Consumer Advertising Law Blog

It Takes a Village: States and Feds Combine to Combat Mortgage Relief Fraud

The financial crisis, like any other upheaval, creates opportunities for scams.  Last week, as the Obama Administration was issuing changes to its loan modification program, California Attorney General Jerry Brown announced a stipulated court judgment against principals of a loan modification scam.  As a result, two foreclosure assistance companies, U.S. Foreclosure Relief Corp. and H.E. Servicing, Inc. were shut down, and their principals prohibited from working in the real estate industry.  The judgment also gives $1 million in restitution for persons that paid up front fees for between $1800 and $2800 for non-existent loan-modifications services.

The suit is a result of a joint investigation among California, Missouri and the Federal Trade Commission that commenced in March 2009.  The investigation found that the companies aggressively telemarketed that they could reduce distressed homeowners' principal payments and lower interest rates for a substantial up-front payment.  The investigation also found that the companies falsely claimed that they had successfully negotiated thousands of loan modifications.  The FTC's enforcement division will be responsible for monitoring the companies' compliance with the judgment.

States that have been hardest hit by the mortgage crisis, such as California, not surprisingly, have also been the epicenter of many of these scams and have aggressively trying to stop these practices.  In August 2009 the California Attorney General's office ordered over 386 foreclosure assistance companies to register with the state and post up to a $100,000 bond in order to continue to conduct business.  At the same time it ordered 27 other companies to substantiate their marketing claims.  The Florida Attorney General has engaged in similar efforts.

The Federal government also has tried to combat these scams, even as it moves to expand opportunities for loan modifications.  The Obama administration's "Making Home Affordable" website prominently displays information on steps to prevent being taken in by foreclosure rescue scams.  

Nevertheless, these scams are likely to continue, as a growing number of homeowners have problems making their payments.  The Administration's latest initiative that gives some jobless homeowners a three month break on payments and lenders more incentives to reduce principal on certain delinquent loans, starting June 1, may only encourage more unscrupulous persons to try to take advantage of desperate debtors.  Thus, a more aggressive educational effort, coupled with more state and federal enforcement, may be necessary to deter possible future heartache.

- Beth Desimone

"We're Number One" -- Well, Prove It!

I am swept up along with most everyone else in March Madness (North Iowan Ali Farokmanesh's three pointer and the unexpected upsets -- go Big Red!) As we wait for the Sweet 16 round to begin tonight, my thoughts turn to products claiming to be No. 1 rather than chanting collegiate hoop fans.

Sometimes courts view "No. 1" or "favorite" claims as puffery. An oft cited example is the 8th Circuit's opinion regarding "America's Favorite Pasta." The NAD has recently found a particular No. 1 claim, however, to be a claim and not mere puffing and required substantiation based on sales, market share or consumer perception data.

In sports, determining who's No. 1 isn't always so cut and dry and even winning doesn't always end the debate. The same it appears is true in marketing. In the Evercare case, the Company claimed that its lint roller products were the "#1 Selling Roller in the USA" and "America's #1 Selling Lint Roller* Based on independent national retail sales data." A competing lint roller company (You probably didn't realize there was more than one) argued that sales data showed it was the better selling brand. Both companies relied upon IRI data, which shows retail unit and sales information. However, IRI only covered about 50% of the retail stores where lint rollers are sold causing NAD to find that the parties could not rely upon IRI data alone. However, NAD found the data to be sufficient once it was supplemented by point-of-sale data from major retailers such as Wal-Mart and Petco that do not report to IRI. NAD rejected offered shipping data finding that shipping data only reflects wholesale and not retail pricing and does not show how long product stays on the shelf or whether it was returned. NAD also rejected the challenger's position that the No. 1 claim should be based on unit sales rather than dollar sales. NAD based its position on the fact that the price differential between the products was not that significant and also the fact that the products came in varying sizes so that dollars and not units was likely a more accurate measure of popularity.

So what's the post-game locker room message here? Simply this, when promoting your product as No. 1, first determine if you're making a claim and if you are, parse through the data carefully for both completeness and relevance.

