In This Issue:
- Blurred Lines: NAD Says Supplement Company Must Add Conspicuous Disclosures When Editorial Content Is Advertising
- Consumer Finance & False Marketing: CFPB Slaps Lender With $20 Million Fine for Misleading Consumers About Add-Ons and Cancellation Terms, Then Keeping the Interest
- "Not Fit for Public Consumption": Fed-Up Judge Slams Attorney Over "Frivolous" Lawsuit
Blurred Lines: NAD Says Supplement Company Must Add Conspicuous Disclosures When Editorial Content Is Advertising
Once again, the National Advertising Division has examined the increasingly blurry line between advertising and editorial and found that the content crossed over; consequently, the advertising lacked necessary disclosure. Although the question has become a common one for both advertising self-regulation and regulators, cases from NAD have provided clear guidance on the dividing line between advertising and editorial, based on FTC case law and principles—and it is important to remember that only "advertising" comes within either the NAD's or the FTC's jurisdiction.
Here, NAD reviewed a challenge to video endorsements, third-party reviews and "editorial" regarding dietary supplement products offered by Renue By Science. The company's products—from supplements to skincare—are offered on its website, on third-party "editorial," a/k/a affiliate, websites and on endorser-made YouTube videos NAD found were improperly denominated as creator content.
In SWIFT, the issue is not the accuracy of product claims, but rather the narrow single issue of whether Renue properly disclosed material connections in third-party editorial sites, endorsements and on YouTube.
IO Law argued that a number of editorial-style sites that promoted Renue's wellness products did not make sufficiently clear their commercial relationship with the advertiser, and that even when the content (which otherwise appeared to be editorial) provided a disclosure, it was insufficient to meet the standards set by the Federal Trade Commission's Guides Concerning the Use of Endorsements and Testimonials in Advertising (FTC Endorsement Guides).
The challenger zeroed in on one such site, Foodsecurity.org, which had at one time been a nonprofit and continued to "maintain that look and feel," without sufficiently disclosing its third-party affiliate relationship with Renue. Although Foodsecurity.org blogger Shafique Siddique disclosed that he was "an affiliate for some of the brands promoted on my website," NAD found this was not a good enough. NAD recommended that the disclosure specifically identify advertiser Renue by name, and clearly identify who would be receiving the commissions.
Beyond Foodsecurity.org, NAD recommended that any sites with which Renue still works in a similar capacity "clearly and conspicuously disclose that they receive payments based on sales of the Advertiser's products" and put the disclosures at the top of the landing page.
Next, NAD considered the sufficiency of disclosures in YouTube videos endorsing Renue products. One video that failed to disclose that it was made by a Renue employee was voluntarily removed prior to the decision. But NAD found another video promoting Renue remained problematic. In the video, the same employee raved about a particular supplement without identifying Renue or the employee relationship. A written disclosure was available by clicking on a "show more" link, but NAD found the disclosure insufficient because it was not made in the video itself. NAD held that to provide the necessary disclosure, Renue should have the endorser clearly and conspicuously disclose during the video that they are a Renue employee.
NAD found that another video made by a Renue affiliate also gave the impression that it was a neutral third-party endorsement of Renue's products. Though the video description had a disclosure, again, no disclosures were contained in the video content itself. NAD once again recommended that the video be removed or a disclosure added to the effect that the poster was an affiliate of Renue, since it "could be reasonably understood by consumers as editorial content."
In contrast, NAD found that another challenged video was clearly advertising content, posted by a third party announcing available discount offers and so didn't necessitate any disclosures as it was clearly not editorial.
There are two features that make this case particularly interesting. First, the challenge is essentially unnamed, as the case was brought by a seeming general counsel for hire, IO Law, LLC, without naming any competitor. Second, not only did the advertiser agree to comply with NAD's decision, the advertiser agreed to either drop its affiliate relationships or require those affiliates to change their disclosures even though they appeared on purportedly independent, third-party sites.
Consumer Finance & False Marketing: CFPB Slaps Lender With $20 Million Fine for Misleading Consumers About Add-Ons and Cancellation Terms, Then Keeping the Interest
One of the nation's largest non-depository personal lenders was ordered to pay $20 million to settle charges brought by the Consumer Financial Protection Bureau (CFPB) that it tricked and deceived consumers about the terms of its refund period, used deceptive practices to upsell "add-on" products, and unlawfully retained interest payments.
According to the CFPB's order, OneMain violated the Consumer Financial Protection Act's (CFPA's) provisions related to the marketing, selling, and financing of optional "add-on" financial products.
First, the company used deceptive sales tactics to upsell optional products. Employees misled consumers into believing that they could not receive a loan without purchasing the add-ons, and consumers often only found out that the products were optional once they received their post-origination letter.
Second, while selling the products, OneMain deceived consumers about the cancellation period and terms. The company told customers that the optional add-on products could be canceled within 30 to 45 days from purchase, and implied that the cancellation was free during that time. This practice was "likely to mislead a reasonable consumer into believing they were entitled to a cost-free" full refund period.
