A&B ABstract: The Federal Trade Commission (“FTC”) recently announced an administrative complaint and proposed settlement against a marketer of consumer financial products that highlights potential compliance issues with product and service reviews, particularly entities that provide “pay-to-play” rankings and ratings.
On February 3, 2020, the Federal Trade Commission (“FTC” or “Commission”) announced an administrative complaint and proposed settlement against Shop Tutors, Inc., doing business as LendEDU (the “Company”), and three executives, including the Chief Executive Officer, the Chief Technology Officer, and the Vice President of Product (collectively the “Respondents”). The complaint and proposed settlement relate to allegations of deceptive content on the Company’s comparison shopping website which markets student loans, personal loans, credit cards, and insurance products. According to the FTC, the individual Respondents knew about or directly participated in the deceptive conduct alleged.
The FTC’s complaint contains three counts alleging violations of Section 5 of the FTC Act, which prohibits unfair and deceptive acts and practices. To settle the case, the Respondents must pay $350,000, are prohibited from making deceptive claims about their products or services, and must affirmatively disclose certain material information, among other remedies. The FTC voted 5-0 in favor of this proposed settlement, with Commissioner Rebecca Kelly Slaughter issuing a concurring statement. As the FTC brought this case as an administrative complaint rather than through the federal courts, the proposed settlement will be subject to 30 days of public comment before the Commission determines whether to make the proposed order final. Once entered, the final order will be in effect for 20 years.
According to the FTC’s complaint, since 2014 lendedu.com has promised “honest” “accurate” and “unbiased” ratings of the companies offering financial products on its website, but instead promoted particular companies by boosting rankings and ratings in exchange for payment. The FTC further alleges that: (a) positive reviews about lendedu.com and its customer service posted on its own and other third-party review platforms were written by employees of and others with a connection to the Company, and (b) the vast majority of “reviewers” don’t appear to have used lendedu.com.
Allegations related to “pay to play”:
Lendedu.com’s web pages for financial and insurance products include rate tables, rankings, star ratings and reviews of what it claims were the “best” or “top” companies in the product category. According to the FTC, the Respondents claimed that the “ratings are completely objective and not influenced by compensation in any way,” and that their “research, news, ratings, and assessments are scrutinized using strict editorial integrity.” The FTC alleges that contrary to these claims, the Company provided financial service companies with higher numerical rankings or star ratings and higher positions on rate tables in exchange for compensation.
The FTC’s complaint cites to a range of evidence as support for this allegation. For example:
- An email from the CEO asked a student loan refinance company to pay $9.50 per click to retake the number one ranking in that product category after it had fallen to number three. The company agreed to pay $8.50 per click for the number one ranking and table placement (and was restored to the number one spot). In a later email, the VP of Product asked the same company to increase its payment to $16.00 per click, stating “we want to keep your business positioned as the #1 lender on our site, but we need to justify the move from a business perspective.” That company then agreed to pay $15 per click and kept its number one position.
- The Respondents’ presentation material to a prospective bank customer included a slide that discussed “Partner Positioning & Ordering,” explaining that “compensation may influence the products we review and write about, the order in which partners appear in our articles, whether products appear on our site, and where they’re placed.”
Additionally, according to the FTC, the Company’s paid placement policies caused some previously highly ranked companies’ ratings to drop when they refused to pay to maintain those positions. For example, the Respondents ranked one student loan refinance company number two in the rankings and listed it second in the rate table for several months. When the company refused to pay more to be placed in the second spot, Respondents dropped its ranking to number five or lower.
Allegations related to inadequate disclosures:
The FTC alleges that the Respondents included virtually no information about their relationships with the companies that appear on the lendedu.com website, including that a company’s inclusion or ranking on the site may have been influenced by payment. According to the complaint, in mid-2016, Respondents added a fine-print disclaimer that the “site may be compensated through third party advertisers,” in the website’s footer. And in March 2019, after becoming aware of the FTC’s investigation, the Respondents included on a separate webpage a list of companies that “may provide compensation to LendEDU.” The FTC found these disclosures to be inadequate as neither was clear and conspicuous.
Allegations related to fake reviews:
The FTC also alleges that reviews and testimonials about LendEDU’s website and customer service that appear on its own site or and on third-party review platforms were written by employees of the Company or were completely made up. According to the FTC, at the time the FTC announced its complaint, lendedu.com had 126 reviews on a third party review website; of those, 111 (or 90%), were written or made up by Company employees or their family, friends, or other associates. The FTC further alleges that the lendedu.com homepage included “testimonials” from consumers claiming they saved money using the Company’s services, but that the Respondents had fabricated these “testimonials.”
The FTC continues its focus on deceptive endorsements, reviews and testimonials, regardless of the medium through which they are offered, be it third-party websites, social media, traditional media, such as broadcast or print, or “native” advertising. Companies should ensure that any reviews of product or services they publicly post or publish reflect the actual experience of the endorser. Further, companies should clearly and conspicuously disclose if there is a “material connection” that is not obvious on its face, such as when the endorser receives payment or product in exchange for the endorsement, or where the endorser has an ownership interest in the product or service he is endorsing.
In addition, review sites and other businesses promoting the products and services of others must be transparent about any compensation or other consideration they receive in exchange for inclusion or placement. In her concurring statement, Commissioner Slaughter underscored this point warning that “companies that engage in pay-to-play rankings and ratings should take heed: this conduct robs consumers of vital information, pollutes our online marketplaces, and violates the law, which will result in serious consequences.”