FTC Case Against Rent to Own Company Airs Differences Over Redress, Individual Liability and ROSCA

Federal Trade Commission Doorway SignThe Rent to Own industry has been a frequent target of Federal Trade Commission (FTC or Commission) action. While the industry notes that it provides an ownership option for consumers who are unable to pay up front and who may not qualify for traditional credit, critics point to the fact that the final cost of a rent to own transaction is often far in excess of what a consumer would have paid even had she financed the purchase over time at traditional credit card interest rates. While a few states have begun strictly regulating the industry, many others have not – such that these industries continue to operate without some of the same requirements imposed on traditional credit arrangements. However, Section 5’s requirements regarding deceptive advertising and marketing still apply, and that’s where our story begins.

The FTC’s latest target is a company called Progressive Leasing. While companies in the Rent to Own industry have typically operated their own retail locations where consumers can shop, select merchandise and enter into a transaction, Progressive operates in numerous third-party big box stores, and through contractual arrangements, its rent to own program can be offered to consumers as an additional financing option. Continue Reading

Commissioner Wilson Weighs In on FTC Priorities

Federal Trade Commission Doorway SignWe have blogged quite a bit about efforts by one or both of the Federal Trade Commission’s (FTC or Commission) Democratic commissioners to push the Commission into a more enforcement-minded posture and to think creatively and expansively about the enforcement tools the Commission has at its disposal. Thus it seems appropriate to give equal time to an attempt by one of the Republican commissioners to push the Commission to narrow rather than broaden its focus.

In a recent partial concurrence and partial dissent, Commissioner Wilson laid out her views on when it is appropriate for the Commission to utilize its enforcement authority. The case involved a TENS device – a device that electrically stimulates the nerves and provides relief from pain. While the device had received Food and Drug Administration (FDA) clearance for some pain relief claims, the FTC alleged that the company’s claims deceptively exceeded the scope of its FDA clearance by, among other things, claiming that the device provided pain relief far away from the point at which the device was applied. Commissioner Wilson agreed that the company had failed to substantiate that its device could provide pain relief in all areas distant from the application site. However, she argued that the manufacturer had substantiated a claim that its device could provide some more limited, nonlocalized pain relief. Continue Reading

The Sky Is Not Falling on Loyalty Programs – CCPA Regs Support Flexibility

On March 11, the California Attorney General released revised draft regulations for the California Consumer Privacy Act (CCPA). This third version of the revised regulations is available here. The comment period for those proposed changes ended on March 27. If you’re reading this blog you likely have some familiarity with the CCPA, but if you’ve been fortunate enough to avoid the nitty gritty of the sweeping privacy law, you can catch up with the coverage at our sister blog, the Data Privacy Monitor. In this post, we want to focus on an area that has been the topic of much consternation: loyalty programs.

As meat has been added to the bones of the CCPA through the proposed regulations, many commenters have feared that the Title’s requirements would effectively eliminate loyalty programs in California. While the CCPA will regulate loyalty programs and require certain compliance steps, it won’t shut down most programs. Continue Reading

COVID-19 Update: Pricing During COVID-19 Without Gouging or Fixing

We recently blogged here about the FTC and states combating scams, price gouging and deceptive ads, and our antitrust group issued an alert on navigating antitrust issues in the wake of COVID-19. Today, we write to provide updates about the recent focus on price gouging and how you can set prices in these difficult times while avoiding exposure for price gouging, price fixing or other antitrust violations.

On March 23, 2020, President Trump signed Executive Order 13910 aimed at preventing price gouging and hoarding of crucial medical and health supplies needed to fight COVID-19.[1] The Executive Order invokes the Defense Production Act and for certain items designated by the U.S. Department of Health and Human Services, such as personal protective equipment (PPE) and ventilators, makes it a misdemeanor for individuals and companies to accumulate these items either (1) in excess of reasonable needs or (2) for the purpose of selling them in excess of prevailing market prices.[2] U.S. Attorney General William Barr has said that the government’s crackdown was aimed at “people hoarding these goods and materials on an industrial scale for the purpose of manipulating the market and ultimately driving windfall profits. If you have a big supply of toilet paper in your house, this is not something you have to worry about. But if you are sitting on a warehouse with masks, surgical masks, you will be hearing a knock on your door.”[3] It remains to be seen what “in excess of prevailing market prices” means in this context. Continue Reading

