FTC Nails CPA Affiliate Marketer for $500,000

27 replies
IMPORTANT FTC LAWSUIT FOR AFFILIATE MARKETERS

The FTC just announced a $500,000 settlement with affiliate marketers of debt relief services.

The marketers advertised debt relief services with the goal of getting leads to sell to debt servicing firms. CPA advertising where they were paid $50-$65 per lead.

According to the FTC
The defendants's ads included sales pitches such as:
  • "With one simple call you can eliminate your debt in a fraction of the time and for less than you owe."
  • "Find out today how quickly and easily you can eliminate your debt."
  • "Stop the harassing calls!"
The FTC alleges that the defendants' claims that they could reduce debts substantially, settle debts quickly, and stop calls from debt collectors, were false or unsubstantiated, and that the defendants did not obtain adequate evidence from sales lead buyers that they could achieve the promised results. The complaint also alleges that the defendants falsely claimed they provided the debt relief services they advertised....


In addition to banning the defendants from the debt relief business, the settlement order prohibits them from making unsubstantiated claims about financial related products or services, or misrepresenting material facts about any product or service. The order also prohibits them from disclosing or otherwise benefitting from customers' personal information, and failing to dispose of this information properly.
Read the above very carefully and please do not skim it.

Takeaways for affiliate marketers:

- Disclose you are not providing the ultimate service but just marketing, reviewing, promoting, etc., someone else.

- Obtaining consumer permission to transfer their personal information to the ultimate service provider.

- Obtain "adequate evidence" from the merchant that the merchant's claims are correct, and thus the affiliate marketer's claims are correct.

(* This can obviously be a problem *)

(*** THIS IS EXTREMELY IMPORTANT - THE FTC LAWSUIT CLAIMS A VIOLATION OF FEDERAL LAW BECAUSE THE AFFILIATE DID NOT SUBSTANTIATE THE MERCHANT'S CLAIMS - REGARDLESS OF WHETHER THE CLAIM WAS ACTUALLY TRUE OR FALSE ***)

[Kindsvater note: huge 1st Amendment issue here, but the affiliates accepted a stipulated judgment putting them out of business instead of litigating the claims]

- Be careful that your advertising does not "overstate" the product. For example, don't state or imply that all debt can be quickly and easily eliminated. Rather, experts may be able to reduce your debt.

- This particular example can be very tricky. For instance, you can stop calls from third party debt collectors, but not necessarily the original creditor.

(* This seems to be splitting hairs in claiming false advertising, but you should be aware of it *)


The FTC Press Release is here, where you can also find a link to the lawsuit that was also filed:

FTC Settlement Bans Marketers from Debt Relief Business
#$500 #affiliate #cpa #ftc #marketer #nails
  • Profile picture of the author Mohammad Afaq
    Laws are confusing :confused:

    Thanks for breaking it down here.

    Be careful that your advertising does not "overstate" the product. For example, don't state or imply that all debt can be quickly and easily eliminated. Rather, experts may be able to reduce your debt.
    Okay so here's a question:

    The seller of the product can make as many high claims as much he/she feels like?

    And if not then what's up with all the "I own $2 million but I paid $200k" commercials?
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    • Profile picture of the author kindsvater
      Originally Posted by Mohammad Afaq View Post

      Okay so here's a question:

      The seller of the product can make as many high claims as much he/she feels like?
      No they cannot. From the FTC information we don't know if the sellers were making any claims or not. There might be another lawsuit to be filed.

      Or, since the sellers were apparently attorneys they might have let the affiliates do all the marketing - and take all the risk.
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      • Profile picture of the author Mohammad Afaq
        Originally Posted by kindsvater View Post

        No they cannot. From the FTC information we don't know if the sellers were making any claims or not. There might be another lawsuit to be filed.

        Or, since the sellers were apparently attorneys they might have let the affiliates do all the marketing - and take all the risk.
        Ahhh, thanks for clearing up.

        I am sooo thinking of switching my major from computer science to law
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      • Profile picture of the author secrets2010
        Originally Posted by kindsvater View Post

        No they cannot. From the FTC information we don't know if the sellers were making any claims or not. There might be another lawsuit to be filed.

        Or, since the sellers were apparently attorneys they might have let the affiliates do all the marketing - and take all the risk.
        Brian, I thought that sellers are responsible for the actions of their affiliates?
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        • Profile picture of the author kindsvater
          Sellers do not want to be responsible for their affiliate's marketing. That is why certain terms are included in affiliate agreements, such as that specific statement, making sure the affiliate is an independent contractor, setting forth what advertising is not permitted, etc.

          If you look at the sample affiliate agreement in your IMLC membership area you will see exactly that.