- Amy Mudge

New Media Giveaways Still Must Follow Old School Laws

You may have wondered why there was a mob scene surrounding Jet Blue personnel in Lower Manhattan earlier this month, or why people were chasing JetBlue employees through the streets of New York City. Well, as it turns out, it was all part of JetBlue’s moving target promotional giveaway — part of its 10th anniversary celebration — in which JetBlue gave away one thousand free airline tickets at three undisclosed locations in Manhattan for a round-trip flight between any destination that JetBlue flies. JetBlue announced the locations at which the tickets would be given away on its Twitter account, notifying those seeking the free tickets that they had to bring something with them to each of the giveaway locations, including, at the first stop, a birthday card for JetBlue; at the second, an item of blue clothing and something related to planes; at the third, a postcard depicting the tenth city out of which JetBlue started operating flights (i.e., West Palm Beach). The free tickets — with about 300 available at each location — were gone within about 20 minutes of each Twitter posting.

Moving target giveaway promotions — like JetBlue’s — have been used by other companies, including the Los Angeles based Kogi BBQ, with resounding success. But are these promotions legal? Well, it might just depend on how the promotional giveaway is structured.

Just about every state has enacted laws regulating games of chance used to promote a business or its products. These states are uniform in defining an illegal game of chance as one that involves the elements of chance, a prize, and consideration. There are, however, considerable differences in how state courts have interpreted these elements, and in particular the consideration component. The majority of state courts have found that consideration must involve a direct payment to participate in the promotional game. On the other hand, a few state courts have viewed consideration more broadly, some going so far as to find consideration in the act of visiting a store to pick up a free entry blank.

Given the uncertainty in the laws governing games of chance in many jurisdictions, companies who are contemplating promotional giveaways, including moving target promotions, should assess state law carefully to make sure the giveaway does not create potential legal issues in a state with an undefined or broad view of consideration. After all, the media buzz which often surrounds these promotions can make them an enticing target for an enterprising district attorney.

- Alan Veronick

NAD Finds Fabric Conditioner "Up To" Claim Substantiation and Disclaimer Too Soft

Earlier this month, NAD announced a decision in a challenge by P&G over Colgate Palmolive's packaging claims for Suavitel Fabric Conditioner. The decision is a good opportunity to review the standards for making "Up To" performance claims and for clear and conspicuous disclaimers on package labeling.

The challenger asserted the express claim on the front of the softener jug of "Up to 34 Loads*" was an unsubstantiated express claim. The advertiser used a disclaimer on the back of the package labeling that said "as measured for small loads." The challenger asserted the claim also falsely implied that consumer would get more loads out of Suavitel than competitive products.

FTC cases and guidance provide that "up to" claims should not rely on an unusual or "outlier" test result. The advertised result should be one that the average consumer can reasonably expect to achieve. NAD cases have opined the "up to" result must be actually experienced by a significant number of consumers, at least ten percent. NAD rejected the challenger's position that the industry standard was to look at usage for regular sized loads, concluding it was not NAD's role to determine an industry standard but instead looked to a reasonable consumer takeaway from the claim in context. NAD considered evidence that less than 10% of customers regularly or routinely wash using small loads so determined the "up to" claim had not been substantiated.

NAD also found the disclaimer that the "up to 34 loads" claim was measured in small loads not clear and conspicuous as it was on the back of the label in small type while the "up to" claim was on the front of the label. While dosing instructions may typically be appropriate for the back of the label, it was found to be material information necessary to qualify the "up to" claim. It leaves open the question as to when, if ever, a claim on a package label can be limited clearly and conspicuously with disclaimer information appearing on a different panel of the label. While everything is reviewed in the context as a whole, material qualifying information on a label typically should appear on the same panel as the claim.

- Amy Mudge

Just How Painful is This Going to Be? CPSC Speaks Out on Calculating Civil Penalties

The maximum civil penalty under the Consumer Product Safety Improvement Act for violations of CPSC enforced requirements is now $15 million.  On March 10, 2010, CPSC issued a final rule interpreting the factors used to determine the amount of a civil penalty (see the press release here).  The final rule preserves CPSC’s authority to determine penalty amounts based on a case-by-case assessment of the facts and its discretion to seek substantial penalties where CPSC believes they are warranted. Given the severity of the potential penalties and the risk that CPSC will feel compelled to use its enhanced authority, it is important for companies to understand the civil penalty factors, which are discussed in more detail here.