Yet, despite this promise of a "full refund" policy, around 25,000 borrowers who purchased and then canceled the add-on products were not refunded any interest stemming from the fee. Over a period of four years, this tactic allegedly netted OneMain about $10 million in interest charges it was supposed to return.
The stipulated order mandates that OneMain pay $20 million, $10 million to affected consumers and a $10 million penalty to the CFPB's victim relief fund. Additionally, OneMain is obligated to stop such deceptive activities, amend its cancellation policy to make it easier for borrowers to cancel add-on products cost-free, and include interest in refunds.
The FTC and state regulators are not the only automatic renewal watchdogs and there are consequences outside of general false advertising laws—such as through consumer finance laws—for engaging in deceptive marketing practices. Here OneMain's liability stemmed from "using deceptive, unfair and abusive acts and practices to market, sell, and finance optional ancillary products" in violation of Section 1031 and 1036(a)(1)(B) of the CFPA.
"Not Fit for Public Consumption": Fed-Up Judge Slams Attorney Over "Frivolous" Lawsuit
It all started with vanilla. Will it end with mayonnaise?
Such is clearly the hope of Illinois Judge Steven Seeger, who threatened plaintiffs' consumer class action attorney Spencer Sheehan with sanctions related to his case against Walmart over the advertising of its "Mayo with Olive Oil," one of what the judge called around 400 "frivolous" food and beverage false advertising lawsuits the attorney has filed in the last several years.
All of Sheehan's suits allege in some capacity essentially the same thing: that product X contains little to no amounts of the advertised ingredient—be it vanilla (how Sheehan made a name for himself initially), strawberry, chocolate, and the like.
Trouble is, Sheehan has lost the vast majority of the suits at the motion to dismiss phase, wrote the court, noting that "Plaintiff's counsel has developed a fair bit of notoriety for filing cases about consumer labeling. Many of the complaints have suffered the judicial equivalent of a crash landing, or perhaps an explosion on the launch pad. They haven't survived for long."
Yet, wrote the court, "Plaintiff's counsel has peddled this theory time and again, in case after case, without much success in this district. The complaint joins a warehouse of complaints filed by Plaintiff's counsel that are not fit for public consumption."
In a scathing repudiation of Sheehan and his theory of the case ("past its prime from the very moment that it arrived in the federal courthouse,") Judge Seeger dismissed the "purported class-action lawsuit" alleging that Walmart misled consumers who expected more than a de minimis amount of the olive oil advertised on the mayo label.
On the merits of the case, Judge Seeger found Walmart's mayo label "not misleading as a matter of law," finding that a reasonable consumer could not interpret the mayo label as containing a particular amount of olive oil, as plaintiffs had argued.
Going further, Judge Seeger threatened to sanction Sheehan with attorneys' fees, calling his threat "one other piece of unfinished business."
With a heavy dose of side eye, the court said that it "doesn't have time to write the full string cite of cases where the theory of Plaintiff's case didn't get off the ground." Judge Seeger warned that "the case at hand is yet another spin on an increasingly unpleasant ride. It is time for the carousel to come to a halt."
In seeking sanctions and requesting that Sheehan submit a spreadsheet detailing information on every lawsuit predicated on the same theory of the case that he has filed since 2020, Judge Seeger made clear that he was doing so because "lawyers have an obligation to file cases in good faith." The judge also implied that by filing "frivolous" lawsuits, Sheehan was acting unfairly to other litigants and the court system, which had to "foot the bill…For now."
Judge Seeger didn't mince words: "Plaintiff's counsel has become a wrecking ball when it comes to imposing attorneys' fees on other people. And this Court is starting to wonder who should pay for the cleanup. At some point, even lawyers have to internalize the costs of their own behavior."
Responding to the order and arguing that none of the plaintiffs' arguments are frivolous, Sheehan also lobbed an argument back at the court: "over hundreds of cases filed by Plaintiff's Counsel, over numerous years, against the world's biggest food companies, represented by the biggest law firms, no sanctions have ever been imposed against them. Only this Court seemingly discovered something that hundreds of other courts failed to recognize."
In other words, argued Sheehan, that he's lost many cases does not make this case "objectively unreasonable as a matter of law." "No matter how many idioms the Court comes up with," he added. Hmm. Good luck with that.
Sheehan's streak of food and beverage false advertising lawsuits has been fascinating readers (and writers) of this newsletter, buoying would-be plaintiffs and irking advertisers since sometime in 2020. But perhaps these lawsuits can be compared to a piece of expensive cheese that's well past its expiration date. Just as the cheese, when first brought home from the cheese monger in its shiny beeswax coating, promised good things, at first consumer advocates surely saw reason to hail Sheehan as a hero seeking a new path to truth in advertising for consumers. But as time wore on, so, too, Sheehan's claims wore out, leaving behind little more than moldy (and not in a good way) cheese.