ABA Consumer Protection December 2006 Update Randal Shaheen Randall Miller Amy Ralph Mudge Dominic Vote January 8, 2007

ABA Consumer ProtectionDecember 2006 Update

Randal ShaheenRandall MillerAmy Ralph MudgeDominic Vote

January 8, 2007

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AgendaAgenda

FTC UpdateFTC Update

State Attorneys General UpdateState Attorneys General Update

Private Litigation UpdatePrivate Litigation Update

National Advertising Division UpdateNational Advertising Division Update

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FTC Update – Telemarketing Sales RuleFTC Update – Telemarketing Sales Rule

TSR Safe Harbor TSR Safe Harbor – The FTC’s policy of not bringing actions The FTC’s policy of not bringing actions

against parties delivering prerecorded against parties delivering prerecorded messages will be continued until the ongoing messages will be continued until the ongoing proceedings examining the safe harbor proceedings examining the safe harbor provision are completed. provision are completed.

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Global Marketing Group Inc.Global Marketing Group Inc.– The FTC successfully obtained a TRO and an The FTC successfully obtained a TRO and an

asset freeze against a payment processing asset freeze against a payment processing company that allegedly helped facilitate cross-company that allegedly helped facilitate cross-border telemarketing fraud (an advance-fee border telemarketing fraud (an advance-fee credit card scheme) in violation of the TSR credit card scheme) in violation of the TSR and the FTC Act. and the FTC Act.

– Complaint is pending.Complaint is pending.

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DirecTVDirecTV– FTC settled with various telemarketers that FTC settled with various telemarketers that

allegedly violated the Do Not Call provisions of allegedly violated the Do Not Call provisions of the TSR by calling customers on DirecTV's the TSR by calling customers on DirecTV's behalf.behalf.

– The orders require the defendants to pay The orders require the defendants to pay $100,000 in civil penalties (with $500,000 more $100,000 in civil penalties (with $500,000 more suspended) and bar them from future TSR suspended) and bar them from future TSR violations. violations.

– DirecTV previously settled related charges for DirecTV previously settled related charges for $5.3 million.$5.3 million.

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FTC Update – Identity TheftFTC Update – Identity Theft

Federal Identity Theft Task Force Federal Identity Theft Task Force – Established by executive order and chaired by Established by executive order and chaired by

Attorney General Alberto Gonzales and FTC Attorney General Alberto Gonzales and FTC Chairman Deborah Platt Majoras.Chairman Deborah Platt Majoras.

– Seeking public comment on ways to improve the Seeking public comment on ways to improve the effectiveness and efficiency of federal effectiveness and efficiency of federal government efforts to reduce identity theft.government efforts to reduce identity theft.

– Comments must be filed by 1/19/07. Comments must be filed by 1/19/07.

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FTC Update – Spanish Language SweepFTC Update – Spanish Language Sweep

Del Sol LLCDel Sol LLC– FTC settles case alleging scam targeting Spanish FTC settles case alleging scam targeting Spanish

speakers. speakers. – Telemarketers would tell customers they had been Telemarketers would tell customers they had been

selected to get a valuable prize (computer/camera selected to get a valuable prize (computer/camera etc.) if they purchased "designer" merchandise, such etc.) if they purchased "designer" merchandise, such as watches and fragrances. In return for payments of as watches and fragrances. In return for payments of $213-$250 consumers received only cheap knock-offs $213-$250 consumers received only cheap knock-offs and outdated electronics.and outdated electronics.

– A $1.6 million judgment against defendants was A $1.6 million judgment against defendants was suspended based on inability to pay but defendants suspended based on inability to pay but defendants will pay out $235,000 in redress.will pay out $235,000 in redress.

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FTC Update – Spanish Language SweepFTC Update – Spanish Language Sweep

Matos/QTXMatos/QTX– The FTC filed an amended complaint adding a new The FTC filed an amended complaint adding a new

party to this suit, which alleges that the defendants party to this suit, which alleges that the defendants violated the FTC Act and the Telemarketing Sales violated the FTC Act and the Telemarketing Sales Rule by making false earnings claims in connection Rule by making false earnings claims in connection with the marketing and sale of work-at-home craft with the marketing and sale of work-at-home craft assembly business opportunities through Spanish-assembly business opportunities through Spanish-language advertisements.language advertisements.

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FTC Update – Work-At-Home ScamsFTC Update – Work-At-Home Scams

Project Fal$e Hope$Project Fal$e Hope$– FTC announces a joint federal and state law FTC announces a joint federal and state law

enforcement sweep including more than 100 actions enforcement sweep including more than 100 actions targeting bogus business opportunities and work-at-targeting bogus business opportunities and work-at-home scams.home scams.