          This is an excellent reason why a seller needs to have an affiliate agreement. Not only to give notice to their affiliates of what can and cannot be done, but to also use as a shield in case there is a legal problem.

          If a seller becomes aware of a problem with an affiliate they need to take action.

          There is a push by the FTC to make seller's responsible. Actually, the FTC seems to be flailing about in all directions: trying to make seller's liable for affiliate actions, trying to make affiliates get substantiation from merchants, etc.

          But the "general" rule of thumb is no seller liability for the marketing of an affiliate.

          In this case I believe attorneys were providing debt relief services. They were getting leads from Company X (probably a company with a CPA offer). The FTC lawsuit is against affiliates selling leads to Company X.

          The debt service providers could not easily know who the affiliates were or what their marketing was, especially since the marketing did not mention the name of the real service providers.

          Conversely, the affiliates would not necessarily know who Company X was selling the leads to - but they still got ripped by the FTC for not knowing this and not "substantiating" the claims in their marketing.
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          • Profile picture of the author psresearch
            Originally Posted by kindsvater View Post


            If a seller becomes aware of a problem with an affiliate they need to take action.

            There is a push by the FTC to make seller's responsible. Actually, the FTC seems to be flailing about in all directions: trying to make seller's liable for affiliate actions, trying to make affiliates get substantiation from merchants, etc.

            But the "general" rule of thumb is no seller liability for the marketing of an affiliate.
            I recall reading somewhere that the FTC just wants to make sure the seller makes a "good faith" effort to make sure the affiliate isn't engaging in any kind of deceptive marketing practices.

            Unfortunately, I can't remember where I read that, but it stuck in my head.
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  • Profile picture of the author scrofford
    Originally Posted by kindsvater View Post

    [B][U]
    [Kindsvater note: huge 1st Amendment issue here, but the affiliates accepted a stipulated judgment putting them out of business instead of litigating the claims]
    So if they would have argued and not accepted the claim they might have gotten out of it? But instead they just laid down and took it? Is that what you are saying?

    If it is then why wouldn't they argue it unless they were wrong? Unless it would have cost them about the same amount of money to fight it.

    I think you gave a great example of how marketers need to be careful though. I just think that companies shouldn't take these accusations laying down IF they didn't do what the FTC claimed.

    Of course I am not an attorney so I could be completely wrong here. Thanks for sharing this!
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  • Profile picture of the author stealthpromo
    Wow that is intense. I wonder if they'll go after the people doing this offline on TV and in subways/buses
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  • Profile picture of the author BloggingPro
    And Boom Goes the Dynamite. I think taking more responsibility in your own business practices is the only way we are going to be able to avoid this in the future. The FTC is only going to get more stringent. Pretty soon we'll have as many rules as Television and Radio advertisers do, maybe even more.
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    • Profile picture of the author cowboyrob
      Just so everyone's clear, the FTC Press Release indicates that the defendants were advertising through TV and Radio - not the Internet. They may have advertised on the Internet on the side, but I could not find that mentioned in the report.

      Regardless, it shouldn't come as a surprise to anyone that you should be conscious of the claims you make when promoting any given product. Do everything in good faith, and these types of scares shouldn't ever affect you.
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      • Profile picture of the author Bill Farnham
        Bump Diddy Bump Bump, Bump Bump!
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      • Profile picture of the author Black Hat Cat
        Banned
        Originally Posted by cowboyrob View Post


        Regardless, it shouldn't come as a surprise to anyone that you should be conscious of the claims you make when promoting any given product. Do everything in good faith, and these types of scares shouldn't ever affect you.
        Wishful thinking. If they want, the feds can come up with some rule/law being broken by pretty much every marketer around, even those operating in good faith.
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  • Profile picture of the author E. Brian Rose
    These FTC lawsuit settlements usually do not get paid. They are lawsuits, not fines or penalties imposed by the government, so they can be included in bankruptcies.

    The defendants were lead generators. My guess is that they will be back in the lead gen business in no time at all, pushing a new product.

    EDIT: Kindsvater put me in my place for this one. The bankruptcy info was taken from an article that I read on this same topic, but Kindsvater is a lawyer, so I would listen to him!
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    • Profile picture of the author kindsvater
      Originally Posted by E. Brian Rose View Post

      These FTC lawsuit settlements usually do not get paid. They are lawsuits, not fines or penalties imposed by the government, so they can be included in bankruptcies.
      That is not correct, particularly in this case.

      The actual judgment in this case is for $8.5 MILLION.

      However, defendants agreed to pay $500,000 - an amount likely based on their ability to pay. If they do not pay the $500,000 then not only do they then owe the full $8.5 million, but they also agreed it is not dischargeable in bankruptcy court.

