Companies scramble to meet increased regulatory pressure on improper claims
By: David Rauf
“How much you want to put in it now and how tight you want to make the screws, that’s up to each company. But I would not hesitate to make it a priority today, especially.”
—Lois Greisman, Associate Director of Marketing Practices, Federal Trade Commission
The letters are working and, given the scope of the scams out there right now, we want to get the best and fastest results we can with the most efficient tool we have. Right now, for these coronavirus-related issues, that’s warning letters.
—Andrew Smith, Director, FTC Bureau of Consumer Protection
The Federal Trade Commission (FTC) opted in late April to issue letters to 10 direct selling companies warning them to stop making claims about products and business opportunities associated with the coronavirus because it was “fast and efficient.” But direct sellers shouldn’t necessarily expect to receive warning letters moving forward if the FTC targets a company for something outside of COVID-19-related claims.
That was one of the takeaways from the FTC’s Lois Greisman, the associate director of marketing practices and one of the agency’s top officials overseeing enforcement of the direct selling channel, during a wide-ranging, question-and-answer session with Direct Selling Association (DSA) President Joseph Mariano.
Greisman’s remarks during the DSA webinar provided the channel with its first chance to hear directly from the FTC since the agency issued the letters, touching on several key points for direct sellers to keep in mind as the global pandemic continues amid states reopening.
Her chief message throughout the discussion: The FTC is going to continue watching for misleading health and income claims, and each direct seller is responsible for monitoring essentially everything under the sun—from official company marketing messages to anything a distributor in the field says in the vast reaches of the internet.
“These types of issues are going to be with us for the short-, medium- and, perhaps, even long-term,” Greisman said of COVID-19-related claims. “The FTC is going to be very diligent. We’re not going to tolerate these claims.”
She added: “We’ll be looking to see if companies are heeding those warning letters.”
Warning Letters a ‘Fast and Efficient’ Strategy
In late April, the FTC sent warning letters to 10 direct sellers. They included: doTERRA International, Prüvit Ventures, Total Life Changes, Tranont, Modere, Arbonne International, Zurvita, Rodan + Fields, IDLife and It Works Marketing. Six of the 10 companies (or their distributors) made both improper health and income claims, according to the FTC, while the rest made claims that fit into one of the two categories.
The FTC’s letter strategy for direct sellers was unprecedented from the perspective that the regulator usually “leads with a handgun—they shoot you first and ask questions later,” said direct selling attorney Kevin Thompson during a May webinar hosted by Momentum Factor focused on channel reaction to the Greisman Q&A. Thompson said he was “pleasantly surprised the FTC was leading with a warning,” because companies caught in the regulator’s crosshairs are usually “shut down without the benefit of a hearing.”
The advisory letters were intended to send a stern warning to the direct sellers to avoid using the ongoing global health crisis to promote products with any language suggesting a treatment or cure for the coronavirus. The same goes for using the COVID-19-induced economic downturn to recruit new sales team members.
But direct selling wasn’t the only industry that received warning letters related to coronavirus claims: The FTC sent 80 letters to varying industries as of late May to insist companies stop making pandemic-related marketing claims.
Greisman said the letters were the most “pragmatic” approach to tell companies to stop “preying” on the public by capitalizing on anxiety from the coronavirus.
For the 10 direct sellers targeted with letters, the FTC had said it identified unsubstantiated coronavirus-related product and income claims made by distributors in the field. Each company was instructed by the regulator to remove the claims and respond within 48 hours with a description of corrective actions taken.
Greisman said that usually her team would seek a civil investigative demand—or “perhaps worse,” seek a temporary restraining order—but in this case the letters were a “fast and efficient” way to warn several industries.
She said the FTC has seen a “very positive and fast response” from the 10 direct sellers, adding that when “dealing with responsible industry members, and people who care about how their product is marketed and brand reputation, warning letters can be an effective tool.”
But whether the FTC would continue to issue warning letters before using a heavy-handed approach outside of COVID-19-related claims remains an open question. Asked directly by Mariano, Greisman responded: “I don’t know the answer to that,” noting she’d have to talk with FTC staff to see if “this is the right tool.”
In a blog post, Andrew Smith, the FTC’s director of Bureau of Consumer Protection, reinforced the expediency that the letter strategy provided but also did not address whether the agency would make it the new normal before filing a lawsuit or seeking to shut down a company.
“You might wonder: why just send letters? Why not just sue the !*$@&#? Fair question,” Smith wrote in a May 8 blog post. “But the letters are working. And, given the scope of the scams out there right now, we want to get the best and fastest results we can with the most efficient tool we have. Right now, for these coronavirus-related issues, that’s warning letters.”
Smith said nearly every company that received a letter has stopped “making the false claims or selling the scammy thing—whether cures from a product or earnings from a work-at-home scheme.”
“Within 48 hours: no more lying to people, no more stealing people’s money,” he wrote. “During a crisis like this, we’ve prioritized stopping as many bad actors as we can, as quickly as we can. And when a warning letter will do that, we’ll take that win.”
Smith ended his blog post with a reminder that the FTC won’t hesitate to take a company to court over COVID-19 claims if necessary.
“But sometimes you need more firepower to get the desired result,” he wrote. “It took a lawsuit to stop a company that, allegedly, pretended to be affiliated with the Small Business Administration’s Paycheck Protection Program, fooling hundreds—if not thousands—of small businesses. And, last week, we filed suit against Whole Leaf Organics for allegedly claiming to treat not only the coronavirus, but also cancer with CBD. Both cases are now pending.”
Greisman said that sending warning letters for health claims is nothing new, noting a series of letters sent last year to companies selling CBD products making far-reaching claims about health benefits.