– On December 12th, the FTC announced 9 newly filed On December 12th, the FTC announced 9 newly filed cases, described developments in 13 ongoing cases, cases, described developments in 13 ongoing cases, and referred 3 civil penalty cases to DOJ for filing.and referred 3 civil penalty cases to DOJ for filing.

– More detail on these cases can be found at More detail on these cases can be found at http://www.ftc.gov/opa/2006/12/falsehopes.htmhttp://www.ftc.gov/opa/2006/12/falsehopes.htm

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FTC Update – Funeral Home SweepsFTC Update – Funeral Home Sweeps

Funeral Rule ComplianceFuneral Rule Compliance– Over the past year the FTC has carried out Over the past year the FTC has carried out

undercover visits to funeral homes in various states undercover visits to funeral homes in various states checking compliance with the Funeral Rule, which checking compliance with the Funeral Rule, which requires funeral homes to give consumers an requires funeral homes to give consumers an itemized general price list at the start of a visit to the itemized general price list at the start of a visit to the home to make arrangements.home to make arrangements.

– The FTC found violations at 12 funeral homes that The FTC found violations at 12 funeral homes that have elected to participate in a voluntary compliance have elected to participate in a voluntary compliance program and sent enforcement letters warning 32 program and sent enforcement letters warning 32 other homes to correct technical violations or face other homes to correct technical violations or face enforcement actions. enforcement actions.

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FTC Update – Cross-Border Fraud InitiativeFTC Update – Cross-Border Fraud Initiative

U.S. SAFEWEB ActU.S. SAFEWEB Act– FTC Chairman Majoras released statements FTC Chairman Majoras released statements

supporting Congress' passage and President Bush’s supporting Congress' passage and President Bush’s signing of the U.S. SAFEWEB Act, which is intended signing of the U.S. SAFEWEB Act, which is intended to help combat cross-border fraud. The Act:to help combat cross-border fraud. The Act:

Expands definition of “unfair or deceptive acts” to include Expands definition of “unfair or deceptive acts” to include acts which cause reasonably foreseeable injury within the acts which cause reasonably foreseeable injury within the U.S. or involve material conduct taking place in the U.S.;U.S. or involve material conduct taking place in the U.S.;Authorizes FTC to coordinate with and share certain Authorizes FTC to coordinate with and share certain confidential information with foreign law enforcement confidential information with foreign law enforcement agencies;agencies;Shields from liability certain individuals or entities voluntarily Shields from liability certain individuals or entities voluntarily providing information believed to be relevant to unfair or providing information believed to be relevant to unfair or deceptive acts or assets subject to recovery by the FTC.deceptive acts or assets subject to recovery by the FTC.

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FTC Update – Debt CollectionFTC Update – Debt Collection

Capital Acquisitions & Management Corp.Capital Acquisitions & Management Corp.– FTC settled charges alleging that debt FTC settled charges alleging that debt

collection companies threatened and collection companies threatened and harassed consumers to get them to pay old, harassed consumers to get them to pay old, unenforceable debts or debts they did not unenforceable debts or debts they did not owe.owe.

– The companies paid a $300,000 civil penalty The companies paid a $300,000 civil penalty and $1 million in consumer redress.and $1 million in consumer redress.

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FTC Update – Health ProductsFTC Update – Health ProductsWeight-Control Pill MarketersWeight-Control Pill Marketers– FTC settles with marketers of four products alleged to FTC settles with marketers of four products alleged to

have made weight-loss and weight-control claims not have made weight-loss and weight-control claims not supported by competent and reliable scientific evidence.supported by competent and reliable scientific evidence.

Xenadrine EFXXenadrine EFX– Claimed rapid and substantial weight loss and falsely represented that Claimed rapid and substantial weight loss and falsely represented that

results were achieved solely by using Xenadrine EFX.results were achieved solely by using Xenadrine EFX.– $8 - $12.3 million in consumer redress$8 - $12.3 million in consumer redress

CortiSlim/CortiStressCortiSlim/CortiStress– Claimed rapid and substantial weight loss and reduced risk of Claimed rapid and substantial weight loss and reduced risk of

osteoporosis, obesity, diabetes, Alzheimer’s disease, cancer and osteoporosis, obesity, diabetes, Alzheimer’s disease, cancer and cardiovascular disease.cardiovascular disease.

– $12 million in consumer redress$12 million in consumer redress

TrimSpaTrimSpa– Claimed rapid and substantial weight loss and suppression of appetiteClaimed rapid and substantial weight loss and suppression of appetite– $1.5 million to settle charges.$1.5 million to settle charges.