FTC Finally Strikes Gold With Made in USA Enforcement: Williams-Sonoma Agrees To Pay $1 Million in Consumer Redress

In the past few months, a minority of the commissioners have called for the Federal Trade Commission (FTC or Commission) to take the heretofore unprecedented step of seeking consumer redress in Made in USA (MUSA) cases. (In the past such cases only involved money when penalties were imposed for violating an existing order).  In a concurring statement in a series of Made in USA settlements announced in September 2018, Commissioner Slaughter and Chairman Simons noted the possibility that consumer redress could be an option for Made in USA enforcement when consumers paid a premium for the allegedly mislabeled products. In subsequent statements, both clarified that in their view a showing of a price premium, while an important factor, was not legally required for the Commission to obtain redress. Further, as noted in their initial concurring statement, both Commissioners emphasized the importance of the  Commission’s intended review of its approach to remedies and emphasized the need to have a forward-looking approach to the issue, including signaling to the public how the Commission intends to approach enforcement in this area. How to incentivize the right behavior was also a topic of discuss at the FTC’s Made in USA workshop last fall (which is worth watching in full if you have time on your hands available here. Continue Reading

COVID-19 Update: FTC and States Combat Scams, Price Gouging and Deceptive Ads

We recently blogged about regulatory warning letters and a consumer class action stemming from consumer-facing advertising related to the coronavirus. Today, we write to provide updates on state and federal efforts to protect consumers and a Federal Trade Commission (FTC) press release sounding the alarm on B2B coronavirus scams.

State regulators are confronting many of the same issues the FTC identified in its joint warning letters with the Food and Drug Administration. Specifically, many products continue to be advertised as curing, treating or preventing COVID-19, the disease caused by the coronavirus, despite the fact that there is no known cure or vaccine as of yet. Additionally, states have been confronting price gouging on disinfectant products such as hand sanitizer, wipes and cleaning solutions. And with stimulus checks being a frequently discussed news topic while federal lawmakers negotiated the package, states have seen an uptick in scams targeting the elderly that solicit bank account information and Social Security numbers to facilitate receipt of stimulus checks.

State attorneys general are working closely with state lawmakers, congressional representatives and each other to confront these issues head-on and protect consumers. For example, Michigan Attorney General Dana Nessel enlisted state lawmakers to field price gouging complaints and recently filed a cease and desist letter against two businesses marketing a “Coronavirus Defender Patch.” A bipartisan group of 32 state attorneys general sent letters to executives at some of the biggest online retailers, urging them to help prevent price gouging. Arizona Attorney General Mark Brnovich has partnered with Sen. Kyrsten Sinema, D-Ariz., to increase awareness among seniors of the stimulus check scams. And New York Attorney General Letitia James sent letters to website domain name registrars requesting that they halt new registrations of – and de-list current – domain names associated with coronavirus and COVID-19, alleging many of these sites perpetuate scams.

The FTC, which has recently increased its focus on B2B advertising, issued a press release warning that not only are consumers vulnerable to coronavirus scams, but so too are other businesses. Specifically, the FTC identified seven types of scams that have targeted business employees, leaving both employees and employers at risk: public health scams, government check scams, business email scams, IT scams, supply scams, robocall scams and data scams. While many of these scams are nothing new, they take advantage of new circumstances – with many (if not most) employees working remotely, it no longer seems out of the ordinary to get an email from “the IT department” asking for certain password or account information.

Lastly, FTC Chairman Joe Simons released a statement outlining current enforcement efforts. Per the chairman’s statement, the FTC is working with both federal and state law enforcement, as well as business and community stakeholders, to protect consumers from unfair and deceptive commercial practices and to educate the public about such practices. In short, the FTC “will not tolerate businesses seeking to take advantage of consumers’ concerns and fears regarding coronavirus disease, exigent circumstances, or financial distress.” The chairman added that “the FTC will remain flexible and reasonable in enforcing compliance requirements that may hinder the provision of important goods and services to consumers.” While this does not give businesses carte blanche in how they advertise or market important goods and services, Chairman Simons noted that “good faith efforts undertaken to provide needed goods and services to consumers will be taken into account in making enforcement decisions.”