- Eric Rubel

DOT Grounds Airline for Failure to Disclose Total Ticket Price

Earlier this month, the U.S. Department of Transportation (“DOT”) issued a press release confirming its assessment of a $40,000 civil penalty against a major US airline for its inadvertent and limited failure to state the full passenger ticket fare for one way flights listed by schedule on that airline's website.

According to the Consent Order issued on the same day by DOT, the airline violated the full fare advertisement requirements under 14 C.F.R. § 399.84 and the prohibition on unfair and deceptive practices under 49 U.S.C. § 41712. According to 14 C.F.R. § 399.84, which governs price advertising, any advertisement by an air carrier, an indirect air carrier, or an agent of either, that states a price for air transportation, must state the entire price to be paid to the air carrier or agent. In practice, this means that an Internet advertisement for airfare must state the full price to be paid on the first screen that comes up to an Internet customer, including any applicable taxes and fees. Alternatively the advertisement may state the base fare, provided that the ad also includes a prominent statement that separate additional charges will apply. When the latter method is used, the Internet advertisement must post a clear hyperlink to take the customer “directly to a page showing the nature and amounts of those charges.”

The involved airline claims that the violation occurred as the result of an inadvertent programming error that caused its website to present one-way fares sorted by schedule without including the additional taxes and fees. The airline claims that this inadvertent error was limited to a small amount of Internet customers and that the error was immediately corrected upon discovery. The company also claims that all additional fees and taxes applicable to the one-way fares in question were fully disclosed to any purchasing customer before the consumer purchased the ticket. The DOT carefully considered the airline’s statements and position that no consumer was ultimately harmed, but determined that enforcement action was warranted. The DOT set out a “compromise civil penalty” of $40,000 as “adequate deterrence for future noncompliance with the Department’s advertising requirements by the airline in question, as well as by other air carriers and foreign air carriers.”

The FTC has general guidelines on its requirements for online disclosures. All material terms, including price, must be clearly and conspicuously disclosed to consumers prior to purchase. The FTC also advises that information affecting the actual cost of an offer, such as rebate terms and conditions, should be disclosed close to the advertised price - that is, on the same electronic page and next to the price. Bait and switch  tactics are prohibited outright. Typically disclosing additional fees such as shipping charges or taxes is permissible in the “shopping cart” area but must be in close proximity to the item pricing. The DOT’s pricing requirements for airlines go beyond what the FTC would generally require. Additionally, the FTC’s views in this area are based on guidance publications and not on rules, so the agency does not have the power to exact such a penalty out of the box like it does for rule or prior consent order violations. Best practice, however, is disclosure, disclosure, disclosure, early and often, as all pricing terms are likely to be considered material to your customers.

- Jessica Halbert and Amy Mudge

Time for a Made in U.S.A. Change?

This week msnbc.com published a series of articles on manufacturing in the United States. (Here, here, and here.) In a companion photojournalism piece, Newsweek highlights twelve iconic American products that are now made overseas, from baseballs to Stratocasters. While these stories document the reasons for the loss of American manufacturing jobs, they also celebrate the products that are still made in the United States, such as the Cozy Coupe manufactured by Little Tikes in Dublin, Ohio. Of particular interest to our readers is the third msnbc.com article linked above reporting on the FTC’s Made in U.S.A. standard and guidance.

In our experience, companies often don’t understand how stringent the FTC’s "all or virtually all" made in the United States standard is.  It first requires that the product's final processing or assembly occur in the U.S.  This is only a starting point, however.  Having an American manufacturing plant is not the end of the story.  For the FTC to be satisfied that a product with an unqualified “Made in U.S.A.” claim is "all or virtually all" of U.S. origin, often times at least 90%, or perhaps more, of the product’s cost of goods sold must be attributable to U.S. parts and processing. In the mid-90s, the FTC proposed changing the "all or virtually all" standard to a 75% threshold.  The FTC reversed course in response to pressure from consumer groups, labor unions, businesses and business groups, agriculture organizations, and members of Congress.

