In this article we look at action taken in the United States by the Federal Trade Commission (FTC) against De Vry University and its parent company (De Vry)[1] in relation to claims made by De Vry in marketing materials that the FTC alleged were, among other things, false or misleading.

Since the introduction of the Higher Education Contribution Scheme (or HECS) in 1989, the tertiary education sector in Australia has seen remarkable change. Government funding for tertiary education and research has risen dramatically[2] and the sector has seen the entry of a number of new non-university higher education providers, including so-called ‘for profit’ providers.[3]

With new entrants in the sector, marketing to prospective students is likely to be of increasingly critical importance as providers seek to differentiate themselves from one another or to cement positions in their particular sub-sectors or niche areas. In addition, traditional providers will want to protect their existing ‘market share’.

De Vry had claimed in its advertising materials and sales pitches that:

  • 90 percent of De Vry graduates actively seeking employment obtained jobs ‘in their field’ within six months of graduation
  • De Vry graduates were, within 12 months of graduating, earning salaries that were on average 15% higher than graduates of other colleges or universities.

The outcome? De Vry entered into a settlement with the FTC for a sum of USD$100 million.

In addition, De Vry was required to accede to a number of other requirements regarding its future marketing activities, compliance training and record keeping. Some of these obligations will remain in place for 20 years after the date of the FTC’s Orders.

Could this happen in Australia? The Australian Competition and Consumer Commission (ACCC) has powers under the Australian Consumer Law (ACL) that are analogous to statutory powers available to the FTC.

The De Vry case suggests that marketing representations about graduates’ post-graduation prospects require very careful consideration to ensure they are not misleading or deceptive under the ACL.

Analysis

Factual Background

De Vry operates a private, post-secondary educational institution in the United States. At the time of publication of the FTC’s ‘complaint’ in January 2016:[4]

  • De Vry had ‘more than 50 campuses throughout the United States’
  • between 2008 and 2014, De Vry’s new student enrolments ranged annually ‘from approximately 29,000 to 49,000’
  • since 1975, a cumulative total of more than 870,000 students had enrolled and approximately 278,000 students had obtained undergraduate degrees from De Vry
  • the De Vry group received gross revenues between 2008 and mid-2015 in excess of USD $15.5 billion
  • De Vry’s annual advertising and marketing spends each financial year, between 2011 and 2014, exceeded USD $135 million.

As might be expected, De Vry has a very active program of marketing and sales activities, with its marketing channels encompassing the ‘traditional’ media (such as television), social media (including YouTube, Facebook, Twitter etc.) and direct selling.

Certain marketing representations made by De Vry, in some cases going as far back as ‘at least’ 2008,[5] caught the eye of the FTC. These can be broken down into two broad categories of representations, as follows:

  • that 90 percent of De Vry graduates actively seeking employment obtained jobs ‘in their field’ within six months of graduation
  • that De Vry graduates were, within 12 months of graduating, earning salaries that were on average 15 percent higher than graduates of other colleges or universities.

The FTC alleged that these representations:

  • were false, misleading or not substantiated at the time the relevant representation was made
  • constituted a deceptive act or practice, in breach of section 5(a) of the US Federal Trade Commission Act (FTC Act) 15 U.S.C. § 45(a).

Extensive details of the relevant representations are set out in the FTC’s Complaint. The following examples convey the general flavour of the representations and the FTC’s issues with them.

One advertisement aired on traditional television and also via YouTube contained the following representations:[6]

  • a student of De Vry narrates and concludes by stating: ‘And when I finish my degree in business, a new job at a great company – that’s the graduation present I want’
  • whereupon a voiceover announcement immediately states: ‘In 2012, 90 percent of De Vry University grads actively seeking employment had careers in their field in six months’.

The FTC took umbrage with this type of representation in two areas. First of all, it was De Vry’s case that the ’90 percent’ figure was based on figures maintained by De Vry’s ‘Career Services department’.[7] However, FTC took the view that these records ‘did not provide a reasonable basis’ to substantiate the 90 percent figure.[8]

The FTC criticised the figures on a number of grounds, including that the figures were arrived at by including students who in fact continued in the same job that they had had when they enrolled and also that post-separation employment was in a number of cases included where the employment obtained could not reasonably be considered ‘to be in the graduate’s field of study’.

The FTC gave a number of examples illustrating this second point, including a graduate with a degree in business administration (health services management specialisation) working as a server at the Cheesecake Factory (a chain of restaurants in the United States).[9]

The FTC also criticised De Vry’s classification of students ‘actively seeking employment’ for the purposes of the 90 percent figure. For example, one 2012 graduate who was excluded from the ‘actively seeking employment’ group had, among other things:

  • viewed 177 jobs in the De Vry jobs database
  • had at least six job interviews in the previous two months (including two interviews eleven days before De Vry classified the student as ‘inactive’).

The FTC concluded: ‘The actual percentage of … graduates who, at or near the time they graduated, found jobs that could reasonably considered ‘in their field’ is significantly smaller than 90 percent’.[10]

The FTC was similarly critical of claims made by De Vry that graduates of De Vry had higher incomes than graduates of other institutions.[11]

In the case of the ‘higher income’ representations, it was De Vry’s case that they had relied on a report prepared by an external third party in 2012.

