Ten Compliance Mistakes Made by Online Training and Business Coaching Program Providers
The Federal Trade Commission requires advertisers to possess a “reasonable basis” for express and implied claims. The failure to do so constitutes an unfair and deceptive act or practice in violation of Section 5 of the FTC Act.
Providers of online training and business coaching programs have found themselves on the receiving end of unwanted FTC scrutiny of late. What follows below are ten compliance mistakes made by operators of such programs that are almost certain to result in unwanted regulatory scrutiny.
Making False or Unfounded Earnings Claims
Making false or unfounded earnings and related claims to sell enrollment in online training and business coaching programs. Such claims can be express or implied, are often made via the use of endorsements, and must be substantiated. Claims of those that achieved exceptional, or even above average results, are a regulatory enforcement favorite.
For example, if the advertiser does not have proof that an endorser’s earnings claims represent what people will generally achieve using the program as described in the ad, then an ad featuring that endorser must make clear to the audience what the generally expected results are. Often, the FTC uncovers that the vast majority of enrollees do not make any money, and many lose money on top of the money they pay the program providers.
Claims that a program can be used to generate substantial income are also almost certain to draw the ire of the FTC. As are photos depicting a lavish lifestyle and representations that earnings can be achieved quickly, by anyone, regardless of education and/or regardless of experience.
Failing to Possess Pre-Dissemination Substantiation
Earnings claims are not the only type of representations that must by adequately substantiation. In fact, advertisers must possess a reasonable basis for all express and implied claims, before such claims are disseminated. It is not enough to possess the requisite level of substantiation after the FTC has initiated a regulatory investigation or lawsuit.
Charging Exorbitant Prices; Failing to Offer Anything of Legitimate Value
Recent FTC enforcement actions have also focused upon exorbitant prices charged by providers in exchange for training materials that the agency alleged to be readily available, at no cost, online. What consumers are offered in exchange for what they pay therefor, as well as the amount of money that consumers are charged, are amongst the factors assessed by the FTC when considering enforcement.
Making Misleading Representations About the Background of Instructors
Purported “instructors” that are really salespeople on commission who market enrollment and training materials are another issue to avoid. As is overstating the “expertise” or experience of those teaching courses. Training sales personnel to deceive consumers while taking them through a suspect sales funnel is a tactic that the FTC is familiar with, and scrutinizes.
Holding people out as successful in a particular industry alone, much less coupled with purported substantial wealth having been amassed via the program, are issues that can easily result in a civil investigative demand (or judicial enforcement action) requesting proof for such claims.
Making Misrepresentations about the Scope and Nature of Products and Services
Representations about the scope and nature of the products and services offered must be accurate and truthful. For example, if consumers are told that they will receive specialized one-on-one expert training tailored to the consumers’ specific needs or business, they must receive just that. Claims of access to specialized research or materials must also be truthful and substantiated.
Requiring Customers That Request Refunds to Agree Not to Post Negative Reviews
Requiring enrollees to sign contracts barring them from posting negative comments about the program provider or its personnel, and/or from reporting wrongdoing to law enforcement agencies, can not only result in legal regulatory issues, it may violate the Consumer Review Fairness Act.
Failing to Provide Disclosures Required by the Business Opportunity Rule
Online training and business coaching programs may potentially trigger the Business Opportunity Rule. “Sellers” that sell or offer to sell “business opportunities” as defined by the Business Opportunity Rule are required to, amongst other things, provide prospective purchasers with a disclosure document in the form and using the language set forth in the Business Opportunity Rule. If claims are made about how much money a person can earn, a separate earnings claims statement must also be provided.
A violation of the Business Opportunity Rule constitutes an unfair or deceptive act or practice in violation of the FTC Act.
Using Illegal Telemarketing Robocalls
Using illegal telemarketing robocalls, not to mention, live telephone calls, text messages, internet ads, emails, social media and/or live events to market and sell consumers fraudulent money-making opportunities is regulatory chum. Making deceptive claims through robocalls and other marketing techniques may be a violation of numerous laws, regulations and guidelines, including, but not limited to, the FTC Act and the Telemarketing Sales Rule.
In June 2019, the FTC and its law enforcement partners announced a major crackdown on illegal robocalls that were allegedly responsible for more than one billion calls pitching a variety of products and services including money-making opportunities.
Making Deceptive Money-Back Guarantees and Refund Claims
The use of unconditional claims that enrollees in online training and business coaching programs payments are refundable, when they are not or when undisclosed conditions or limitations are placed on such refunds, is legally actionable. The FTC will hold advertisers to promises such as “100% risk free” and “Money Back Guarantee.” Using buried on websites or contained in agreements that consumers are asked to sign after purchase that impose onerous conditions that purchasers must meet to obtain a refund (or that disclaim liability for refunds altogether) is a risky proposition.
Failing to Monitor Third Party Affiliate Marketers
Affiliate marketers that unlawfully lure consumers into online training or business coaching programs can expose advertisers to liability if the advertiser knew or should have known if such conduct. Thus, failing to diligently monitor and implement reasonable measures to control the actions of such third parties is a good way to create additional liability exposure. Program providers are wise to consult with experienced FTC defense attorney with respect to measures designed to minimize the chances of the imposition of liability for outlandish claims made by third party marketers.
This article should be of interest to providers of online training and business coaching programs that are interested in implementing preventative compliance measures, or that have been targeted in an FTC lawsuit of civil investigative demand (CID).
Richard B. Newman is a leading advertising practices attorney at Hinch Newman LLP. Follow him on National Law Review @ FTC Defense Lawyer and on Facebook @ FTC Defense Attorney.
Informational purposes only. Not legal advice or a complete analysis of issues pertaining the the relevant subject matter. May be considered attorney advertising.
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