Made in USA claims can be valuable to companies, as evidenced by the msnbc.com article on Little Tikes: “Selling products carrying a ‘Made in U.S.A.’ sticker has given [Little Tikes] a marketing advantage, especially after the 9/11 terrorist attacks and again during the recent recession.”  As the article indicates, however, maintaining such a high level of domestic costs can be difficult.  U.S. suppliers can go out of business, or continuing to source domestically for certain components can place a company at a significant cost disadvantage.  Once a “Made in U.S.A.” claim is no longer viable, companies often have little reason to continue to source domestically, particularly when there is a cost differential.  Of course advertisers are not limited to unqualified Made in U.S.A. claims.  Substantiated qualified claims, such as “Assembled in the U.S.A.” (meaning your manufacturing plant is domestic) or “Made in U.S.A. of U.S. and Foreign Components” (meaning that final processing occurs in the U.S. and domestic content is greater than 50%) can also be used.  Even if substantiated, whether these claims are valuable from a marketing standpoint is another matter, and we tend to see these claims fairly infrequently.

One wonders whether the FTC might have had it right in the first place.  Would a standard such as 75% that is easier for companies to meet but still provides for substantial domestic content strike a better balance between consumer’s understanding of the claim and maintaining sufficient incentives for manufactures to continue to source domestically?

- Matthew Shultz & Randy Shaheen

New UK Advertising Codes Published This Week

The Advertising Standards Authority (ASA) is the UK's independent regulator of advertising across all media, including TV, internet, sales promotions and direct marketing. The ASA ensure that advertising in the UK is legal, decent and honest by applying their Advertising Codes.

These advertising codes are managed by the Committee of Advertising Practice (CAP) (for print and promotional advertising) and by the Broadcast Committee of Advertising Practice (BCAP) for television and radio (or broadcast) advertising. Both CAP and BCAP have this week published new advertising codes for the UK. There have been minor updates to these codes over the years, but these new advertising codes are the first comprehensive review of the advertising codes in 50 years.

The new codes were published on Tuesday (16 March 2010) following a full public consultation and their evaluative process including more than 400 pieces of legislation and 30,000 stakeholders’ responses. The new rules are intended to continue to uphold the principles that the code has traditionally been built upon, but in a way that means that the code can be relied on in the face of the considerable changes that have been occurring in the advertising world and that will occur in the future.

Though the new CAP Code and BCAP Code have been published, the codes will not come into force until 1 September 2010. This is to allow nearly six months for everyone to get used to these new rules and to ensure that all advertising campaigns comply.

Should you have any questions regarding the new rules or their application, then please do not hesitate to get in touch to discuss them.

What has changed?

The ASA has stated that the existing codes “continue to work well”, and that these changes, though they are the result of a thorough investigation into the future of advertising, and the way it should be regulated, are simply to ensure that the “higher standards in advertising” are maintained.

What are the new rules?

Broadly speaking the new codes have been redrafted so that they are easier to use. Structurally, there is now going to be a single broadcast advertising code for the UK combining the existing four codes into one which will also help to make them easier to read and will bring increased consistency.

More specifically (but not exhaustively) the ASA have said that the codes are intended:

(i) To be in a clearer format with greater consistency, insofar as possible. Where rules may be maintained across different parts of the code - they will be.

(ii) To provide protection for children. TV and radio rules will prevent ads from exploiting the trust that children place in parents and teachers. Ads regarding age-restricted computer and console games may only be made in such a way as to appeal particularly to children under their age restriction. There are also new revised rules regarding the manner in which advertisers may persuade a child to persuade adults to buy products.

(iii) To add further explicit rules regarding exaggeration of claims of environmental benefit, as well as over-arching rule regarding social responsibility. There is also a dedicated “lottery advertising” section which should cover the National Lottery and other lotteries licensed under the UK’s Gambling Act.

(iv) To reflect the provisions of recent European regulations preventing misleading claims regarding food products and their nutrition and health benefits. This section and the rules within it also covers the regulation of advertising traditional herbal medicines, and it changes the rules regarding the broadcasting of advertisements for condoms.

(v) To clarify on the use of the word “free” in marketing communications, to increase consumer protection, and there are further specific regulations regarding debt advice and sales promotion rules.

Generally, both the new CAP and BCAP rules go back to, and underline, the principles upon which the rules are founded as well as providing new detail into specific areas, (which we are unable to provide you with here but which we may provide to you if you contact us directly).

These new codes will come into effect in the UK from 1 September 2010, and in the meantime there will be more detail and further information and available training provided by the ASA through the CAP services section, on their website.

