted to provide clear notice to the business community that failure to maintain reasonable and appropriate security measures in light of the sensitivity of the information can cause substantial consumer injury and may violate the FTC act,” Peeler said.
With 9 million young people between the ages of six and 19 obese, childhood obesity is also top of mind at the FTC. Peeler said there is “substantial concern among many that pervasive advertising and marketing of food to children is contributing to this epidemic. Last summer, the FTC and the Department of Health and Human Services met with marketers and child-health advocates to draft voluntary restrictions on food marketing to kids. (PROMO September 2005) and (PROMO October 2005).
Outside of FTC efforts, state and federal legislators have enacted legislation to stop or limit the sale of soda in public schools. Beverage giants Coca-Cola and Pepsi-Cola are about to get slapped with a lawsuit filed by parents that claim that the companies use caffeine in their beverages to get kids hooked on products that are dangerous because of their empty calories, among other charges. Heading the effort are a number of attorneys who made their mark by successfully fighting tobacco companies with class action lawsuits (PROMO Xtra, Dec. 1). The Ad Council launched a Coalition for Healthy Children to get food marketers on board with a consistent message and many top consumer packaged goods companies have launched healthy eating campaigns and reformulated some recipes. And just last week, a report released by the Institute of Medicine of the National Academies stopped short of saying that TV ads are a direct cause of the epidemic of obesity in children, but said that the connection is strong. The committee called for government legislation if self-regulation should fail (PROMO Xtra, Dec. 7).
Peeler also reviewed FTC actions related to spam. To date, the FTC has filed 80 spam-related cases against 225 individuals and companies.