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FTC Takes Aim at Consumer Testimonialists

11 Jul, 2011 By: Linda A. Goldstein


On May 13, the Federal Trade Commission (FTC) and the Colorado Attorney General filed a joint complaint against the company behind the “wealth building” program “Winning in the Cash Flow Business”, its founder and long-time pitchman, Russell Dalbey, and others, alleging that infomercials and other advertising for its program misled consumers about how quickly and easily they could earn money and about how much money they could make.

The program teaches consumers how to find, broker and earn commissions on seller-financed promissory notes, privately held mortgages and notes secured by land or property that is the subject of the note. Dalbey has been marketing the program since 1996, and began marketing via DRTV, print and on the Internet since at least 2002.

The case is the latest in a series of cases brought by the FTC against “get rich quick,” “work at home,” “free grant money” and other similar programs and reflects the FTC’s strong dislike of programs which they believe are taking advantage of consumers in a time of economic downturn. In the FTC’s press release announcing this action, Bureau Director David Vladeck said, “ When someone is selling a program designed to help make money, they have to accurately describe how much consumers can expect to make and be truthful about how quickly they will be able to do so.”

According to the FTC complaint, the product’s ads misrepresented how easy and quickly consumers could find, broker and earn commissions on seller-financed promissory notes. The FTC was particularly troubled by claims that consumers could earn substantial monies in three easy steps: “Find ’em. List ’em. Make money.”

While there is nothing novel about the FTC challenging advertising that allegedly makes unsubstantiated claims, its approach to the testimonials in this case should send chills up the spine of any direct response marketer that uses consumer testimonials in its advertising. Specifically, for the first time ever, the FTC also brought action against one of the consumers who provided a testimonial in the infomercials. The consumer, Marsha Kellogg, represented that she had earned $79,975 in one promissory note transaction and had total earnings in excess of $134,000. While the FTC did not dispute the fact that this consumer had used the program and had earned money, she allegedly overstated the amount of her earnings by $50,000. As part of a settlement with the consumer, the FTC has required that she enter into a consent decree requiring her to refrain from making any false or misleading representations in the future. Most strikingly, the consumer has also agreed to “cooperate” with the FTC in its enforcement action against the company and its principals.

While the FTC has brought enforcement actions in the past against celebrity endorsers, this effort to proceed against an individual consumer who likely received little to no compensation for her appearance represents a new and potentially powerful weapon. Marketers should also take note that the FTC’s agreement to settle the case appears to have been conditioned at least in part on the willingness of the consumer to cooperate with the FTC in its pending enforcement action, which raises a new set of risks and challenges and is likely to have a chilling effect on the willingness of consumers to participate in the future.

It is also interesting to note that this case was brought nearly 10 years after infomercials for the program first began airing. This case is a stark reminder that you never know when the FTC will strike and the fact that no action has been taken against a program should never be taken as a sign that it is “legal.”

Linda Goldstein is chair of the Advertising, Marketing and Media division of Manatt, Phelps & Phillips, LLP, based in the firm’s New York office. She can be reached at lgoldstein@manatt.com.


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