On January 13, the FTC announced a settlement with WealthPress, an online service provider that recommends trades in financial markets. The settlement resolved allegations that WealthPress violated both the Restore Online Shoppers’ Confidence Act (ROSCA) and Section 5 by making false and misleading claims about how much consumers could earn with the company’s trading recommendation services. The action is noteworthy for two reasons. First, building upon the FTC’s prior MoviePass settlement, the FTC’s ROSCA allegations focus not on the terms of the subscription service offered, but rather on the failure to clearly disclose material information about the company’s services. Second, this is the FTC’s first settlement imposing civil penalties for alleged earnings claims violations predicated upon a Notice of Penalty Offenses issued in October 2021. The settlement provides for $1.3 million in consumer redress, $500,000 in civil penalties, and injunctive relief.
The FTC alleged that WealthPress was liable under ROSCA—which provides for civil penalties—because WealthPress made false and misleading earnings claims about its trading recommendation services. The FTC’s 2021 Enforcement Policy Statement Regarding Negative Option Marketing asserted that ROSCA requires clear and conspicuous disclosure of “any material terms related to the underlying product or service that are necessary to prevent deception, regardless of whether that term directly relates to the terms of the negative option offer.” Although this application of ROSCA has not been tested in litigation, this action reflects the FTC’s increasing use of ROSCA settlements to police material terms related to the underlying product or service, and not just the terms of the subscription service.
WealthPress prominently touted the profits that consumers could earn by subscribing to its trading recommendation services, but limited those claims with disclaimers that the agency alleged were not clearly disclosed. The disclaimers appeared on an “easily-overlooked” webpage. WealthPress disclaimed, for instance, that it was recommending any particular security or that subscribers were likely to earn the profits described on the site. The FTC alleged that the failure to clearly disclose these limitations violated ROSCA. In a concurring statement, Commissioner Wilson argued that ROSCA was not intended as a general prohibition against deceptive marketing claims; however, by requiring consumers to accept these terms when they subscribed, the company made these disclaimers terms of the transaction that were regulated by ROSCA.
This action builds on the FTC’s 2021 action against MoviePass, which also relied upon ROSCA to impose liability for misrepresentations relating to the underlying service. MoviePass offered subscribers the opportunity to watch a different movie every day at any major theater. The FTC alleged that the company deceptively impeded consumers’ ability to use the service as advertised. The FTC asserted that those limitations were a material term of the transaction that should have been clearly disclosed when consumers subscribed to the service.
The FTC’s action against WealthPress illustrates the FTC’s reliance upon ROSCA to challenge representations about the underlying product or service with the threat of civil penalties. In addition, the FTC is not alone in its focus on negative option programs. On January 19, the CFPB issued guidance emphasizing that its approach is “generally in alignment” with the FTC’s Enforcement Policy Statement.
Notices of Penalty Offenses
The FTC ordinarily cannot obtain civil penalties for first-time violations of Section 5 of the FTC Act. However, civil penalties are available pursuant to Section 5(m)(1)(B) of the FTC Act, if the FTC proves that a company engages in certain practices that it knows are unfair or deceptive as determined by a final cease and desist order issued in a contested action. In an effort to establish such knowledge, the FTC has recently sent Notices of Penalty Offenses that identify such acts or practices. In October 2021, the agency distributed hundreds of such notices concerning money-making opportunities, the use of endorsements and testimonials, and the education marketplace.
The FTC’s complaint against WealthPress alleged that the company misled subscribers about the likelihood that they would make substantial profits, and that it continued to do so after receiving two Notices of Penalty Offenses identifying its conduct as unfair or deceptive: a notice concerning money-making opportunities and a notice concerning the use of endorsements and testimonials. Because the conduct continued after WealthPress received the notices, the FTC alleged that WealthPress was liable for civil penalties for its violations of Section 5.
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