Grimes & Reese Report: FTC Attorney Covers Deceptive Representations at DSA Teleconference

The Direct Selling Association’s recent Code Responsibility teleconference featured a presentation on deceptive representations in earnings claims by FTC attorney Janice Kopec.

An earnings claim is a statement made by a company or its representative about the income an individual can earn from a business opportunity. The FTC requires any earning claims be presented in writing; any claims not supported by written documents are illegal.  According to Ms. Kopec, the Earning Claims Statement must include:

  • The name of the person making the claim and the date
  • The specifics of the claim
  • The start and end date those earnings were achieved
  • The number and percentage of your buyers who got at least that result
  • Any information about the buyers who got those results that might vary from prospective buyers – for example, where they’re located
  • A statement that prospective buyers can get written proof for your earnings claims if they ask for it

Kopec talked about how the FTC examines earnings claims to determine whether they comply with the rule. Aside from the basic criteria – whether a claim is material, whether the proper disclosure statements are provided, etc.  –  the FTC looks at how the typical consumer will perceive the claims. For example, Kopec said that consumers regard claims as representing an average, not a high. Even if the earnings claimed are not guaranteed, the consumer still expects to earn the claimed amount.  Testimonials also can cause the consumer to infer specific results. Consumers, she said, will take the testimonial as a typical experience, not a specific instance.

In addition, substantiation is critical when making claims. You can’t make a claim and try to support it later. The supporting data must accompany the claim as part of the accompanying Earnings Claim Statement.

Kopec also stressed the idea that the impression you create is as important as the specific information you provide. Under the law, deception by implication is illegal, too. What you say may be literally true, but it could be deceptive in context if, for example, you leave out relevant information or present those facts to support a claim that is not true.  Therefore, you need to present the facts of the claim clearly and in context, you need to substantiate the claim in writing, and the claim must represent typical, not specific, results.

One additional, and very important, item to keep in mind is that a company is responsible for the statements made by its field representatives. Independent contractor status does not protect a company, Kopec said, noting this position is supported by a significant amount of case law.

For the definitive discussion on the topic of MLM income claims and earnings representations, as well as case law from the FTC and the U.S. Court of Appeals on this issue, see our article here.  To see an example of a proper Income Disclosure Statement, see our sample here.

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