But the group of letters from April represented the first time the FTC has issued warnings about claims of potential earnings related to the economic fallout from the pandemic—for any industry.
Income Opportunity Messaging
During the Q&A with Mariano, Greisman reinforced a basic concept when it comes to the coronavirus and income claims: Don’t commingle the messaging in any way. That includes not only avoiding any mention of COVID-19, but also references to record unemployment, federal stimulus or quarantines.
For example: One of the income claims targeted by the FTC in its letters was made online by someone in the field at Arbonne International and read: “Living in quarantine and where 14 million people applied for unemployment just last week … I’ll stick with the opportunity to change people’s lives … turn a small investment into six figures … #arbonne … #quarantine #2020.”
Greisman said the FTC looks at the “net impression,” which includes hashtags and emojis, of a claim to determine if it’s misleading, and in the cases of the earnings “it was really easy” to detect because they “express claims” blatantly touting earnings that can’t be backed up. Income claims require disclosure or they can be considered misleading, and Greisman said all too often distributors are not only lacking evidence but any mention that most distributors make very little, if any, money in the end.
“What I don’t see out there is ‘I can make some modest money, I can get some supplemental income,’ ” she said. This was in response to a question about how direct sellers enthusiastic about the business opportunity can safely make an income claim touting it as a way to make side money. “For some reason, a reason we all know, that’s just not what you see out there,” Greisman continued. “What we saw in the letters, and across social media, were pretty much express … income claims for which there is no substantiation to the best of my knowledge.”
During the Q&A, Mariano asked for clarity about the level of scrutiny the FTC would apply for an income claim made outside the context of COVID-19 that references the possibility of not having to return to work after losing a job.
Greisman’s response was blunt: Don’t do that because it would imply you can earn just as much as a distributor as you can at a full-time job. “And that’s not the reality,” she said. “That is not what people are likely to achieve.”
Mariano kept pressing the point, noting that “plenty of people want to earn a little extra money,” asking if a direct sellers could safely describe the business opportunity as a “backup plan for an employment gap or income gap during the pandemic … without running afoul?”
Greisman’s response: No.
“You describe it as modest income, how is that a replacement or a backup for a full-time job? Forget the pandemic. Forget the fact there is historic unemployment,” she said. “I don’t see how that kind of claim cuts it. People who join an MLM make little to no money. That might be the more accurate description of the reality.”
Expressing a general skepticism about direct selling income claims, she added: “Where’s the truthful claim? Where’s the claim you make some modest money, make some supplemental income. I’ve never seen that in the marketplace.”
The bottom line, Greisman said, is when direct sellers are talking about income claims, “I don’t see how one can reasonably talk about making significant money in the MLM space and adequately qualify that.”
Millions of people have lost work and are looking for opportunities, she said, so it’s “not just a question of giving them false hope. It’s a question of abiding by the law and telling them honestly and truthfully whether and how much money they can reasonably expect to earn,” she said.
Health Claim Messaging
A segment of the Q&A was also focused on health claims, to which Greisman reemphasized continually that there is nothing on the market proven effective and safe to treat, prevent or cure COVID-19.
A health-related claim can be made legally if it’s in the context of a structure/function claim, and it needs to be backed by scientific proof. But making a disease claim such as saying a product can help with arthritis, heart disease or cancer crosses the line.
In the case of COVID-19, that means any claim suggesting otherwise would be viewed as misleading, Greisman said. “There are no benefits to taking any pill or lozenge or potion or oil or anything that has any basis in science to show that helps to prevent, treat or, in any way, protect you from COVID-19,” she said.
But when asked to clarify whether a company would cross the line by making a claim that its health supplement has a general positive effect for the immune system without referencing COVID-19, Greisman offered seemingly conflicted answers.
At one point, asked directly if the FTC is applying a new standard toward such claims, Greisman said: “That I’d have to get back to you on. We view ‘boost immunity’ claims with more than a fair ounce of skepticism.”
Asked again later about the level of scrutiny the FTC would apply toward health claims, Greisman noted the zero-tolerance approach for anything referencing the pandemic. But she said if a company makes a general claim that a product can “boost my immunity, it makes me feel good, it gives me more energy, fine. If you want to put that in the context of the coronavirus, don’t.”
Thompson said the FTC official offered a “mixed bag on content” on the question, which makes it more difficult for companies to know how to market their products.
“It’s a really challenging time to be in the business of selling dietary supplements,” he said.
Thompson noted in the webinar that it’s not possible for any company to root out misleading claims 100 percent of the time, but says direct sellers should be making “strong efforts” that the FTC will view as favorable. That includes consistent training and reinforcing messaging through newsletters, back-office materials, links on the company’s homepage or developing an income disclosure statement. Thompson also said widening the parameters of keywords companies use to scour the internet for misleading claims could help.
“You want to do everything humanly possible, so if the FTC knocks on your door you can show them activity,” he said.
Greisman said it’s up to companies to police their own claims, including the entire field of distributors, and to “take action, swift action, before we do.”
“Last thing I want to do is micromanage a company, but there are some fundamental business principles that seem to me to be implicit with this type of business model,” she said, noting that training should be continual, not just offered when onboarding new hires. “It should be crystal clear, I hope, that the words pandemic, coronavirus, COVID-19 should appear nowhere in anyone’s marketing material.”
At the end of the day, Greisman said she expects direct sellers to react differently when it comes to keeping distributors in check, based on whatever level of risk tolerance a company has put in place.
“There’s no principle that says you must monitor X number of distributors every day. There’s no guidepost like that,” she told the DSA’s Mariano. “So how much you want to put in it now and how tight you want to make the screws, that’s up to each company. But I would not hesitate to make it a priority today, especially.”
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