Avoiding Regulatory and Legal Pitfalls

from Internet Marketing & Advertising:

Self-Regulatory Approaches

July 25, 2012 – FAPSC Annual Conference

Mitch Talenfeld, CEO, MDT Direct

Peter Leyton and Katherine Brodie, Attorneys at Law, Ritzert & Leyton PC

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Disclaimers

The views expressed in this presentation are those of the speakers and do not necessarily reflect the policy or position of FAPSC.

The contents of this presentation do not constitute legal or regulatory advice. No one should act or refrain from acting on the basis of this presentation without seeking individualized, professional counsel as appropriate.

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GoalsOur objective today is to provide you with:

1. A basic understanding of the current legal and regulatory environment applicable to on-line marketing/advertising by postsecondary institutions, including recent changes in the law.

2. An enhanced ability to trend-spot regarding areas where further regulation or enforcement of Internet marketing/advertising may occur in the future, in order to inform organizational policy development and decision-making.

3. An appreciation for the broad gray areas where minimum standards of Internet marketing/advertising have not been defined clearly, by examining and discussing as a group some actual Internet marketing in use today.

4. Practical guidance about how to implement or enhance your school’s internal controls to reduce the likelihood that your institution would become an enforcement or consumer complaint target.

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Overview

Colleges of all types increasingly rely on the Internet to reach students remotely whose interests and career goals meet the educational services provided by the institution. Similarly, the Internet is a powerful and desirable research and comparison shopping tool for consumers.

However, increased use of Internet marketing has created a highly visible and highly fluid public medium of communication that has attracted the attention of policymakers and student advocates alleging instances of over-aggressive and misleading recruitment tactics.

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Why focus on the Internet ?

With TV, print & radio, schools have more control over the content and context of the message.

The Internet has many aspects to it that are non-transparent to schools and thus create greater control risk and liabilities for institutions.

Call centers and in-person verbal representations can also pose serious risks and concerns to schools, but are not a focus of this presentation.

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The Upside of Internet Marketing Today’s students – just like today’s consumers –

obtain most of their purchasing information on the Internet and comparison shop using this medium of communication.

Adult, working, non-traditional students need to be informed of all their options: online and brick & mortar, local and remote.

Relatively new career college entrants can get the word out about their school without a prominent brand based on a winning sports team or decades/centuries of name recognition.

The nation’s demand for postsecondary credentials requires expanded access and a variety of college options for consumers who increasingly demand educational services tailored to meet their unique needs.

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The Risks of Internet Marketing Public square: good and bad is exposed to all. Growing complexity of types of

communications between first consumer query and enrollment poses a monitoring challenge (text, calls, apps, etc).

Losing control of your brand by losing control of who is working for you and sub-vendors “down the line.”

Some vendors with nontransparent practices. Lack of clear marketing/advertising minimum

standards. These are challenges not just for proprietary

colleges.7

College Marketing Today:

The “Obama Mama” ads are gone for good, right?

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Wrong …

“Free money for Obama moms” >

“Obama Gives Money to Moms to Go to College” >

2 clicks: College logo and ads.

DISCUSS.

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The Case for Robust Internet Self-Regulation Your brand is your name and your

reputation – you care the most about it. You know your business best. You know your students best. Self-regulation, well done, creates brand

loyalty and referrals and raises public trust in your school.

Ideally reduces need for active legal or regulatory enforcement – at least for your school.

Cost of sustained assaults on sector due to rogue ads.

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Current Legal/Regulatory Framework

for Internet Advertising

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State Unfair and Deceptive Practices and State Consumer Protection Laws

State attorneys general and/or private litigants enforce.

Recent QuinStreet settlement with 20 state attorneys general re: GIBill.com

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Federal Trade Commission

Section 5 of FTC Act prohibits:

(1) unfair acts/practices that cause or are likely to cause substantial consumer injury not reasonably avoidable by consumer and not outweighed by countervailing benefits and

(2) deceptive representations, omissions or practices likely to mislead a reasonable consumer about material aspects of transaction.

No actual harm required.

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FTC determinations are based on facts/circumstances, including context, entire consumer transaction, sophistication of consumer, reasonableness of a consumer in the target group (ie, elderly) not an average consumer; adequacy of disclosures, etc.

FTC may seek legal injunction, corrective action, consumer education, disgorgement of profits or civil penalties.

FTC is part of the Department of Justice Consumer Protection Working Group focused on fraud or misrepresentation by proprietary colleges (among other issues).

