As I wrote last month, the financial consequences for DR marketers becoming Federal Trade Commission (FTC) defendants have never been more dire. This is doubly true for DR marketers of financial services to the “Great Recession Consumer,” reeling from the economic fallout and in need of quick financial help. And it is true for them no matter how FTC-compliant they are. If you are offering payday loans, government grants, Internet make-money programs or other financial products, understand you’re sporting a big bulls-eye on your chest, even if the facts show you’ve done nothing wrong.
The FTC most recently drove this point home in a pending federal court action against a payday loan referral service provider. (Disclosure: the author is defense counsel in the case) At issue is not the payday referral service itself, which in fact helped hundreds of thousands of consumers get loans, but the upsell of discount buying programs offering substantial savings on food, medical, long-distance , gas and other necessities. On the basis not of the upsell disclosures themselves, but some unverified complaints, the FTC went to court without notice to defendants and got a judge to issue a temporary restraining order and asset freeze against the business and its owners and install a receiver. Defendants are fighting back, but irreparable damage already has been done to the business, its owners, their employees and customers.
Irreparable damage that is unjustified could have been avoided if only the FTC had taken care to look at the facts first, and distinguished these marketers from the true frauds that do prey on financially vulnerable consumers. But the FTC has decided to condemn the direct response payday industry as a whole.
As usual, the FTC sued on the basis merely of some consumer complaints, without careful examination of the upsell disclosures themselves. The reported complaints were from 0.0004 percent of all customers. That’s one of every 2,300 consumers! The disclosures themselves were clear, prominent and unavoidable, in full compliance with FTC online disclosure guidelines – a fact not contested by the FTC.
Defendants retained FTC compliance counsel early on, followed their advice, and obtained strong compliance opinion letters from three advertising lawyers, including two FTC veterans, who concluded the disclosures were “more than adequate” to meet FTC requirements.
None of this mattered to the FTC. It barreled ahead anyway, shutting down a legitimate marketer that was offering valuable and appreciated services to thousands of financially distressed Americans, and wreaking financial havoc upon its owners and their families.
The point here is not to lament that the FTC made a bad mistake and unfairly wronged compliant marketers. The point is to send a warning out to DR marketers selling financial services to the “Great Recession Consumer” that the FTC presumptively views you as a law violator and will not hesitate to hammer you should it have the chance.
Last month, I wrote that the best way not to be ruined by the FTC is to “give it no excuse to ruin you at all.” It turns out the FTC doesn’t need an excuse. In this hostile regulatory climate, beware.