Internet False and Misleading Advertising Laws – Part III

The franchise and business opportunity rules mandate sellers to issue a clear and concise disclosure document at least ten days before the consumer pays funds. The document must include the following information:

  1. Names, addresses, and telephone numbers of other purchasers;
  2. Fully-audited financial statement of the seller;
  3. Background and experience of the business’s key executives;
  4. Cost of starting and maintaining the business; and
  5. Responsibilities of seller and purchaser once the purchase is made.

The franchisor must provide written documents that support its financial claims such as the number and percentage of owners who have been able to meet those claims.

Multi-level marketing: This type of marketing is also known as “network” or “matrix” marketing takes place by selling goods and services via distributors.

Pyramid schemes: It’s a type of multi-level marketing that takes place when the distributors receive a commission for recruiting other distributors. It is important to note that pyramid schemes are not legal in most jurisdictions since they fail when new distributors are not recruited. This type of scheme usually protects the ones at the top level.

There are cases of credit and financial fraud which are protected by state and federal laws such as the Truth-In-Lending Act (“TILA”).  This federal statute mandates certain disclosures about finance charges and rescission rights.

There are cases of consumer billing complaints against creditors selling goods or services. The applicable law is the Fair Credit Billing Act (“FCBA”) which requires creditors to confirm receipt of complaints and promptly investigate billing errors. This statute is designed to prevent creditors from negatively affecting a consumer’s credit without justification.

The Fair Credit Reporting Act (“FCRA”) compels consumer reporting agencies such as Experian, Equifax, and TransUnion to take confidentiality, accuracy, and legitimate use of data seriously. Individuals have the right to know which consumer reporting agency provided the negative credit information so they can contact them. It is illegal to intentionally provide false information to the consumer reporting agencies.

The Equal Credit Opportunity Act (“ECOA”) prevents any kind of discrimination on the basis of race, color, religion, national origin, sex, marital status, or age by lenders. This statute requires creditors to outline the reasons why the applicant’s credit was denied if requested.

The Electronic Fund Transfer Act (“EFTA”) outlines the legal rights and responsibilities of all participants in the electronic fund transfer systems. This statute mandates participants to engage in certain transaction accounting procedures and outlines loss liability limits.

The Consumer Leasing Act (“CLA”) was enacted to regulate personal property leases that are more than four months and are made to consumers for personal, family, or household reasons. This federal statute is codified under 15 U.S.C. § 1667, et seq. and amended the Truth-In-Lending Act. The CLA requires certain terms and conditions be disclosed and imposes penalty limits for defaults.

In short, any type of false, deceptive, or misleading advertising is illegal and could be subject to sanctions. The Federal Trade Commission regularly monitors the internet for potential cases which it can prosecute under the applicable laws – e.g., the FTC Act. For example, if a company is advertising free products, such as “buy one, get the second one free,” then it must clearly and conspicuously outline the terms and conditions.

Our law firm manages legal actions related to internet false and misleading advertising in state and federal courts. We are ready to assist our clients in matters related to online marketing and advertising rules and regulations. Please contact our law firm to speak with an internet attorney at your earliest convenience.