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Telemarketing Sales Laws: FCC and state laws

Privacy Laws: Federal and state law, including CAN-SPAM Act (email marketing and opt-in requirement)

Lanham Act: trademark and copyright

False Claims Act qui tam actions alleging misuse of federal funds

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CFPB: veterans and private loan jurisdiction – July 21 Report to Congress

Department of Education’s “misrepresentation rule”: Title IV funding jurisdiction

Accrediting Body rules specific to marketing/advertising 16

The Misrepresentation Rule The HEA allows ED to suspend or terminate an

institution from participation in Title IV Programs for “substantial misrepresentation” in three categories of communications: The nature of its educational program; Its financial charges; or Employability of its graduatesSection 487(c)(3) of the HEA of 1965, as amended by the HEA Amendments of 1992 [20 U.S.C. § 1094(c)(3)].

ED’s attempt to add a fourth category -- statements about an institution’s relationship with the Department (34 C.F.R. § 668.75) -- was struck down by the D.C. Circuit court in APSCU v. Duncan on June 5, 2012.

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Misrepresentation

Any false, erroneous or misleading statement an eligible institution, one of its representatives, or any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs, or to provide marketing, advertising, recruiting or admissions services makes directly or indirectly to a student, prospective student or any member of the public, or to an accrediting agency, to a State agency, or to the Secretary.

34 C.F.R. § 668.71(c).

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Misrepresentation

A misleading statement includes any statement that has the likelihood or tendency to deceive or confuse. Note: APSCU v. Duncan decided on June 5, 2012 makes clear the rule does not prohibit “merely confusing statements.”

A misrepresentation is substantial if the person to whom the statement was made “could reasonably be expected to rely, or has reasonably relied” on the statement to that person’s detriment. No actual harm required.

34 C.F.R. § 668.71(c).19

Misrepresentation

A statement is any communication made in writing, visually, orally, or through other means.

A substantial misrepresentation is prohibited in all forms, including those made in any advertising, promotional materials, or in the marketing or sale of courses or programs of instruction offered by the institution.

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D.C. Circuit Ruling

Court vacated ED’s attempt to expand the definition of “misrepresentation” to include “any statement that has a likelihood or tendency to deceive or confuse” by stating that the misrepresentation rule does not prohibit “merely confusing statements.”

The rule includes within its scope false and misleading, but not simply confusing but non-deceitful, statements.

The ruling suggests that that misleading statements must have an element of untruth and/or some intent to deceive to be sanctionable.

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Nature of Education Program (§668.72)

Type, Nature, and Status of Accreditation Transferability of credits Whether successful completion of course qualifies

student for: Acceptance to labor union Government issued license or nongovernmental

certification Satisfaction of conditions generally needed to secure

employment in the occupation Requirements for successfully completing the program

including grounds for terminating enrollment. Whether courses are recommended or have been the

subject of unsolicited testimonials or endorsements. Availability, frequency, and appropriateness of courses

and programs to employment objectives.22

Nature of Education Program (§668.72) (Continued)

Nature, age, and availability of training devices or equipment

Availability of part-time employment or other forms of financial assistance

Nature and availability of any tutorial or other supplementary assistance needed before, during or after course completion

Nature or extent of any prerequisites for enrollment in any course

Subject matter, content of course of study, or any other fact related to the credential awarded upon completion of course of study

Whether academic, professional, or occupational degree conferred has been authorized by appropriate State agency

Matters required to be disclosed under 34 C.F.R. 668.42 (Financial Aid) & 668.43 (School Information)

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Example A: Employment in Specific Field

Search of for-profit school brand name > Several lead sites pop up in addition to

school site > “Get a college degree and start working

as a military journalist” > Links to article about jobs covering the

military as a journalist > Links to 48 proprietary colleges offering

journalism degrees > DISCUSS.

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Nature of Financial Charges (§668.73)

Offers of scholarships Whether a charge is customary charge Cost of program and refund policy Availability or nature of financial assistance Duty to repay loans regardless of whether

student completes program or obtains employment

Student’s right to reject financial aid or other assistance or whether student must apply for particular type of aid

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Example B: Scholarships

Consumer Category: Single Mother Looking for Financial Assistance to Return to School

“Single mother student” search query > Singlemomeducationhelp.com > “Mom: $10,000 scholarship. No GPA, No Essay, No

Stress! Apply Now. Takes only 1 minute.” www.scholarships4moms.net >

3rd click: College advertisement and logo first appear on same page. The College ad is fine but appears on page where available funds are still referred to as “scholarships.”

