Did You Get a Letter From the FTC?

If you didn’t receive a warning letter from the Federal Trade Commission this month you are one of the lucky ones. The FTC has sent warning letters to hundreds of companies over the past several weeks.

Using its Penalty Offense Authority, the FTC sent Notices of Penalty Offenses to more than 700 of the U.S.’s largest consumer products companies as well as 70 for-profit colleges.

In the wake of the U.S. Supreme Court decision AMG Capital Management, LLC v. Federal Trade Commission, which severely restricted the FTC’s ability to obtain monetary penalties such as restitution for consumers or disgorgement of a company’s profits, the FTC has signaled that it is going to use every tool in its arsenal and that its enforcement abilities will not be hampered.

So, what is a Notice of Penalty Offenses? The FTC can seek civil penalties from a company if it proves that (1) the company knew its conduct was unfair or deceptive, and (2) the FTC had already issued a written decision that such conduct is unfair or deceptive. The purpose of a Notice is to warn a company that its actions may be unfair or deceptive; the implicit threat being that if the company does not address the conduct immediately, an enforcement action may be initiated.

Making matters worse, the Notices are almost always made public in an FTC press release. The FTC is careful to point out just because a company received a Notice does not imply that the FTC has reason to believe it is breaking the law. Rather, the Commission sends these Notices to ensure that companies understand the law – and that they are deterred from breaking it. However, the negative publicity associated with being named in this press release can be damaging to a company’s brand and reputation.

Because recipients of a Notice are expected to contact the FTC within a short period of time to confirm that changes have been made to address the noted concerns, it is critical that companies proactively prepare to demonstrate compliance. This requires that a company assess its processes and procedures and then audit to ensure they meet regulatory requirements.

More information on the substance of the Notices can be found in our recent blog: The FTC Cares About Five-Star Ratings and Education Claims.