Agency launches rulemaking to challenge false earnings claims by multilevel marketers, for-profit colleges, and “gig economy” platforms

February 20, 2022 - The Federal Trade Commission launched a proceeding to challenge bogus money-making claims used to lure consumers, workers, and prospective entrepreneurs into risky business ventures that often turn into dead-end debt traps. If finalized, a rule in this area would allow the Commission to recover redress for defrauded consumers, and seek steep penalties against the multilevel marketers, for-profit colleges, “gig economy” platforms, and other bad actors who prey on people’s hopes for economic advancement.

“Consumers, workers, and prospective entrepreneurs are being bombarded with so-called money-making opportunities that promise the world but leave them deeply in debt,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC will use every tool in its toolbox to deter this economic exploitation and compensate people who got conned.”

Consumers face claims about how much money they can make across a significant swath of the economy. Whether seeking a new job, thinking of opening a business or participating in other money-making opportunities, or just looking to pursue an education, consumers are inundated with claims from businesses about how much money they will or could make.

The Commission has taken aggressive law enforcement action against coaching or mentoring schemes, multi-level marketing companies, work-from-home, e-commerce, or other business opportunity scams, chain referral schemes, gig companies and employers, job scams, and businesses purporting to offer educational opportunities. For example:

• The agency sued multi-level marketing companies Herbalife and Advocare, alleging they promoted high earnings even though most participants made little or no money. In settlements with the FTC, Herbalife agreed to pay $200 million and Advocare agreed to pay $150 million in refunds to consumers.
   
• The agency sued Amazon for allegedly using misleading earnings claims to solicit consumers to deliver packages on its Amazon Flex platform. Despite offering to pay Flex drivers between $18 and $25 per hour and claiming that drivers would “receive 100% of the tips,” Amazon pocketed over $60 million in tips from over 140,000 drivers, the FTC alleged. Amazon settled with the FTC, agreeing to turn over the full amount of the wrongly withheld tips for redress to the affected drivers.
   
• The FTC sued for-profit school DeVry University and its parent company, alleging that DeVry falsely claimed that its graduates averaged 15 percent higher incomes one year after graduation than graduates of other schools. The FTC lawsuit got significant financial relief for tens of thousands of DeVry students: $49.4 million in partial refunds and $50.6 million in debt relief.

The Commission has returned hundreds of millions of dollars to consumers injured by such schemes. However, the recent Supreme Court decision in the AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act.

Today, the FTC is taking a first step toward ensuring that consumers targeted by these schemes can be compensated. In the Advanced Notice of Proposed Rulemaking (ANPR) announced today, the Commission gives notice of a new potential rulemaking concerning false, misleading, and unsubstantiated earnings claims. If the Commission adopts such a rule, the FTC will have an important new tool to return money to consumers injured by deceptive income claims, and to hold bad actors accountable with civil penalties. 

In the ANPR, the FTC is seeking comment from the public about a wide variety of issues, including whether earnings claims are prevalent among all or only some industries, how a rule addressing earnings claims should be drafted, the benefits to consumers from such a rule and the costs to businesses, and whether the potential rule should address disclaimers, lifestyle claims, or liability for agents’ claims. 

If, after reviewing the public comments in response to the ANPR, the Commission decides to proceed with proposing such a trade regulation rule, its next step would be to issue a notice of proposed rulemaking.

The Commission vote to approve the Federal Register notice announcing the ANPR was 4-0. Commissioner Christine S. Wilson issued a concurring statement. The notice will be published in the Federal Register soon. Instructions for filing comments appear in the notice. Comments must be received 60 days from the publication date of the Notice.