DISCUSS.

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Employability of Graduates (§668.74)

School’s relationship with any organization, employment agency, or other agency providing authorized training leading directly to employment

School’s plans to maintain placement services for graduates or otherwise assist in obtaining employment

School’s knowledge about current or likely future conditions, compensation, or employment opportunities in industry

Whether employment is being offered by institution or that a talent hunt/contest is being conducted

Government job statistics in relation to potential placement Other requirements generally needed to be employed:

commercial driving licenses license to carry firearms failing to disclose factors that would prevent applicant from

qualifying for such requirements, such as existing prior criminal record or preexisting medical conditions

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Example C: Agency Endorsement Site uses Department of Homeland

Security official logo on same page with listing for national security degree.

No college logo or brand name used.

DISCUSS.

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Misrepresentation

PENALTIES Revocation of Program Participation

Agreement Note: only applies to provisionally certified

schools. Denial of Participation Applications, e.g.,

denial of application for recertification, new program or location.

Proceedings seeking fine, limitation, suspension, or termination (fine can amount up to $27,500 per misrepresentation).

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ENFORCEMENT TRENDS

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Enforcement

How might the Department Chose to Enforce?

“the Department has also always operated within a rule of reasonableness and has not pursued sanctions without evaluating the available evidence in extenuation and mitigation as well as in aggravation.”

75 FR 66914 (October 29, 2010)

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Enforcement

“As noted elsewhere in this preamble, the Department enforces its regulations, including those in subpart F of part 668 with a rule of reasonableness. …For this reason, we agree to limit the reach of the ban on making substantial representations to statements made by any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs or those that provide marketing, advertising, recruiting, or admissions services.”

Federal Register, April 13, 2011 (76 FR 20636)

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Enforcement

“…As a result, statements made by students through social media outlets will generally not be covered by these misrepresentation regulations.”

Also statements made by entities that have agreements with the institution to provide services other than those relating to educational programs, marketing, advertising, recruiting, or admissions services will generally not be covered by these misrepresentation regulations (Example: Food Service).

Federal Register, April 13, 2011 (76 FR 20536)

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Indirect Statements Included

Any false, erroneous or misleading statement an eligible institution, one of its representatives, or any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs, or to provide marketing, advertising, recruiting or admissions services makes directly or indirectly to a student, prospective student or any member of the public, or to an accrediting agency, to a State agency, or to the Secretary.

34 C.F.R. § 668.71(c).34

QuinStreet Settlement (6/26/12) False, misleading and deceptive -- GIBill.Com alone, or in combination with other text and

military-related images and symbols, has the capacity to deceive consumers into believing that the website was operated or endorsed by the United States Government, Armed Forces or United States Department of Veterans Affairs;

Represented or implied that schools listed, either geographically ( e.g ., by state) or by educational program or degree or otherwise were the only schools at which Military Education Benefits Programs could be utilized when in fact the list of schools was not complete and the only listed schools were clients of QuinStreet ;

Implied that non- QuinStreet client schools did not accept Military Education Benefits Programs when such was not the case; 35

QuinStreet (continued)

Encouraged service members to submit written questions about military education benefits without adequately disclosing that the information provided in response to such inquiries was not being provided by an official with the VA or other United States Government agency;

Falsely stated or implied that the websites were presenting “neutral” or “unbiased” or “comprehensive” information about post-secondary schools when such was not the case;

Falsely stated or implied that schools were of high quality using terms such as “top” or “best” or similar adjectives when in fact only QuinStreet client schools were identified and no independent criteria were utilized by QuinStreet in making such representations; and

Falsely stated or implied that the list of schools provided in response to a search request was the exclusive list of schools meeting the consumer’s search criteria, when in fact only QuinStreet client schools were identified in response to such search requests. 36

Senator Hagan bill – S. 2296 (introduced April 2012) Would amend the HEOA to prohibit

postsecondary educational institutions from using revenues derived from federal educational assistance funds for: (1) advertising and promotion; (2) identifying and attracting prospective students; or (3) other activities the Secretary of Education may proscribe, such as paying for the promotion or sponsorship of education or military-related associations.

Sector Self-Regulatory Organization (SRO) Initiative

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Rules of the Road What are they?

Easy: Untruthful/incorrect statements are prohibited. About status of accreditation, transfer of credit,

cost, e.g.

