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Self-Regulatory Body Refers Northern California Business to FTC Over Claims of Failure to Disclose Fees

Legal News GavelA wide range of regulatory agencies monitor business activities, investigate alleged violations, and bring civil actions against companies they believe have committed unlawful acts. Many businesses designate executives or managers as compliance officers, in the hopes of identifying and preventing regulatory violations before they become actionable. Companies in some industries create separate organizations to serve as watchdogs over their members. Self-regulatory organizations offer the benefit of keeping official regulators at something of a distance, but their reliability depends on vigorously fulfilling their purpose. One example is the Advertising Self-Regulatory Council (ASRC), which has several divisions monitoring different aspects of the advertising business. One of these, the National Advertising Division (NAD), monitors national advertising campaigns to look for false or misleading claims and other deceptive practices. If it is unable to resolve a claim, it may refer the matter to a government agency. This recently happened with a company based in Northern California, which was accused of failing to disclose fees to consumers. The NAD referred the claims to the Federal Trade Commission (FTC).

The ASRC was founded in 1971 as an alliance between two advertising trade organizations and the Council of Better Business Bureaus (CBBB). Originally known as the National Advertising Review Council (NARC), the organization changed its name to the ASRC in 2012. The NAD conducts investigations based on its own monitoring of truth and accuracy in advertising, and it also receives claims of false advertising from competitors and consumers. In addition to the NAD, the ASRC has divisions monitoring advertising directed at children and various forms of online advertising. The National Advertising Review Board hears appeals of decisions made by the other divisions.

The FTC is a federal agency charged with enforcing multiple statutes dealing with consumer protection. The agency was created by the FTC Act of 1914, 15 U.S.C. § 41 et seq., which contains many of the provisions the FTC enforces. The statute prohibits numerous anti-competitive, deceptive, fraudulent, and otherwise unfair business practices. This includes the dissemination of “any false advertisement…for the purpose of inducing…the purchase in or having an effect upon commerce, of food, drugs, devices, services, or cosmetics.” Id. at § 52(a). The FTC is authorized to seek injunctive relief preventing the further dissemination of allegedly false advertising, and to bring suit for damages. Liability under these provisions is limited to a “manufacturer, packer, distributor, or seller” of a good or service, instead of an advertising agency or broadcaster. Id. at § 54(b).

The NAD conducted an investigation of a company that operates an online exchange for tickets to live entertainment events, including sporting events and concerts. The company allegedly failed to disclose certain fees that it collected with each purchase until consumers reached the final checkout page. It also allegedly failed to provide an itemization of these fees unless consumers clicked on a “pricing details” link.

According to the NAD, the FTC requires online retailers to disclose fees before the consumer reaches the final step of making a purchase. The NAD states that it recommended several actions to the company involving fee disclosure, but the company did not follow those recommendations. In January 2018, the NAD announced that it was referring the matter to the FTC.

Business attorney James G. Schwartz has represented Bay Area businesses and business owners in cases involving misrepresentation and related allegations for over 40 years. Contact us today online or at (925) 463-1073 to schedule a free and confidential consultation with a member of our team.

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