One-A-Day WeightSmart One-A-Day WeightSmart – Claimed weight loss through increased metabolism Claimed weight loss through increased metabolism – $3.2 million civil penalty$3.2 million civil penalty

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FTC Update – Public WorkshopFTC Update – Public Workshop

Negative Option MarketingNegative Option Marketing– On 1/25/07 the FTC will host a workshop analyzing On 1/25/07 the FTC will host a workshop analyzing

the marketing of goods and services that present an the marketing of goods and services that present an opportunity to consent in advance to continue to opportunity to consent in advance to continue to receive products or services in the future. The receive products or services in the future. The workshop will address:workshop will address:

Pros and cons of such arrangements;Pros and cons of such arrangements;

Consumer behavior;Consumer behavior;

Applicable standards for making such offers; andApplicable standards for making such offers; and

Appropriate disclosures. Appropriate disclosures.

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YP Corp.YP Corp.– Thirty-Four states reached settlement with YP Thirty-Four states reached settlement with YP

Corp. resolving allegations that the company Corp. resolving allegations that the company deceived consumers by automatically signing deceived consumers by automatically signing them up for its on-line yellow pages through a them up for its on-line yellow pages through a scam involving "activation checks."scam involving "activation checks."

– YP will cease using the checks and will pay YP will cease using the checks and will pay $2 million in restitution and investigatory $2 million in restitution and investigatory costs.costs.

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Chase Bank & Trilegiant Chase Bank & Trilegiant – Seventeen states reached settlement resolving Seventeen states reached settlement resolving

allegations that Chase & Trilegiant deceived allegations that Chase & Trilegiant deceived consumers into paying for membership programs that consumers into paying for membership programs that claimed to offer discounts on automotive service, claimed to offer discounts on automotive service, home repair, shopping, and other services. home repair, shopping, and other services. Consumers were automatically enrolled in the Consumers were automatically enrolled in the programs after cashing small checks that were programs after cashing small checks that were included with membership offers. included with membership offers.

– Trilegiant was required to pay $8.325 million in Trilegiant was required to pay $8.325 million in restitution and Chase was required to pay $6.175 restitution and Chase was required to pay $6.175 million to cover civil penalties, legal costs and fees.million to cover civil penalties, legal costs and fees.

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Private Litigation Update – New FilingsPrivate Litigation Update – New Filings

Time Warner v. DirecTVTime Warner v. DirecTV– Suit filed in S.D.N.Y. in December.Suit filed in S.D.N.Y. in December.– Alleges that DirecTV falsely advertised that Alleges that DirecTV falsely advertised that

viewers could not see certain games unless viewers could not see certain games unless they subscribed.they subscribed.

– Other ads featured Jessica Simpson and Other ads featured Jessica Simpson and William Shatner saying that DirecTV’s high-William Shatner saying that DirecTV’s high-definition TV service provides superior picture definition TV service provides superior picture quality than Time Warner’s cable HD service.quality than Time Warner’s cable HD service.

– Money damages sought---illustrative of trend?Money damages sought---illustrative of trend?

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Private Litigation Update - SettlementsPrivate Litigation Update - Settlements

Cingular Wireless v. T-MobileCingular Wireless v. T-Mobile– Cingular sued T-Mobile for “lowest dropped Cingular sued T-Mobile for “lowest dropped

calls” claim.calls” claim.

Jackson Hewitt pays $4M Jackson Hewitt pays $4M – Same-day loans called “Money Now!” Same-day loans called “Money Now!”

advertised as a quicker way to get money at advertised as a quicker way to get money at tax time.tax time.

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Private Litigation Update – Private Litigation Update – Reported DecisionsReported Decisions

Van Buskirk v. Greenlight Financial ServicesVan Buskirk v. Greenlight Financial Services (Cal.App.) (Cal.App.) – Plaintiffs alleged home loan program had hidden points.Plaintiffs alleged home loan program had hidden points.– California Court of Appeals affirmed summary judgment California Court of Appeals affirmed summary judgment

against plaintiffs for failure to establish injury.against plaintiffs for failure to establish injury.

Physicians Committee for Responsible Medicine v. General Physicians Committee for Responsible Medicine v. General Mills, IncMills, Inc., (E.D.Va.)., (E.D.Va.)– Plaintiffs sued dairy producers for falsely advertising the Plaintiffs sued dairy producers for falsely advertising the

weight loss benefits of consuming dairy products.weight loss benefits of consuming dairy products.– Claims dismissed under doctrine of primary jurisdiction – Claims dismissed under doctrine of primary jurisdiction –

i.e.,i.e., because of concurrent proceedings addressing because of concurrent proceedings addressing essentially the same claims at the FDA and FTC.essentially the same claims at the FDA and FTC.

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Youth Enhancement Systems, Inc.Youth Enhancement Systems, Inc.– A challenger filed a proceeding on the grounds that A challenger filed a proceeding on the grounds that

current advertising for the hair product "ProCede" did current advertising for the hair product "ProCede" did not comply with a previous NAD decision.not comply with a previous NAD decision.