Harder: What is “misleading?” What has a “likelihood or tendency to confuse”? ED rule is untested. “Free Money for Obama Moms”? Use of official agency logos? Omitting information about accreditation,

transfer of credit, costs that could be deemed material to transaction?

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DISCUSSION:

WHAT IS THE CONSUMER EXPERIENCE LIKE TODAY ON THE

INTERNET?

Let’s explore ….

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The Consumer Experience

“Pell Grant” search query >

http://degree.courseadvisor.com/qualify_leads/new?experience_id=800031&step_id=366 >

“Yes I’d like to speak to an educational counselor” – forces a “yes” because there is no opt-out and it is a required field in order for consumer to obtain additional information.

No college name or logo appears in search trail up to this point.

DISCUSS.40

The Consumer Experience

“college financial aid” search query > Meta tag: “financial aid for college” > First listing:

www.classesandcareers.com > “Search for schools that fit your needs” Provides list of colleges but says the

schools identified for you are not necessarily according to your stated preferences.

DISCUSS. Compare QuinStreet. 41

DISCUSSION

What is the “industry norm” for college marketing and advertising on the

Internet?

What is acceptable to your school? What is unacceptable to your school?

Who should define industry standards?

Is risk tolerance an appropriate consideration?

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Decide for Yourself:Self-Regulation

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School Policies and Procedures: 6 starting points

1. Understand the clear prohibitions under current law and the direction of regulatory trends in defining unacceptable conduct.

2. Determine your institution’s risk tolerance.

3. Clearly define your institution’s marketing/advertising policies in writing and share them with internal and external stakeholders.

4. Clearly define your institution’s internal controls and procedures for compliance with your policy, including vendor compliance.

5. Conduct regular self-monitoring and self-audits, preferably under attorney-client privilege, of the effectiveness of your policies and procedures.

6. Update your policies and procedures regularly to reflect changes in technology, law or enforcement trends. Document upgrades to your policies.

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School Policies and Procedures

Document your internal controls and procedures.

ED regulations allow for mitigation of penalties – evidence of strong internal controls may be a mitigating factor.

Where policy deviations are identified, document steps taken to remediate and avoid repeat problems – these actions help prove that your policies are actively enforced and effective.

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Sample Protective Policies

1. Regularly review all promotional materials including website pages; print, tv and radio copy; catalogs and any other written materials distributed to the public to ensure services are described clearly and accurately by affirmative statement and by lack of material omission.

2. Review filings made with accreditors and state agencies to ensure similar accuracy.

3. Evaluate training materials to make sure they are compliant: e.g., scripts for admissions representatives.

4. Review all contracts with vendors whose services may involve representations to the public about the school.

5. Periodic reviews or audits of school and vendor activities.

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Third Party Contracts – Limiting Risk Via Contract Terms

Content Pre-Approval Clause Define “Content” Broadly Across Communication

Mediums Require Pre-Approval for Broad Categories of Content Require Use of Disclaimers and Qualifiers Prohibit Publication Without Prior Written Approval and

Prohibit Alteration Post-Approval Require Vendor to Include Context in Which the Content

Will Appear Use of Call Center - Require Institution-Approved Script

and Access to Call Recordings Require Vendor to Provide Location (URL) For All Content Require Vendor to Copy Institutional Contact on All

Communications Sent by Vendor

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Limiting Risk Via Contract Terms cont’d.

Comprehensive Indemnity Clause Clause Regarding Vendor Insurance Coverage Clause Regarding Mandatory Vendor

Compliance Training Clause Regarding Compliance with Law Clause Stating Prohibitions Regarding

Referrals and Inquiry of Referrals Clause Regarding Use of Partners of Sub-

Vendors Obligations Upon Termination Clause Regarding Independent Contractor

Relationship

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Other Resources

Guidance for Association of Private Sector Colleges and Universities Members – The Misrepresentation Rule and Third-Party Vendors -- available at www.apscu.org

FTC’s Internet Marketing Rules of the Road -- available at: http://business.ftc.gov/documents/bus28-advertising-and-marketing-internet-rules-road

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QUESTIONS?

If you have additional questions or wish to follow-up with us later, please contact us:

Mitch Talenfeld: mitch@mdtdirect.com/(954) 764-2630 (direct)

Peter Leyton: pleyton@ritzert-leyton.com/ 703-934-9826 (direct)

Katherine Brodie: kbrodie@ritzert-leyton.com/703-934-9829 (direct)

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