- Richard Dickinson and Alex Watt

It's Raining, It's Pouring…But Not Because Of Global Warming! UK Advertising Watchdog Rebukes Government For Climate Change Adverts

Two government advertisements, commissioned by British Energy Secretary Ed Miliband, which used nursery rhymes to warn of the dangers of climate change were recently banned for exaggerating the threat of global warming. The Advertising Standards Agency (ASA) ruled that the advertisements’ claims went beyond mainstream scientific consensus.

The campaign, run by the Department of Environment and Climate Change last winter, attracted as many as 939 complaints. The adverts were criticized for being too political, too scary, and factually misleading.

One advertisement read: “Jack and Jill went up the hill to fetch a pail of water. There was none as extreme weather due to climate change had caused a drought.” Beneath was written: “Extreme weather conditions such as flooding, heat waves and storms will become more frequent and intense.”

The other read: “Rum a dub dub, three men in a tub - A necessary course of action due to flash flooding caused by climate change.” It went on to say “Climate change is happening. Temperature and sea levels are rising. Extreme weather events such as storms, floods and heat waves will become more frequent and intense. If we carry on at this rate, life in 25 years could be very different.”

 

The ASA ultimately rebuked the government over the phrasing of these two nursery rhyme advertisements, stating that it was not possible to make such definitive statements about Britain’s future climate based on the Intergovernmental Panel on Climate Change (IPCC). The adverts were found to have broken the code on substantiation, truthfulness and environmental claims. The Advertising Standards Authority's stated that a claim that "flooding, heat waves and storms will become more frequent and intense" should be phrased more tentatively.

At the same time, the ASA found that other parts of the campaign, including a TV advertisement depicting a father reading his daughter a bedtime story about climate change, did not breach its guidelines. It dismissed the rest of the complaints against the controversial television and newspaper campaign.

This ruling follows on top of the recent PR nightmare for the IPCC in which thousands of emails were stolen by hackers, a few of which have been interpreted by climate skeptics as showing that a small number of individual scientists (not the IPCC) tried to downplay certain data, and discouraged the publication of certain information. Belief in global warming in England decreased by about 10% since the leak.

However, British Energy Secretary, Ed Miliband took the ruling relatively well, stating that the authority had "comprehensively vindicated" the accuracy of the department's TV advertisement. Miliband went on to say "Science tells us it is more than 90% likely there will be more extreme weather events if we don't act. In any future campaign, as requested by the ASA, we will make clear the nature of this prediction.”

It seems less likely that the US Federal Trade Commission (FTC) will be bringing suit anytime soon against Al Gore or his critics. In the US, the Supreme Court traditionally has divided speech into two categories – commercial speech and “fully protected,” non-commercial speech. While the lines can sometimes be blurry, non-commercial speech is generally not subject to prosecution under the FTC Act. Many years ago an Administrative Law Judge dismissed a case brought by the FTC against an R.J. Reynolds ad called “Of Cigarettes and Science” because the ad was editorial in format and expressed the company’s view about a current public controversy. Although Reynolds ultimately settled the case, it serves as a good example of how the First Amendment can limit the FTC’s reach.

- Richard Dickinson and Tiana Russell

Identity Theft Company's "Locks" Easily Jimmied, Forces $12 Million FTC Settlement

A company that provides identity theft prevention services, has settled charges brought by the FTC that it falsely advertised both the extent of the identity theft protection it offers as well as the extent of its own data security measures to protect customers’ personal information. LifeLock, which gained some notoriety due to advertisements that prominently displayed the CEO’s social security number, has agreed to a $12 million settlement--$11 million to be paid to the FTC and $1 million to be paid to a group of 35 state attorneys general.

First, the FTC had alleged that the company misled consumers by guaranteeing absolute protection against identify theft when, “in truth, the protection it actually provided left enough holes that you could drive a truck through it” according to FTC Chairman Jon Leibowitz. While LifeLock may provide valuable protection against identify theft, the charges were brought because the company allegedly overpromised the amount of protection it could actually provide. The FTC and state attorneys general took issue with certain advertising claims including the following:

• “By now you’ve heard about individuals whose identities have been stolen by identity thieves . . . LifeLock protects against this ever happening to you. Guaranteed.”
• “Please know that we are the first company to prevent identity theft from occurring.”
• “Do you ever worry about identity theft? If so, it’s time you got to know LifeLock. We work to stop identity theft before it happens.”

