Signaling more aggressive enforcement to come, FTC issues notice of criminal offenses

Signaling that more aggressive enforcement against deceptive traders is on the way, the FTC has just issued a “Notice of Criminal Offenses” to 70 for-profit educational institutions, formally warning them that certain practices violate the law. The letters warn schools to review the notice and take “whatever steps are necessary to ensure that your company’s practices do not violate the law.”

What is a “Notice of Penal Offenses”?

Under the authority of Section 5 of the FTC, the FTC can send businesses a “notice of criminal offense.” This notice lists certain types of conduct that the FTC has determined in previous administrative orders to violate FTC law. Once a business receives the Notice, if it engages in the prohibited conduct, it may be subject to civil penalties of up to $ 43,792 per violation.

Why is this important? Normally, when an advertiser engages in unfair or deceptive acts or practices, the FTC does not have the power to impose penalties. And, after decades of obtaining financial relief through restitution, the United States Supreme Court recently removed that authority as well.

Interestingly, just because a merchant received a notice of criminal offenses from the FTC does not mean that the FTC determined that the merchant broke the law. Rather, the FTC sends out these notices “to make sure businesses understand the law – and that they are deterred from breaking it.”

This isn’t the only way the FTC can provide advice to marketers on the types of practices that violate the law. The FTC may, for example, send out regular warning letters, hold workshops, and publish official guides or other types of business guidance. The FTC may also send staff to business conferences, to help educate the business community about types of deceptive or unfair practices (although these types of appearances are apparently no longer allowed).

Why is today’s decision so important? For many years, the FTC has devoted substantial resources to providing business advice to help businesses comply with the law. And, when businesses cross the line, the FTC – except in the most egregious cases – has sought to resolve cases expeditiously through settlement orders that aim to prevent the behavior from happening again. The FTC’s decision to rely on penalty offensive notices is a big warning sign to the industry that the FTC is planning (at least in some cases) to stop giving companies two bites to the apple – and that if you break the law after being warned, the FTC will expect you to pay substantial penalties. The FTC has said that because civil penalties “can exceed what a wrongdoer has earned through their misconduct, the penalties send a clear message that attacking consumers will not pay off.”

Should marketers assume this decision is only for the education sector? Absolutely not. As Senior FTC Counsel wrote in the FTC Corporate Blog, “Other businesses may conclude that the FTC will use all the tools at its disposal to protect consumers from deceptive and unfair practices.” .

What concerns has the FTC expressed about educational institutions?

In its notice of criminal offenses to the for-profit educational community, the FTC said it is cracking down on false promises made by educational institutions regarding the employment and income prospects of their graduates. FTC President Lina M. Khan said: “For too long, unscrupulous for-profit schools have attacked students with impunity, facing no punishment when they defraud and push their students. to get into debt. FTC resuscitates dormant authority to deter wrongdoing. and hold accountable bad actors who abuse students and taxpayers. By working closely with our state and federal partners, we will be carefully monitoring this market. “

Relying on cases brought by the FTC decades ago, the FTC has stated that the following practices violate Section 5 of the FTC Act:

  • It is an unfair or deceptive business practice to distort, directly or implicitly, the need or demand of consumers who have graduated or taken courses at a specific institution.
  • It is an unfair or deceptive business practice to distort, directly or implicitly, the employment prospects of an institution’s graduates, the ease with which an institution’s graduates will be able to obtain employment, or the opportunities for employment in any field in which a course of an education is offered.
  • It is an unfair or deceptive business practice to misrepresent, directly or implicitly, the types of jobs available to graduates of an institution or for which they would be qualified upon completion of an institution’s courses or program. .
  • It is an unfair or deceptive trade practice to misrepresent, directly or implicitly, the number or percentage of consumers who take a course or complete a program or degree who have obtained employment, or the field or nature of this job
  • It is an unfair or deceptive business practice to misrepresent, directly or implicitly, the amount of money that consumers who graduate or who have taken courses at an institution will or will be able to earn.
  • It is an unfair or deceptive business practice to distort, directly or by implication, the qualifications or requirements necessary to obtain employment in the fields for which an establishment offers training, including whether additional experience or training is required. required or advantageous for employment in a field or for any position.
  • It is an unfair or deceptive trade practice to misrepresent, directly or implicitly, the capabilities or facilities of an institution to assist graduates or students of any course in finding employment, or the assistance actually provided to students. graduates to find employment, including the existence of a job placement service.

And, in an unusual move at the FTC these days, the FTC voted 5-0 to allow the notices to be sent.

“The FTC is resurrecting a dormant authority to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers” – FTC President Lina M. Khan

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