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Early this week, the Federal Trade Commission announced that it had warned 1,100 companies that false claims about earning potentials could be expensive.
That should get some executives thinking hard.
“As the pandemic has left many people in dire financial straits, money-making pitches have proliferated and gained special attention. From multi-level marketing companies offering the dream of owning a business, to investment “coaches” with promises of secrets on how to beat the odds, to ubiquitous “gigs” that pitch a steady second income, Americans are bombarded by offers that often prove to be less than advertised.
As a result, the FTC is deploying its Penalty Offense Authority to remind businesses of the law and deter them from breaking it. By sending a Notice of Penalty Offenses to more than 1,100 companies, the agency is placing them on notice they could incur significant civil penalties—up to $43,792 per violation—if they or their representatives make claims about money-making opportunities that run counter to prior FTC administrative cases.”
The letters that the FTC sent via Federal Express, at least according to the sample, was clear that the agency “is not singling out your company or suggesting that you have engaged in deceptive or unfair conduct.” The agency wrote that the recipients were “business opportunities, franchises, multi-level marketing companies, coaching companies, gig companies, and others.” Not just gig platform companies, of course, but you’d have to be naïve to think that many of the “representations concerning the profits or earnings that may be anticipated by a participant in a money-making opportunity” are not of the “false, misleading or deceptive” kind. Ads are supposed to be representative.
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“LuLaRoe does not guarantee or represent, directly or indirectly, that you will derive any income as a Retailer. To the extent any income, which could include sales, earnings, profits, commissions, bonuses, compensation, or any other similar item, is discussed by LuLaRoe or by Retailers recognized by LuLaRoe, such discussion represents exceptional results and does not represent, and should not be interpreted as, typical income of Retailers. You should not expect to achieve similar results.”
A good thing to add.
There have been claims by gig platforms over the years about how much people can make and counterclaims that they aren’t correct. Not to get into the wars over what one study or another shows, but you’d think that if people made significant money, agreeing to a minimum wage some years ago would have been an easy pick. “You want $15 an hour? That’s all? Sure, not a problem.”
The FTC gave an Amazon example to the Wall Street Journal:
“As two examples of what she called ‘nonempty threats,’ Ms. [Lois Greisman, associate director for marketing practices at the FTC] pointed to a February settlement of more than $61 million with Amazon.com over FTC charges that it failed to sufficiently pay its independent ‘Flex’ drivers over a 2½-year period, as well as a $20 million FTC settlement with Uber UBER in 2017 over what the agency called “exaggerated earnings claims.’”
Yes, they sums may not seem like much, with $61 million for Amazon is not even chicken feed. It’s non-existent when looking at their finances.
But say fines could hit almost $44 thousand and you’ve got 30,000 workers. There’s $1.3 billion. A company might still write that off, but it gets a lot harder as the zeros mount and the investors become testy. And the number of workers for one of these firms can run into the millions.
There are also much smaller companies on the list, which the FTC emphasizes is “NOT an indication that it has done anything wrong” (emphasis, FTC).
Many people are looking for additional income sources at a time they and others find difficult financially. If you’re in that position, check the list before taking a plunge and then go to the site and see if there’s anything like the LuLaRoe disclaimer. Do a web search. Are there people complaining that the dollars never met the advanced promises? Some prudent due diligence is always a good idea. Remember that when something sounds too good to be true, it may well be.