FTC Gets Serious: Unless You Think a $250,000 Fine is Joke

Like many marketers these days, Nashville-based Legacy Learning Systems recruited "reviews" by affiliates to advertise its "Learn and Master Guitar" DVD series. This practice is, of course, a big "no-no" under the FTC's guides.

Guest blogger Tom Chernaik, CEO of CMP.LY, discusses why the Federal Trade Commission’s recent fine on an affiliate marketer is a sign of things to come.

Like many marketers these days, Nashville-based Legacy Learning Systems recruited “reviews” by affiliates to advertise its “Learn and Master Guitar” DVD series. Participants were encouraged to promote the product through articles, blog posts and other online editorial material, with the endorsements appearing close to hyperlinks to Legacy’s website.

Then, when sales were generated through the given links, the affiliates were given “substantial commissions” which were not clearly disclosed.

This practice is, of course, a big “no-no” under the FTC’s guides.

Consequently, the company had to pay a $250,000 settlement. The FTC issued a statement shortly after the settlement stating, “If law enforcement becomes necessary, our focus will be on advertisers, not endorsers —  just as it’s always been.” All of the participants in marketing programs have responsibilities to be open and transparent in their communications and advertisers and their agencies must ensure that disclosure requirements are communicated to influencers and monitored for compliance.

This recent ruling sets a precedent for how the FTC and other regulators will respond to future advertising violations online. Since updating the Guidelines to address digital platforms in late 2009, the FTC has been clear about what it requires advertisers to disclose.

Although two earlier actions against Ann Taylor LOFT and Reverb Communications were settled without financial penalties the FTC has, in this case, made it clear that advertisers, agencies and affiliates stand to lose profits gained from deceptive marketing practices.

Is this settlement a sign of things to come? Absolutely.

The FTC has remained focused on these issues and will continue to investigate where they see deceptive marketing practices. While financial settlements and a focus on affiliate marketing programs adds to the mounting risks for marketers, there are a few simple requirements that will keep everyone in compliance. They are:

1) Disclose and Inform — Make sure that disclosure requirements are clearly communicated to agencies and influencers (don’t forget that your employees can be influencers, too).

2) Document and Monitor — You should keep records of your disclosure policy and your communications informing influencers about those policies. Your disclosure policy should be easy for your influencers to understand and should provide actionable disclosure methods. You are responsible for monitoring the communications of your influencers to ensure that they are including proper disclosures.

3) Follow Up and Takedown — You are responsible to make sure that posts without proper disclosure are identified and flagged for removal. Communications with your influencers informing them of posts that are out of compliance should be documented and influencers who do not comply with your policies must be removed from future programs.

Compliance can be simple and advertisers are running out of excuses for marketing practices that are not open and transparent. Relying on agencies or influencers to create and manage proper disclosures, or pretending that these issues will just go away, is a risk that is simply not worth taking.

Chernaik’s last guest post for Social Times was about how tweets by 50 Cent put him in the crosshairs of a great online debate. His company, CMP.LY, last month closed an investment round with participants including Safir Capital, a family office based in Wilton, Conn.; Angel Street Capital LLC, an early stage fund based in Providence, R.I.; and individual angel investors.