FTC takes action to crack down on lucrative bogus claims used to lure people into dead-end debt traps – includes tiered platforms and “Gig Economy”
Agency launches rulemaking to challenge false tax returns by multilevel marketers, for-profit colleges and gig economy platforms
February 20, 2022 – The Federal Trade Commission has launched a case to challenge false money-making claims used to lure potential consumers, workers and 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 seek redress for defrauded consumers and seek stiff penalties against multilevel marketers, for-profit colleges, “gig economy” and other bad actors who prey on people’s hopes for the economy. advancement.
“Consumers, workers and would-be entrepreneurs are bombarded with supposedly lucrative opportunities that promise the world but leave them deeply in debt,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau. “The FTC will use every tool in its toolbox to deter this economic exploitation and compensate those who have been duped.”
Consumers face claims over how much money they can earn in a significant part of the economy. Whether they are looking for a new job, considering opening a business or participating in other lucrative opportunities, or simply looking to pursue an education, consumers are inundated with claims from companies about the amount of money they will or could earn.
The Commission has taken aggressive enforcement action against coaching or mentoring programs, multilevel marketing companies, work from home, e-commerce or other business opportunity scams, programs recommendation channels, gig businesses and employers, employment scams and businesses. claiming to provide educational opportunities. For example:
- The agency sued multi-level marketing companies Herbalife and Advocare, alleging they promoted high earnings even though most participants earned little or no money. In the settlements with the FTC, Herbalife agreed to pay $200 million and Advocare agreed to reimburse consumers $150 million.
- The agency sued Amazon for allegedly using misleading tax returns to trick consumers into delivering packages on its Amazon Flex platform. Despite offering to pay Flex drivers between $18 and $25 an hour and claiming that drivers would “get 100% of the tips,” Amazon pocketed more than $60 million in tips from more than 140,000 drivers. , according to the FTC. Amazon has settled with the FTC, agreeing to return the full amount of tips wrongly withheld for redress to the affected drivers.
- The FTC sued the for-profit school DeVry University and its parent company, alleging that DeVry falsely claimed that its graduates had, on average, 15% higher earnings one year after graduation than those of college graduates. other schools. The FTC lawsuit won 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 harmed by such schemes. However, the recent Supreme Court decision in AMG Capital Management LLC v. FTC interfered with the FTC’s ability to seek financial relief from consumers under FTC law.
Today, the FTC is taking a first step to ensure that consumers targeted by these programs can be compensated. In the Advance Notice of Proposed Rulemaking (ANPR) announced today, the Commission advises of potential new rulemaking regarding false, misleading and unsubstantiated tax returns. If the Commission passes such a rule, the FTC will have an important new tool to return money to consumers harmed by misleading tax returns and to hold bad actors accountable for civil penalties.
In the ANPR, the FTC invites public comment on a wide variety of issues, including whether income claims are prevalent in all or only certain industries, how a rule dealing with income claims should be drafted, benefits to consumers of such a rule and costs to businesses, and whether the potential rule should address disclaimers, lifestyle claims, or liability for agent claims.
If, after considering public comments in response to the ANPR, the Commission decides to propose such a rule of trade regulation, its next step will be to issue a Notice of Proposed Rulemaking.
The Commission’s vote to approve the Federal Register notice announcing ANPR was 4-0. Commissioner Christine S. Wilson released a concurring statement. The notice will be published shortly in the Federal Register. Instructions for filing comments are in the notice. Comments must be received 60 days after the publication date of the notice.