Takeaways: The circumstances surrounding COVID-19, including widespread misinformation and the transition of entire companies to remote work operations, have resulted in a time of heightened regulatory scrutiny at both the state and federal levels. As such, companies would do well to (re)examine their claims and substantiation, as well as their pricing, to evaluate whether any changes should be implemented. While it is often difficult to control the price at which some third-party sellers offer products, to the extent the company has control, it should exercise it to avoid price gouging. Lastly, now would be a great time to (re)educate employees on information security policies to protect not only their personal information, but also that of the company.

It’s a Mixed Salad for the ‘Natural’ and ‘Pure’ Claims for Foods With Trace Pesticides

Can you call your processed food product “natural” or “pure” when it contains a residual amount of an herbicide or pesticide that the manufacturer did not add but was used by a producer in growing an ingredient in the product? Recent cases confirm that such a product can still be called “natural” – at least according to most federal courts – but probably not “pure.” Let’s take a look at the state of the law and how we got here, so that your brand can carefully craft claims for your processed food products.

In February in Parks v. Ainsworth Pet Nutrition, LLC, the Southern District of New York considered Rachael Ray Nutrish’s advertisements and labeling of its line of Super Premium Food for Dogs as “natural.” The plaintiff alleged that the dog food products contain residue of glyphosate, an “unnatural” biocide, and that the presence of glyphosate is not disclosed to consumers, who rely on the “natural” representation when purchasing the products. The court had ruled on a prior motion to dismiss that, to survive dismissal, the plaintiff must plead that the products contain a material amount of glyphosate because “a reasonable consumer would not be so absolutist as to require that ‘natural’ means there is no glyphosate, even an accidental and innocuous amount.” In his amended complaint and brief in opposition to the second motion to dismiss, the plaintiff argued that the amount of glyphosate is not relevant, and any glyphosate, regardless of amount, makes a “natural” label misleading, in violation of Section 349 of the New York General Business Law, New York’s core consumer protection law. The court disagreed. Because the amount of glyphosate was lower than the Food and Drug Administration’s (FDA’s) allowed tolerance level for glyphosate in animal feed, the court found that the glyphosate residue was not likely to affect consumer choice, resulting in the “natural” label not being materially misleading to a reasonable consumer. Accordingly, the court dismissed the complaint for a second time and, this time, without leave to amend.

The court in Parks drew on the now-consistent federal case law on “natural” claims arising from the discovery of trace amounts of glyphosate used in growing an ingredient in a processed food product. When federal-court plaintiffs began challenging these claims, around 2014, the plaintiffs’ allegations often survived the motion to dismiss stage. For example, in California in Von Slomski v. Hain Celestial Group, Inc., the court found that plaintiffs adequately alleged that a reasonable consumer would likely be deceived by defendant’s “100% Natural Teas” logo on the outer packaging of its teas because the teas were, according to plaintiffs, “contaminated” by insecticides, fungicides and herbicides that are “man-made” and “not natural.”

As the years have progressed, plaintiffs’ claims have been less successful, and some of the same defenses used in earlier cases have resonated with federal courts across the country, such as the argument, rejected by the court in Von Slomski, that a reasonable consumer would understand that a product labeled anything less than “organic” (and, as noted in 2017 by the District of Minnesota in In re General Mills Glyphosate Litigation), even “organic” products, may contain trace pesticides. That and several other arguments have been successful with federal courts and resulted in the dismissal of plaintiffs’ complaints, including that the term “natural” contemplates the use of pesticides and herbicides. The Federal Trade Commission’s (FTC’s) Green Guides, which are designed to help marketers avoid making environmental claims that mislead consumers even though they do not have the force of law, provide support for this argument. The Green Guides specifically permit a seller to make a “free-of” claim “even for a product, package, or service that contains or uses a trace amount of a substance if: (1) the level of the specified substance is no more than that which would be found as an acknowledged trace contaminant or background level; (2) the substance’s presence does not cause material harm that consumers typically associate with that substance; and (3) the substance has not been added intentionally to the product.”

Despite this fairly clear recent precedent in federal court on the “natural” issue, in February, a California court in Tran v. Sioux Honey Associate, Cooperative certified a class challenging the advertisements and labeling of various honey products as “Pure” or “100% Pure.” These products also contain trace amounts of glyphosate, like the products in Parks. The court had first considered this case in 2017, but stayed the action for at least six months pending resolution by the FDA of a central issue in the case, namely the tolerance level for glyphosate in honey. Six months elapsed. The FDA then responded to a letter from the court, respectfully declining to provide a determination regarding whether and in what circumstances honey containing glyphosate may or may not be labeled “Pure” or “100% Pure.” The court lifted the stay, and litigation restarted in earnest. While the court in Tran did not consider the merits of the “Pure” and “100% Pure” representations in granting class certification, class counsel may now represent a class of “all persons residing in California, who, from January 2014 to the Present, purchased, for personal use and not resale, Sue Bee Products.”