The FTC claimed such statements are false because the services are limited to only certain forms of identity theft and the protection for the covered forms is itself limited, as is inevitable because there is “no foolproof way to avoid ID theft,” according to Illinois Attorney General Lisa Madigan. In addition to the financial penalty, LifeLock is barred from continuing to make deceptive claims.

Lifelock has also been sued in federal court on similar claims.

Second, the FTC also claimed that the company made false claims regarding its own data security. As part of its program, consumers must entrust extremely sensitive information to LifeLock such as social security and credit card numbers but are assured that the information is protected through a myriad of security measures. The FTC claimed that LifeLock did not follow these internal security measures and the data was vulnerable. As part of the settlement, the company is also barred from misrepresenting its data security measures and is required to establish a stricter and more comprehensive data security program that will have to be assessed by a third party every two years.

Companies should beware of marketing campaigns that overstate what the company can actually deliver. In addition, prudent companies will ensure that any statements they make regarding protecting customer data, including in website or other privacy policies, are in line with the companies’ actual privacy and security protection measures.

The FTC will use the $11 million to provide refunds to former and current Lifelock customers.

- Candida Harty and Nancy Perkins

FED to Credit Card Issuers: Explain Your Penalties to Customers!

As many parents will attest, it is important to explain the reasons for a punishment as it is being given. Using this principle, the Federal Reserve Board (“Board”) has released its third and final installment of proposed rules implementing The Credit Card Accountability, Responsibility and Disclosure Act (CARD Act). The proposed rules would require credit card issuers to notify customers of the reasons for a penalty related to a credit card account. The proposed rules also require that any penalty be reasonable and proportionate to the associated infraction.

As previously discussed, the Board has been issuing regulations that implement the CARD Act’s goals of creating new standards and disclosure requirements for open-end consumer credit plans. The latest proposal addresses the final two CARD Act provisions that are to become effective on August 22, 2010.

In the latest proposal, the Board would allow creditors to impose penalties upon customers only if the penalties are reasonable and proportionate to the particular infraction. In accordance with this requirement, creditors would also have to disclose to customers the reasons for a penalty rate increase at least 45 days before imposing the penalty. The disclosure would need to include “a statement of no more than four principal reasons” for the penalty rate increase listed in the order of their importance. The Board limited the number of disclosed principal reasons to four to “avoid information overload” to the customer. The Board would allow the disclosed principal reasons to be general in scope, because it believes that customers “may find more detailed information confusing, and that, accordingly, the benefit to consumers of such detailed information would not outweigh the operational burden associated with providing additional detail.”

The Board would apply this disclosure requirement to rate increases due to a customer’s delinquency, default, extension of over-the-limit credit, decline in creditworthiness, or violation of specified terms within the account agreement. The Board would also require this disclosure for rate changes due to market conditions. Thus, if these rules become finalized as proposed, customers will know how their actions may have triggered rate increases on their cards. Because the CARD Act also requires creditors to review past rate increases every six months and reduce rates, if warranted, these pre-punishment explanations may encourage customers to modify their behavior to avoid rate increases.

- Beth DeSimone and Brian Larkin

US Senate Proposals for CFPA Home Agency Rival Humor of Web Video Clip

Consumer groups have been putting on a full court press lobbying for the proposed Consumer Financial Protection Agency or CFPA to be included in the financial reform legislation now pending before Congress. The CFPA was proposed by the Obama Administration last year as an independent agency that would be responsible for rulemaking and enforcement over the terms of consumer lending and deposit products. As part of this proposal, rulemaking authority over consumer credit and deposit law primarily housed at the Federal Reserve would be transferred to the new agency. The agency in turn would be responsible for ensuring that the terms and the marketing of consumer financial products would be fair and clear to consumers.

The financial reform bill that passed the U.S. House of Representatives included the CFPA, but also exempted from its enforcement authority whole classes of players, including banks with assets below $10 billion, retailers, car dealers, tax preparers, investment advisors and others.

The proposal to establish the CFPA has been one of the major, if not the major point of contention in the Senate Banking Committee, as it has struggled to release a comprehensive financial reform bill that has broad support. Hence the full court lobbying campaign by consumer groups. As expected, traditional lobbying techniques are being used, including support pieces in the op ed pages in the New York Times, Washington Post and Wall Street Journal by such spokespersons as Elizabeth Warren, the Harvard University professor who has been generally credited with the idea for the agency, and Barney Frank, the head of the Financial Services Committee of the U.S. House of Representatives and a strong supporter of the CFPA.

