In April 2020, when we were all focused on finding masks and hand sanitizer, the Federal Trade Commission (FTC) announced a $9.3 million settlement with Fashion Nova. The agency alleged that the company violated the Mail Order Rule by failing to notify consumers of shipping delays, failing to notify consumers of their cancellation rights and providing gift cards instead of refunds for unshipped orders. Two exceedingly long years later and Fashion Nova is again in the hot seat, but for a very different issue – its alleged suppression of negative customer reviews on its website. It will pay an additional $4.2 million to settle the latest allegations.
The FTC’s administrative complaint states that through a “third-party online product review management interface,” the “fast fashion” retailer automatically posted all four- or five-star product reviews but held back more critical reviews for company approval. Hundreds of thousands of negative reviews apparently were never approved for publication. Because of the failure to post the lower-starred reviews, the FTC alleged that the company deceptively represented that product reviews on the website “accurately reflect the views of all purchasers who submitted reviews.”
To settle the allegations, Fashion Nova agreed to the monetary payment and a proposed order that would prohibit future misrepresentations related to customer reviews. The order also has an interesting provision regarding how product reviews are to be displayed. The proposed order requires the company to display all reviews (including the ones that had been withheld), except that it may still withhold reviews that are unrelated to the products sold or that contain vulgar or inappropriate language. The company, however, is not required to offer the opportunity to submit reviews for every product it offers for sale.
Accompanying this action, the FTC issued two new business guidance pieces – one for marketers and one for platforms that host reviews. The guidance documents set forth best practices regarding how reviews are presented, collected, moderated and solicited. We will do a deeper dive into these pieces at a later date – but for now, suffice it to say, how you present and curate reviews is of great interest to the agency and other law enforcers, and we highly recommend taking a close look at these two documents and your company’s practices with respect to reviews.
Turning back to the matter at hand, it is a bit unusual for the FTC to announce two actions against the same company in a span of two years, particularly for subsequent conduct that is unrelated to the initial action. The first action is silent as to the period of time during which the Mail Order Rule violations were allegedly occurring. The most recent complaint, however, does indicate that the challenged conduct occurred several years ago as well, before November 2019.
A question you may be asking is how the FTC can get money here after AMG, since there are no Mail Order Rule violations. The short answer is that the FTC can still get money through administrative litigation. It is a lengthy process but the bottom line is that after obtaining a final administrative cease and desist order, Section 19 of the FTC Act allows the agency to then go to federal court to obtain redress and certain other forms of monetary relief if the agency can show that “the act or practice to which the cease and desist order relates is one which a reasonable [person] would have known under the circumstances was dishonest or fraudulent.” In effect, a settlement such as this one demonstrates the agency settling the future potential Section 19 action, and it has done this many times previously, even before AMG. The administrative process is complicated, and we promise to detail more about it in yet another future blog.
A second thing you may be wondering is how this conduct meshes with the FTC Notice of Penalty Offense letters (notice letters) about endorsements and testimonials. The short answer is that this is the type of conduct that in the abstract could theoretically fall within the ambit of the notice letters and lead to civil penalties. Remember, as we discussed previously, the endorsements and testimonials notice letter also addresses reviews. Of course, the endorsements notice letters were sent in October 2021, and the conduct alleged here occurred many years prior. There are many hurdles that the FTC has to clear in order to use the notice letters to seek penalties, but first it must demonstrate that the company had “actual knowledge” that the agency had deemed the challenged practices to be deceptive or unfair. Certainly, successfully bringing such an action for conduct prior to the receipt of the notice letters would be virtually impossible, and of course, there are numerous other challenges that the agency would face.
But if we were to hypothetically assume that the notice letters were in play and the company here had actual knowledge, the agency would probably attempt to demonstrate that through the challenged conduct, the company misrepresented that “the experience described by endorsers of a product or service represents the typical or ordinary experience of users of the product or service,” a holding that the agency would allege is supported by prior litigated FTC cease and desist orders. It is certainly questionable whether review suppression like this would be covered by the old cases, but that is essentially what the agency would have to demonstrate in our hypothetical.
And for those wondering what happened to the $9.3 million that the company agreed to pay in 2020, funds were indeed sent out to consumers who had received gift cards instead of refunds, and a few months ago there was a second distribution of funds.
Finally, I would be remiss if I didn’t point out that if you are checking out the company’s website, it might not be ideal to do so on your work computer. Let’s just say that some of the styles are a bit short on fabric; and I will leave it at that.