      Keep in mind fraud claims are not necessarily dischargeable. I've had a saying for years that every claim can also also be a fraud claim.

      Bottom line: it is a mistake to believe that only fines and penalties are not dischargeable, and it is an even bigger mistake to think this is some kind of loophole the government is not aware of.

      As part of the negotiations to arrive at a settlement amount not only did the defendants have to disclose all of their assets under penalty of perjury, but there may also be another agreement not submitted in court that guarantees the money will be paid. Indeed, the money may have been required to be put into escrow before the judgment was agreed to.
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      • Profile picture of the author E. Brian Rose
        Originally Posted by kindsvater View Post

        That is not correct, particularly in this case.
        Good to know and I stand corrected. I was relaying info that I read from an article on the topic, but I will certainly take your word over that of some hack.
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  • Profile picture of the author BloggingPro
    Ok so I've thought about this some more. We don't know the revenue of these affiliate marketers. For all we know they could have banked a million and half dollars before they were nailed with the lawsuit...
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  • Profile picture of the author RaptorGabe
    WOOOOOOOWWWWWWW. Scary. But def shows we need to watch what we are saying. Honesty always wins guys
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  • Profile picture of the author Floyd Fisher
    Brian:

    I have a feeling there is much much more to this than the FTC just nailing affiliates for not verifying claims.

    More than likely this is a tip of the iceberg, where a huge debt relief scam got nailed...in which case the heavy hitting affiliates are also considered to be part of the scam too, just like in MLM scams where the scam owner and all major promoters are also considered to be guilty.

    Can you do some digging, so we can see the whole picture here? I don't think this was just a couple of renegade affiliates here....I think there is something huge that has or is about to happen that might be instructional to all.
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  • Profile picture of the author Jeremy Kelsall
    Originally Posted by kindsvater View Post


    - Be careful that your advertising does not "overstate" the product.
    The IM niche is screwed.
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    • Profile picture of the author CASNET
      Recently heard stats that for every 1 student entering medical school there are 5 going for their JD. Guess we are headed for more of the same.
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    • Profile picture of the author psresearch
      Originally Posted by Jeremy Kelsall View Post

      The IM niche is screwed.
      I wonder how your dramatazion/disclosure model would hold up. I personally thought that was a great approach, but now I'm wondering how that would fair here.
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  • Profile picture of the author psresearch
    Originally Posted by kindsvater View Post

    IMPORTANT FTC LAWSUIT FOR AFFILIATE MARKETERS


    (* This can obviously be a problem *)

    (*** THIS IS EXTREMELY IMPORTANT - THE FTC LAWSUIT CLAIMS A VIOLATION OF FEDERAL LAW BECAUSE THE AFFILIATE DID NOT SUBSTANTIATE THE MERCHANT'S CLAIMS - REGARDLESS OF WHETHER THE CLAIM WAS ACTUALLY TRUE OR FALSE ***)

    [Kindsvater note: huge 1st Amendment issue here, but the affiliates accepted a stipulated judgment putting them out of business instead of litigating the claims]
    I'm EXTREMELY curious about this piece, because I talked to a senior litigator at length about scammy offers that many of the CPA networks are running and she asked me a lot of questions about how the networks work, the relationships between the affiliates and the networks, etc. and in the end gave the impression that she didn't seem to think they had a way to go after the CPA networks themselves - which would obviously be the best place to disrupt the distribution channel of a CPA scam.

    So it sounds like based on what you've posted here that in this case that they would consider the CPA network to verify claims, etc. as well.

    Also, is there a place on your site or within the Warrior Forum where you've written about the first amendment rights issues you discuss here?
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    • Profile picture of the author kindsvater
      Originally Posted by Paul Schlegel View Post

      I'm EXTREMELY curious about this piece, because I talked to a senior litigator at length about scammy offers that many of the CPA networks are running and she asked me a lot of questions about how the networks work, the relationships between the affiliates and the networks, etc. and in the end gave the impression that she didn't seem to think they had a way to go after the CPA networks themselves - which would obviously be the best place to disrupt the distribution channel of a CPA scam.

      So it sounds like based on what you've posted here that in this case that they would consider the CPA network to verify claims, etc. as well.

      Also, is there a place on your site or within the Warrior Forum where you've written about the first amendment rights issues you discuss here?
      Paul, there's a reason why many CPA networks quickly dropped **** offers once a number of lawsuits were filed - not just against the merchants, but some affiliates were also sued.

      However, the FTC took the position in this case the affiliate had to substantiate their marketing of the debt relief services. There is nothing about the CPA network.

