August 30, 2019 

deceptive-marketing
Deceptive Marketing and Lead Generators

On August 27, 2019, an Illinois-based operator of several post-secondary and vocational schools entered into a stipulation and order with the Federal Trade Commission (“FTC”) arising out of allegations of deceptive marketing. Specifically, the FTC alleged that Career Education Corporation and its subsidiaries (collectively, “CEC”) violated Sections 5, 13, and 19 of the FTC Act, Section 6 of the Telemarketing and Consumer Fraud and Abuse Prevention Act, and the FTC’s Telemarketing Sales Rule. As we have previously blogged, deceptive marketing practices are aggressively policed by the FTC.

FTC’s Deceptive Marketing Allegations 

CEC and its subsidiaries market, distribute, and sell educational products and services to consumers throughout the United States. There are approximately 35,000 students currently enrolled at CEC schools, and the total cost of a bachelor’s degree from a CEC institution typically ranges from $54,360 to $60,450.

The FTC’s deceptive marketing complaint alleged that since at least 2012, CEC “used an illegal and deceptive telemarketing scheme to lure consumers to their post-secondary and vocational schools.” According to the FTC, CEC employed various lead generators that represented themselves online as U.S. military recruiters and/or job-finding services. These lead generators also misrepresented that the military, independent education advisors, and/or employers recommended and/or endorsed CEC’s schools.

To make matters worse, CEC’s lead generators allegedly told consumers that their information would not be shared with third parties and pretended to offer to consumers services unrelated to secondary education (i.e., jobs and/or government benefits). The FTC claims that CEC had its inhouse telemarketers call the consumer leads to pitch enrollment in its schools (rather than offer them the advertised jobs). CEC and its inhouse telemarketers used “high-pressure sales tactics to persuade consumers to enroll” with a CEC school in order for its telemarketers to meet monthly enrollment quotas or face termination.  For example, CEC only counted the enrollment if the consumer remained enrolled past the drop/add date. Because of this policy, CEC’s telemarketers would often hound students up to six times per day during the drop/add period to dissuade them from cancelling.

According to the FTC’s Complaint, at least three of the lead generators used by CEC were the subject of deceptive marketing law enforcement actions in the past. In addition, the FTC alleged that CEC knew, reviewed, and approved of its lead generators’ misleading content and their respective telemarketing scripts.

The FTC’s Order 

CEC agreed to the FTC’s stipulated order without admitting or denying a violation of either law or regulation. As part of the stipulated order, CEC agreed, among other things, to: (i) pay a civil penalty of $30 million; (ii) permanently cease from engaging in deceptive marketing practices; and (iii) develop a system to monitor all of its lead generators and their respective business practices.

Why this Deceptive Marketing News is Important 

This deceptive marketing enforcement action against a company that was not actually generating the leads (only purchasing them) should come as a stern warning to all companies who purchase leads from lead generators. State attorneys general and the FTC are increasingly holding advertisers liable for the marketing practices of their third-party affiliates and lead generators.  What this means is that companies cannot avoid regulatory peril by outsourcing their marketing to third parties: all entities in the marketing-to-sale chain must be compliant.  For example, in the telemarketing space, advertisers that utilize lead generators should ensure that these service providers obtain prior express written consent to contact consumers, clearly identify the companies who may contact consumers, and disclose to consumers the purpose (and nature of the content) of the subject calls/texts that they will receive (i.e., if the lead generator is marketing “government jobs,” the advertiser should not buy these leads and instead call offering education-related products or services).

If you are facing a telemarketing law investigation, or need marketing law advice, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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