However, more nonconventional means also are being employed. For example, last week a very funny skit was posted on funny or die, that was directed by Ron Howard, using stars from SNL, including Dan Ackroyd, Jim Carrey and Dana Carvey as past Presidents appearing to President Obama in a dream, urging him to push for a CFPA. Each of the past Presidents, from Jimmy Carter to George Bush, takes on at least some responsibility for allowing the regulatory environment that led to the financial crisis of 2008. Viewers are urged to contact their legislators to push for the CPFA.

Funny or Die's Presidential Reunion from Will Ferrell

Almost as entertaining from a detached viewpoint, however, has been various proposals floated by the Senate Banking Committee staff with respect to the CFPA. Unlike the House, the Senate has proposed the CFPA to be a division within an agency of the federal government. Proposals have ranged from housing it within the Treasury Department to the FDIC. The latest proposal is to house the agency as a division within the Federal Reserve, which ironically is where most of the rulemaking for consumer products currently is housed, which rulemaking has been criticized for being too lenient.

As of today, the location and the ultimate structure of the CFPA is not resolved. There is sure to be more plot twists before it is over. However, the hope is that, regardless of the techniques used to promote it, or the various proposals to structure it, serious thought will continue to be given to how to provide consumers that use financial products and services with clear and complete information on those products and services, and protect consumers from unfair and deceptive practices while preserving the innovative and wide variety of services available to meet various consumer needs.

- Beth DeSimone

And Then There Were 5: Julie Brill and Edith Ramirez Unanimously Confirmed As FTC Commissioners

The Senate has confirmed President Obama’s nominees for FTC Commissioners, Julie Brill and Edith Ramirez. With this action, Commissioner Pamela Jones Harbour will be stepping down. As we previously blogged, Julie Brill was an Assistant Attorney General for Consumer Protection and Antitrust for the state of Vermont for 20 years, and she more recently was the Senior Deputy Attorney General and Chief of Consumer Protection and Antitrust for North Carolina. Edith Ramirez was a partner at Quinn Emanuel in Los Angeles, focusing the majority of her practice on copyright and trademark infringement.

After being nominated by the President on November 17, 2009, the two women had their confirmation hearings before the Senate Commerce Committee in December, 2009. The panel reported the nominations to the Senate a short time later.

FTC Chairman Jon Leibowitz now has a full complement of commissioners, as well as a working Democratic majority for the first time since he became chairman. Leibowitz said of the confirmations, "They are both exceptionally talented and committed, and will bring a wealth of experience, knowledge and new energy to the Commission." The two other current members are William Kovacic and J. Thomas Rosch, both Republicans. Kovacic’s term expires in September 2011, and Rosch’s term expires one year later. What does this mean for consumer protection enforcement? We predict more focus and movement on privacy and data security initiatives, likely heightened coordination with state AGs, and aggressive enforcement of financial fraud.

FTC Posts Top Consumer Complaints for 2009

Every year, the FTC posts its stats on consumer complaints received for the last year. The full report can be found here and breaks down consumer complaints by type and number by state. The FTC is also seeking to publicize how consumers can lodge complaints, releasing an animated video of how to file a complaint and giving examples of the types of complaints the FTC handles. Complaints received by the FTC can come through a phone hotline or online. The complaints are housed in the Consumer Sentinel Network, a secure online database available to domestic and international law enforcement with complaints that flow to the FTC, the Better Business Bureaus, the US Postal Service, and the Internet Crime Complaint Center, among others.

So what does this mean for legitimate businesses not engaged in fraud and scam tactics? Know that the FTC and other law enforcement agencies are well coordinated. Know consumer complaints get looked at and not just filed away for an annual stats report. Know the areas where there are more complaints get more enforcement attention. While having a well trained and responsive customer service plan is not a slam dunk defense to deceptive or misleading marketing allegations, having an outlet and remedies available for customers where things do not go as planned may prevent disgruntled calls or emails to the FTC or BBBs to air their grievances. This is one ranking list no industry aspires to make.