The takeaway is that brands should be sensitive about making “natural” and “pure” claims when they know their processed food products contain glyphosate residue. If your product contains less than the FDA-established tolerance level of glyphosate for the ingredients in processed food products, then you’re probably in the clear – though you may still have to defend against a class action in this evergreen area.

COVID-19 Update: Consumer Class Action Filed Over Hand Sanitizer Claims

Earlier this week, we blogged about the FTC and FDA’s joint warning letters to seven companies that claimed their products could treat or cure coronavirus. However, the regulators aren’t the only ones taking action over deceptive advertising practices related to coronavirus. A group of California consumers filed a class action complaint alleging Vi-Jon Inc. “advertised, marketed, and sold” its Germ-X brand alcohol-based hand sanitizers with claims that they prevent the flu and other viruses, including the coronavirus, when they allegedly do not.

The plaintiffs did a deep-dive into the various ways Germ-X allegedly advertises the hand sanitizers and alleged that the explicit statements on the Germ-X and third-party retailers’ websites, as well as the combination of certain text and images throughout the sites, mislead consumers into believing the products prevent the flu. For example, the complaint alleges that the products are described as being “meant for coronavirus/flu prevention” on third-party retailers’ websites. The complaint also points to various sections of the Germ-X website – such as “Seasonal Illness,” “Schools” and “CDC Resources” – that, due to the combination of text and images, allegedly give the impression that the government recommends Germ-X to prevent the flu and other viruses and that Germ-X can help users avoid getting sick. Continue Reading

Regulators Issue Warning: These Products Cannot Treat Coronavirus

Last week at our #BakerDigitalForum (BakerHostetler’s forum on advertising, e-commerce, data privacy & security law) we heard from Richard Cleland, assistant director, Advertising Practices, for the Federal Trade Commission (FTC)’s Bureau of Consumer Protection. He informed attendees that the FTC’s priorities often come from the headlines, citing COVID-19 as the first example of current events informing enforcement priorities. A mere three days after these remarks, the FTC and the Food and Drug Administration (FDA) issued seven – yes, seven – joint letters to a variety of companies that allegedly are taking advantage of fears surrounding the pandemic and making advertising claims related to the coronavirus. The agencies invoked Uncle Joey from Full House, warning the companies (and others making similar claims) to cut it out.

As the letters state, there “currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products to treat or cure” COVID-19, so any advertising claims touting such benefits “are not supported by competent and reliable scientific evidence,” which is the standard for substantiating health claims under the FTC Act. For its part, the FDA also considers the products at issue as “unapproved new drugs” and “misbranded drugs” in violation of the Federal Food, Drug, and Cosmetic Act. The products range from essential oils to colloidal silver products to frankincense to a “Coronavirus Protocol” of teas and tinctures. The agencies allege the recipients of the letters are making unsubstantiated efficacy claims tantamount to a public health threat, and warn that the agencies are “prepared to take enforcement actions against companies that continue to market this type of scam.” Continue Reading

Court Invalidates New York’s Legalization of Fantasy Sports

The New York Appellate Division dealt a shocking blow to the fantasy sports industry by ruling earlier this month that daily fantasy sports contests are a form of gambling and that the law passed by New York in 2016 legalizing and regulating fantasy sports was unconstitutional.

Fantasy sports have historically had a rocky history with the state of New York. Back in 2016, DraftKings and FanDuel exited the state following a lawsuit filed by the New York attorney general alleging that these companies’ daily fantasy games violated New York’s prohibition on gambling. Later that year, the Legislature passed an amendment to the Racing, Pari-Mutuel Wagering and Breeding Law, declaring that what it referred to as “interactive fantasy sports” are not games of chance and do not constitute gambling under the state’s penal law. The amendment also created a regulatory scheme similar to those that were being adopted in other states to govern the operation of the contests. Following the passage of that amendment, a group of private citizens sued Andrew Cuomo and the state of New York. The lower court sided with the plaintiffs and ruled that the amendment was invalid. Continue Reading