      For networks it's a tricky issue and we are delving into new online issues that have not been litigated. An argument can be made they are just middlemen. Another argument can be made they are profiting from sales, approving merchants, approving affiliates, approving offers, etc. What if an offer is obviously fraudulent? What if it is fraudulent, but it is not obvious from the face of the website?

      As for 1st Amendment issues that is not something I have touched on here or in the IMLC - although the IMLC is about to get a huge update. But basically the 1st Amendment does very little to protect commercial speech that is false.

      But here the FTC lawsuit alleges that making an unsubstantiated claim constitutes a deceptive practice.

      First time I have seen that issue where potentially truthful advertising is claimed to be unlawful.

      What if you advertise that a product will cause someone to lose 4 pounds in 30 days.

      You have no idea if that is true or not - but it sounds good and increases conversions.

      What if it turns out that is actually true?

      For decades one of the pillars of government regulation of commercial speech is showing it is false or misleading. (The 'Central Hudson' test if someone wants to look at this.)

      Is an unsubstantiated claim false or misleading?

      On one hand you can argue no. The claim is still truthful. No harm so no foul.

      On the other hand you can argue yes. By making a claim it is implied there is a basis for the claim and consumers are relying on that to make a purchase. If the consumer knew you were just making it up they may not buy. (But are they really harmed?)

      Perhaps there are some cases about this, I'm just not up on them. But in my view it should be black and white: is the claim true or not. It is a gray area, and a real slippery slope, to try and evaluate how much substantiation or effort at substantiation is required.

      Of course I'm also a big 1st Amendment fan, and this was just a CLAIM by the FTC. The legal validity of the claim was not decided.
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      • Profile picture of the author Rabindra
        This has been a very useful/informative thread for me. Thanks warriors for the contributions specially kindsvater.

        Many thanks,

        Rabindra
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  • Profile picture of the author seasoned
    How is there a first amendment issue here!?!?!? The 1st amendment does NOT say you could lie, cheat, and YES basically STEAL through deception. Heck, LOTS of people have been thrown in jail for JUST THAT! Milken(Failed to disclose the fact the bonds were considered junk), Minkow(Lied about the value of his company), Enron(Lied about relationships and abilities. Interestingly, the sales pitch was much like debt relief. You need to pay over x for power, WE will get it to you for less than x!), Madoff(Lied about where money came from) are among those! HECK, even a "ponzi" scheme, like madoffs could have been legal if he were honest. Of course, FEW would probably invest!

    The whole point of a ponzi scheme is that you tell people you invest, or use the money, to somehow make money, and promise to pay them a fixed amount or simply at least what they pay, but you use future money to pay for the promises, leaving the last investors paying for the loses.

    If you said, "Well, future payers pay in just as you do and you get paid a portion of that. You MAY lose money.", you could argue that it is legal. Outside of the fact that shareholders are SUPPOSED to have SOME control over the company, their promise is the SAME as I stated for the ponzi scheme above. People wait for someone to pay an amount for their stock, and that might be LESS! The company could go bankrupt and you could lose EVERYTHING!

    Look at "id theft"! It is based on saying you are who you aren't.

    As for the affiliate, he COULD have gotten out of it if he had reasonable reason to believe the vendor could do that, said he was referring and making a commission, and the vendor said the SAME thing. They could have had the vendor sued, and have the affiliates pay back the money.

    BTW LAWYERS, you hear that guys, LAWYERS!!!!! have been running commercials in the US! Here are a few changes I have heard in their pitches.

    1. The speaker often NOW says "I'm a NON attorney spokesman for ...."
    2. They are more clear about requirements, etc....
    3. There is a little disclaimer that says if the attorney is admitted in the state, that they may not be the ones actually taking your case, and that they are referring. They also mention that they aren't responsible.
    4. They ALSO now mention the funds that have been setup.

    They didn't do all that a couple years ago. They are walking a tightrope NOW, but they obviously got in trouble and changed their pitch. They USED to come on like everyone was an attorney, and like they took the case themselves.

    Basically all they usually do is refer cases. The ATTORNEY then probably has a paralegal do the paperwork to satisfy the evidence that their new client was affected by the given problem. The attorney then takes maybe 30-50% off the top, and the client gets the rest. WHO KNOWS what the referring attorney gets? It could be tens of thousands of dollars. But basically, they don't need to PROVE anything other than the client had the product and/or they were affected in a given way. The HARDEST part of the case was done YEARS ago! They proved the product could cause a problem, and the companies were forced to setup funds to pay claims.

    Steve
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  • Profile picture of the author ChadH
    I love how on TV you can use people that are blatant actors giving testimonials, just as long as you put a tiny, illegible disclaimer at the bottom of the screen. But put a disclaimer in 12 pt text on a web page and you can still get in trouble.
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