Topping this year’s charts are:

Rank - Category - # of Complaints (% of total complaints)

1.    Identity Theft: 278,078 (21%)

2.    Third Party and Creditor Debt Collection: 119,549 (9%)

3.     Internet Services: 83,067 (6%)

4.     Shop-at-Home and Catalog Sales: 74,581 (6%)

5.     Foreign Money Offers and Counterfeit Check Scams: 61,736 (5%)

6.     Internet Auction: 57,821 (4%)

7.     Credit Cards: 45,203 (3%)

8.     Prizes, Sweepstakes and Lotteries: 41,763 (3%)

9.     Advance-Fee Loans and Credit Protection/Repair: 41,448 (3%)

10.   Banks and Lenders: 32,443 (2%)

11.   Credit Bureaus, Information Furnishers and Report Users: 31,629 (2%)

12.   Television and Electronic Media: 26,568 (2%)

13.   Health Care: 25,414 (2%)

14.   Business Opportunities, Employment Agencies and Work-at-Home Plans: 22,896 (2%)

15.   Computer Equipment and Software: 22,621 (2%)

UPCOMING WEBINAR: Searle Study on State Consumer Protection Litigation

The editors of the Consumer Advertising Law Blog would like our readers to know about an upcoming event that may be of interest to you, a panel discussion of the Searle Civil Justice Institute (SCJI) Preliminary Report on State Consumer Protection Acts (CPAs): An Empirical Investigation of Private Litigation. (See below for key findings of the report)

The event will be held on Monday, March 8, 2010 at noon eastern. It is sponsored by the ABA Antitrust Section Private Advertising Litigation Committee and by Northwestern School of Law. The panel will be held by phone and webinar and also offered in person at Arnold & Porter LLP’s Washington, DC office. To join us in person, please email keena.pearsall@aporter.com. To register to join the teleconference, click here.

The preliminary report was published in December. The panel will discuss the report, the methods used, and the next steps for the project.

Panelists at the event will include:

• Henry Butler, Executive Director, Searle Center in Law, Regulation & Economic Growth, Northwestern School of Law
• Geoffrey Lysaught, Director, SCJI, Northwestern School of Law
• Jodie Bernstein, Of Counsel, Kelley Drye, former FTC Director of Consumer Protection
• Fern O’Brian, Partner, Arnold & Porter LLP and Chair of SCJI Board of Overseers
• Teresa Schwartz, J.B & Maurice C. Shapiro Professor (Emeritus) of Public Interest Law, George Washington University Law School

Following are the key findings of this interim report:

• Litigation under CPAs has increased dramatically since 2000: Between 2000 and 2007 the number of CPA decisions reported in federal district and state appellate courts increased by 119%. This large increase in CPA litigation far exceeds increases in tort litigation as well as overall litigation during the same period.
• Vague statutory definitions of prohibited conduct are a major driver of CPA litigation: Whether a CPA statute has vague language prohibiting some general type of conduct rather than a specific list of illegal actions is an important potential contributor to the level of CPA litigation in the state. States with vague definitions of prohibited conduct have more CPA litigation.
• CPAs are becoming more favorable and generous to consumer litigants: Between 1995 and 2007, the expected value of recovery for potential plaintiffs increased dramatically as measured by CPA requirements to bring a cause of action and available remedies. In 2004, the state CPAs that were the most favorable to plaintiffs were New Hampshire, Massachusetts, and Connecticut. The states with CPAs that were the least favorable to plaintiffs were Colorado, Maryland, and Georgia.
• States with CPAs that are more favorable to consumers have more CPA litigation: The expected value of recovery under a given state’s CPA appears to contribute to the amount of litigation that makes use of the act. States that allow more generous remedies and make it easier for consumers to win in court see more CPA litigation.
• Most CPA claims would not constitute illegal conduct under FTC consumer protection standards. The Searle Shadow FTC found that 78% of a sample of CPA claims would not constitute legally unfair or deceptive conduct under FTC policy statements. While relatively few CPA claims would constitute illegal conduct under the FTC standard (22%), even fewer (12%) would result in FTC enforcement.
• Almost 40% of CPA claims where the consumer plaintiff prevailed at trial would not constitute illegal conduct under FTC consumer protection standards: In a sample of CPA claims where the consumer plaintiff prevailed in court, the Searle Shadow FTC found that 38% of these successful claims would not constitute illegal conduct under the FTC standard. Although most of these successful cases would meet the FTC illegality standards, only 23% would likely be enforced by the FTC.