United States: Advertising Law News And Analysis - April 25, 2013

Last Updated: May 1 2013

Edited by Jeffrey D. Knowles and Gary D. Hailey

FTC Survey Estimates Fraud Affected 25.6 Million Americans in 2011

Last week, the Federal Trade Commission (FTC) released a statistical survey of fraud in the United States during 2011. The study estimated that 25.6 million adults, or approximately 10.8 percent of the adult population, fell victim to fraud during that period. The survey is important to legitimate marketers, as it highlights advertising channels and product categories that are most likely to receive heightened scrutiny from federal and state regulators.

The FTC fingered the Internet as the place consumers were most likely to encounter fraud. The study included email, social media, auction sites, and online classified ads in the "Internet" category. Print advertising was the second-most-frequent source of fraudulent advertising, followed by TV and radio. As far as point-of-sale, most consumers bought fraudulent items via the Internet; telephone purchases ranked second in the survey.

Regarding types of fraudulent products, weight-loss products ranked first in the survey, affecting almost one-fifth of the estimated victims. Prize promotions ranked second, affecting almost 10 percent of the estimated victims. Unauthorized billings for membership clubs, work-at-home, and business opportunities also made the FTC's top-10 list.

Click here to read the FTC's press release and access a copy of the Commission's staff report.

ANALYSIS

New Florida Law May Axe Charitable Promos, Cause Marketing Campaigns

Last week, Florida Governor Rick Scott signed FL HB 155 into law. The law changes the Florida Game Promotion Statute and could have a significant effect on charitable promotions and cause marketing campaigns, write Venable attorneys Melissa Landau Steinman and Kristalyn J. Loson in a post to Venable's advertising blog, www.allaboutadvertisinglaw.com.

The bill was intended to clarify Florida's prohibition on electronic gambling and slot machines and to make it clear that the exception to prohibited lotteries for charitable drawings does not provide an exemption from other gaming prohibitions. Like many states, Florida provides an exception to the general prohibition against lotteries so that certain nonprofit organizations may conduct drawings and raffles, so long as the charitable organization follows specific requirements related to disclosures and rules of the raffle. However, the bill's language could also be interpreted to prohibit gaming promotions that are part of a cause marketing campaign. In cause marketing campaigns, a for-profit marketer advertises that taking an action, such as purchasing a certain good or service, will provide a benefit, typically a donation, to a charitable cause.

Steinman and Loson note that the bill moved quickly through the Florida legislature a couple of weeks ago, and was likely a reaction to the recent publicity surrounding former Lt. Gov. Jennifer Carroll's resignation. Ms. Carroll had been involved with a nonprofit that operated more than 36 Internet cafes throughout Florida, allowing players to reserve computer time and then use the computers to check instant numbers. The operation brought in millions in profits to Allied Veterans, but, reportedly, only two percent of the group's revenues went to veteran's causes.

They write that while the clear intent of the law was to close down cyber-cafes in Florida, and legitimate promotions were presumably not intentionally targeted, a plain language reading of the amended law suggests that cause-marketing game promotions are prohibited as "in connection with and incidental to" the sale of products or services. Venable is actively involved in efforts to seek clarification from regulators in Florida regarding the new law and its intended application.

Click here to read the full blog post on Venable's advertising law blog, which provides a more detailed analysis of the new law.

What to Do When the CFPB Comes Knocking

Venable partner Jonathan L. Pompan discusses strategies for weathering a Consumer Financial Protection Bureau (CFPB) investigation in the April 19 edition of Law360. In the article, he offered five tips for companies subject to CFPB oversight, including: being ready to respond before the CFPB issues a civil investigative demand (CID); deciding quickly whether to fight; knowing your data; coming to a meeting with details; and communicating frequently with CFPB staff.

Pompan writes that, while it may be impossible to know exactly what the CFPB will want before they demand information, companies need to know who should be involved in their response and what types of information are likely to be requested beforehand.

Click here to read Pompan's comments in Law360 (subscription required).

Click here to view Pompan's recent presentation to the American Bar Association on navigating CFPB investigations and enforcement actions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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