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Editor’s Note: Fraudulent Affiliate Marketers Earning FTC Scrutiny

14 Jan, 2010 By: Thomas Haire Response

Thomas HaireIn mid-December, I had a chance to chat with Rich Cleland, a staff attorney for the Federal Trade Commission’s (FTC) Bureau of Consumer Protection. While the conversation started with an inquiry about recent changes to the FTC’s endorsement and testimonial guidelines (see page 8), Cleland also spoke about another topic that is more than a blip on the Commission’s radar: fraudulent affiliate marketing.

“We’re not concerned with legit affiliate marketing programs,” he told me. “But what we’re seeing now is what amounts to almost a criminal element that appears to be using social media, online reviews and affliate marketing sites as a modus operandi to commit fraud.”

He added that many of the consumer complaints about these sites didn’t center around the sales pitch involved but rather “with unauthorized sales charges — consumer fraud.” Cleland also compared this “threat” to widespread fraudulent telemarketing activities more than a decade ago that resulted in powerful and massive changes to the Telemarketing Sales Rule (TSR) early in the century.
This conversation coincides with what we at Response have heard from many marketers in recent months. Many DR marketers have clearly grown tired of their relationships with a number of affiliate marketers, and these words from an FTC insider are likely to add to that weariness with — and to marketers’ wariness of — affiliate relationships.

Cleland also said, “What is the FTC’s priority in cases involving fraudulent activites by affiliates? Who should bear the risk — the advertiser or marketer who entered into a business agreement with an affiliate marketer involved in illegal activities, or the consumer who is duped by that affiliate? Clearly, protecting the consumer is our priority — and the advertiser may have to bear a burden in such cases.”

However, it’s not only consumers the FTC is looking to protect in these cases. It’s also the marketer. After all, if a marketer gets involved with an affiliate that is involved in fraudulent activity, its business could be hurt — both directly and indirectly.

At the same time, marketers who spend the time on due diligence to make certain that their affiliate partners are completely on the up-and-up could still be hurt. After all, if an entire area of the marketing universe — think the telemarketing space a decade or so ago — is stained by a few bad eggs, it can be tough to create a level playing field for all marketers.

To that end, Cleland offered a closing thought. “As this kind of activity grows and expands, it cannot help but hurt the credibility of online businesses, both affiliate marketers and other online direct-to-consumer marketers,” he said. “The FTC’s mission is, first, to protect the consumer, but we also have an interest in legit businesses having a fair marketplace in which to compete.”

Thomas Haire, Editor-in-Chief

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