Again the FTC did not consider that this report provided ‘a reasonable basis’ substantiating the ‘higher income’ type of claim. Among other things, the FTC contended, the report ‘did not account or adjust for significant salary drivers such as age, experience, and degree field’.[12] Moreover, De Vry’s own statistics ‘differed significantly from the third party’s statistics’. The FTC also criticised the third party’s analysis on the basis that it considered a small sample size.

The FTC concluded:[13]

‘Comparing the information in [De Vry’s] own files with publicly available income data shows that [De Vry] graduates a year after graduating do not in fact earn significantly more than graduates from all other schools combined’.

Orders[14]

Some twelve months after the FTC’s original complaint, the parties entered into a settlement which involved De Vry agreeing to a settlement sum of USD$100 million[15], consisting of:

  • USD$49.4 million to ‘be distributed to qualifying students who were harmed by the ads’[16]
  • USD$50.6 million to go to ‘student debt forgiveness’, being the full balance of unpaid private student loans (USD$30.35 million) and USD $20.25 million for other ‘student debts owed to De Vry for things such as tuition, books and lab fees’.[17]

Although this sum is somewhat less than De Vry’s annual marketing budget, this is nevertheless a significant financial penalty.

In addition to the USD $100 million settlement, De Vry was required to accede to a number of other requirements, including:

  • agreeing not to make any misrepresentation regarding ‘the success that students or graduates have realized[18] or are likely to realize in starting or obtaining careers, jobs or employment’[19]
  • agreeing not to make any misrepresentation regarding ‘the compensation or compensation range that students or graduates of De Vry have received, or can be expected to receive, including but not limited to, misrepresenting that the compensation of any group of students or graduates is or was (a) equal to or greater than a specific amount, average or median, or (b) equal to or greater than the compensation received by any other group of students or graduates’[20]
  • agreeing not to make any misrepresentation regarding ‘any other fact material to consumers concerning’ educational products or services[21]
  • agreeing in the context of citing or referring to employment statistics for its graduates not to make any misrepresentation that such statistic: [22]
    • ‘reflects the success of graduates in obtaining employment near or after graduation when the statistic includes employment that graduates obtained (a) before purchasing the product or service, or (b) at any time more than six months prior to graduating’
    • ‘reflects the employment status or employment success of graduates who were actively seeking employment’
  • agreeing not to make any representation ‘about the benefit of any educational product or service, or the success or likely success of any student or graduate, unless the representation is non-misleading and at the time such representation is made De Vry possesses and relies upon Competent and Reliable Evidence that is sufficient to substantiate that the representation is true.’[23] The Order[24] defines ‘Competent and Reliable Evidence’ as ‘tests, analyses, research, studies or other evidence based on the expertise of professionals in the relevant area, that have been conducted and evaluated on an objective by qualified persons, using procedures generally accepted in the profession to yield accurate and reliable results’
  • preserving all such Competent and Reliable Evidence ‘relied upon to substantiate any representation’ referred to in the previous paragraph[25]
  • preserving a comprehensive range of other records relating to representations made to students[26]
  • implementing a training and compliance program to remain in place for 20 years after the date of the orders[28]
  • agreeing to ‘cooperate in a timely manner with all reasonable requests for information or documents relating to … enrolment or billing that De Vry receive from any current or former student’[29]
  • delivering a copy of the orders to relevant personnel for 10 years after the date of the orders[30]
  • compliance monitoring and reporting requirements, including certain requirements that will continue for 10 years after the date of the orders[31]
  • comprehensive record creation and record keeping requirements for up to 20 years after the date of the orders.[32]

So to summarise, De Vry was required to agree to:

  • a monetary settlement in the sum of USD$100 million
  • extremely proscriptive and detailed orders about representations to students, record keeping and compliance, some obligations remaining in place for 20 years.

Comparing the US Federal Trade Commission Act (FTC Act)with the Australian Consumer Law (ACL)

The FTC Act proscribes ‘unfair or deceptive acts or practices affecting commerce’.[33]

The ‘unfair or deceptive acts or practices affecting commerce’ provision of the US Federal Trade Commission Act has a number of direct parallels in our own Australian Consumer Law.

In addition, a number of other consumer protection provisions of the ACL are potentially enlivened by the scenario alleged by the FTC.

In our view the ACCC could take analogous action under section 18 of the ACL, in respect of any marketing representations being ‘misleading and deceptive’ or ‘likely to mislead or deceive’ within the scope of section 18.

In addition, De Vry type scenarios could potentially give rise to ACCC action under other provisions of the ACL, including:

  • section 19(1)(b): false or misleading representation that services are of a particular standard
  • section 34: misleading conduct as to the nature, the characteristics or suitability for purpose of services
  • section 60: guarantee that services will be rendered with due care and skill
  • section 61: guarantee that services will be reasonably fit for purpose.

Conclusions

It would seem that FTC – type actions could be open to the ACCC in suitable circumstances.

The De Vry case suggests certain areas where very careful consideration needs to be given to the nature of any marketing claims to ensure they are not misleading or deceptive. These would appear to include at least the following:

  • representations about the career success that students or graduates will have or are likely to have, whether in specific fields or generally
  • representations about employment rates or offer rates
  • representations about future salary expectations
  • how statistics about future employment prospects are determined
  • classifying graduates or students as ‘actively seeking’ employment for the purposes of such statistics.

The De Vry case also suggests that it would be prudent for providers to ensure that:

  • representations contained in marketing materials or otherwise made to prospective students are based on objectively defensible evidence and facts
  • documentation recording such evidence and facts is retained.