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FTC Now Demands 'Unconditional Surrender' in Settlements

1 Aug, 2011 By: William I. Rothbard


The financial consequences for DR marketers becoming Federal Trade Commission (FTC) defendants have never been more dire. The vast majority of FTC cases settle, usually because a defendant lacks the financial means to fight, or other times because it has a weak defense. This gives the FTC the upper hand.

While it has used that leverage to secure many tough accords that help promote its enforcement goal of deterrence, historically it has been willing to compromise, especially on monetary relief. This is no longer the case. The FTC approach now, especially in cases involving financial offers to economically strapped (in FTC parlance, “last dollar”/”bottom dollar”) consumers, is all or nothing – “unconditionally surrender,” or we’ll see you in court.

This shift is most evident in its application of an “ability to pay” standard to consumer redress, and in a new insistence on lifetime marketing bans (rather than just restrictions) against first-time defendants. Regardless of the claimed amount of consumer injury, the FTC long has used a financial means test to reach monetary agreements. If you’ve been an FTC defendant (hopefully not!), you’ll know it requires financial disclosure statements as a condition of settlement detailing income, assets, expenses and liabilities.

In its traditional “ability to pay” formula, it usually would consider the “negative” side of the ledger and weigh liabilities against assets in determining redress. Today, while it still requires disclosure of liabilities, the only thing it really looks at are assets. If you have cash, securities, equity in a home or other property, or even a claim to “future payments” (such as a pending inheritance), the FTC will demand all or most of it as a condition of settlement, even if it effectively bankrupts you. If you don’t agree to pay, then it will seek a court judgment for the full amount of consumer injury (often millions) that you could be paying off for the rest of your life.

This is the sobering “choice” now presented to many DR marketers when sitting across the table from the FTC.

The other “option” they’re given is a lifetime conduct ban. Traditionally, the FTC has sought bans only against “recidivists” (“two-time losers” in FTC-speak). Kevin Trudeau is perhaps the most notorious poster boy for that policy. Now, it is employing a “one-strike-and-you’re-out” approach, demanding bans against DR marketers with no prior FTC record. These include bans on certain marketing methods (i.e., negative option) and sale of certain types of products (i.e., grants, employment services).

As harsh and unfair as these changes in settlement policy seem, from the FTC’s perspective, they are a necessary response to present conditions: desperate times require extreme measures. In its view, financially vulnerable consumers require maximum protection from and deterrence against unscrupulous conduct. Nevertheless, if the FTC feels it is justified to “wipe out” and ban misbehaving marketers in order to “send a message,” then it has a heightened responsibility to get its facts straight before it strikes and be sure it slams the right targets. Similarly, DR marketers have a heightened responsibility and self-interest to be sure their practices are compliant. The best way not to be ruined by the FTC is to give it no excuse to ruin you at all.

William I. Rothbard is a former FTC attorney and practices in Los Angeles, specializing in advertising and marketing law. He can be reached at (310) 453-8713, Rothbard@FTCAdLaw.com and www.ftcadlaw.com.


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