– NAD found that advertising for ProCede violated the NAD found that advertising for ProCede violated the previous decision by using "before and after" previous decision by using "before and after" photographs, impliedly claiming that ProCede grows photographs, impliedly claiming that ProCede grows hair and failing to disclose effectively that ProCede is hair and failing to disclose effectively that ProCede is not intended to grow hair.not intended to grow hair.

– NAD received written assurance from the advertiser NAD received written assurance from the advertiser that it will modify its advertising to comply with the that it will modify its advertising to comply with the NAD decision.NAD decision.

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Advanced Body Care SolutionsAdvanced Body Care Solutions– A challenger filed a proceeding on the grounds that A challenger filed a proceeding on the grounds that

current advertising for the hair product "Follicare" did current advertising for the hair product "Follicare" did not comply with a previous NAD decision.not comply with a previous NAD decision.

– NAD found that, despite a few "inadvertent" slip ups, NAD found that, despite a few "inadvertent" slip ups, the advertiser substantially complied with the previous the advertiser substantially complied with the previous decision by withdrawing representations that all decision by withdrawing representations that all consumers will experience hair growth and modified consumers will experience hair growth and modified "before and after" pictures to disclose that results may "before and after" pictures to disclose that results may vary. vary.

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Proctor & Gamble CompanyProctor & Gamble Company– Kimberly-Clark Corporation (maker of Huggies Kimberly-Clark Corporation (maker of Huggies

diapers) challenged advertising claims of "superior diapers) challenged advertising claims of "superior overnight absorbancy" made by P&G (maker of overnight absorbancy" made by P&G (maker of Pampers diapers).Pampers diapers).

– The NAD found that P&G's claims of superiority were The NAD found that P&G's claims of superiority were supported by the evidence but nevertheless supported by the evidence but nevertheless recommended that a side by side demonstration in recommended that a side by side demonstration in the commercial be discontinued because it bore little the commercial be discontinued because it bore little relevance to actual usage or the underlying tests relevance to actual usage or the underlying tests done to support the claim.done to support the claim.

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RomfabRomfab– Romfab claimed its Range of Motion Exercise Romfab claimed its Range of Motion Exercise

Machine could achieve in 4 minutes, the same Machine could achieve in 4 minutes, the same results as 20-45 minutes of aerobic exercise, results as 20-45 minutes of aerobic exercise, 45 minutes of weight training and 20 minutes 45 minutes of weight training and 20 minutes of stretching combined.of stretching combined.

– Romfab refused to provide substantiation for Romfab refused to provide substantiation for its claims and NAD referred the matter to the its claims and NAD referred the matter to the FTC for review.FTC for review.

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S.C. Johnson & Sons, Inc.S.C. Johnson & Sons, Inc.– Reckitt Benckiser, Inc. (maker of Lysol products) Reckitt Benckiser, Inc. (maker of Lysol products)

challenged S.C. Johnson's (maker of Oust Air challenged S.C. Johnson's (maker of Oust Air Sanitizer) claim that Lysol is ineffective on odors in Sanitizer) claim that Lysol is ineffective on odors in the air.the air.

– NAD found that S.C. Johnson's representation NAD found that S.C. Johnson's representation regarding Lysol's ineffectiveness was misleading and regarding Lysol's ineffectiveness was misleading and recommended that the commercial be discontinued or recommended that the commercial be discontinued or modified.modified.

– S.C. Johnson disagreed with the decision but agreed S.C. Johnson disagreed with the decision but agreed to take in into account when considering future to take in into account when considering future advertising.advertising.

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DermaDoctorDermaDoctor– NAD sought substantiation of claims of NAD sought substantiation of claims of

effectiveness of "Picture Perfect Pore effectiveness of "Picture Perfect Pore Minimizing Solution."Minimizing Solution."

– NAD found that DermaDoctor provided a NAD found that DermaDoctor provided a reasonable basis to support a general efficacy reasonable basis to support a general efficacy claim and found that the product works to claim and found that the product works to remove excess skin oils and smooth out pore remove excess skin oils and smooth out pore edges. edges.

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Wright Medical Technology, Inc.Wright Medical Technology, Inc.– NAD referred Wright Medical Technology to the FTC NAD referred Wright Medical Technology to the FTC

and the FDA for failing to comply with a previous NAD and the FDA for failing to comply with a previous NAD decision regarding the advertisement of a wound-care decision regarding the advertisement of a wound-care product called "GraftJacket."product called "GraftJacket."

– The advertiser provided a "clinical comparison" on its The advertiser provided a "clinical comparison" on its website that suggested that the various products website that suggested that the various products listed were comparable and subject to the same listed were comparable and subject to the same regulatory standards of proof when the clinical regulatory standards of proof when the clinical methodology's and testing criteria were significantly methodology's and testing criteria were significantly different. different.

Documents

ABA Consumer Protection December 2006 Update Randal Shaheen Randall Miller Amy Ralph Mudge Dominic Vote January 8, 2007