Lessons for Platforms from a Congressional Hearing on COVID-19 Fraud
Feb 9, 2022 by Laura Brett, Vice President, National Advertising Division, BBB National Programs
In Engle’s testimony, she told U.S. Senate Subcommittee on Consumer Protection, Product Safety, and Data Security members that, over the course of the pandemic to date, over a hundred cases against misleading or false advertising claims have been opened by the BBB National Programs National Advertising Division (NAD) and the Direct Selling Self-Regulatory Council (DSSRC). As a result of this work, Engle explained, hundreds of harmful advertising claims were removed from the marketplace, and hundreds of social media posts that hosted the claims were taken down.
In a broader point, Engle outlined how, in an environment in which it is easier than ever for companies to reach consumers but more difficult for consumers to discern truthful claims from false ones, independent industry self-regulation is a necessary first line of defense.
When COVID-19 shut down the world and caused fearful consumers to isolate fearing dire health consequences, unscrupulous advertisers began touting cures, treatments, and preventatives to the novel coronavirus. Both the Federal Trade Commission (FTC) and Food and Drug Administration (FDA) quickly issued letters warning companies to stop making misleading claims that a product could prevent, treat, or cure COVID-19. The reason was simple: when the pandemic emerged, the virus was simply too new for any product to have been tested to be effective on COVID-19.
In step with the FTC and FDA, NAD and DSSRC were able to hold sellers, including unsophisticated companies and individuals, to the established standards set forth in regulatory guidance, educate and advise businesses about the guidance through case decisions, and apply the standards to evolving advertising claims directed to consumers.
NAD and DSSRC decisions expanded on FTC and FDA guidance to other kinds of claims and products that touted unsupported health benefits, reaching a range of industries from cleaning products to ultra-violet lights, intravenous hydration therapy, and even continuously self-cleaning surfaces. In almost all cases, the challenged claims were voluntarily modified or discontinued following the self-regulatory review.
Although the COVID-19 pandemic has significantly impacted all sectors of the business community, direct selling companies face the added responsibility of ensuring that their independent salesforce members are not seeking to boost sales by making unauthorized health-related or business opportunity claims related to the pandemic.
DSSRC, the third-party watchdog for the Direct Selling Association (DSA), focused its monitoring efforts on identifying false and misleading claims about a product’s ability to treat or prevent COVID-19, but also on claims related to how the pandemic has presented an opportunity for company salesforce members to earn significant income.
In an action commended by FTC Commissioner Noah Phillips, in April 2020, the DSA and DSSRC issued a joint press release cautioning direct selling companies and their independent salesforces from making claims referencing COVID-19 in the context of product claims and business opportunity claims. In addition, because product claims made by salesforce members are attributable to direct selling companies themselves, DSSRC reminded all direct selling companies to educate their salesforce members about best practices with respect to health-related product claims.
The self-regulatory response to the pandemic is a powerful example of how independent industry self-regulation continues to prevent misleading advertising and reduce harm to consumers. Former FTC Chairwomen Edith Ramirez praised NAD in 2016 as an example of “how impactful self-regulation can be,” further noting that it is “a valuable complement to the FTC’s own enforcement efforts to eliminate fraud.”
With the FTC’s recent report that “more than one in four people who reported losing money to fraud in 2021 said it started on social media with an ad, a post, or a message,” perhaps social media platforms should look to advertising self-regulation to build a more trusted environment. The FTC’s recent data suggest that “social media was far more profitable to scammers in 2021 than any other method of reaching people.”
As Google and other platforms face mounting pressure to build trust in the face of daily news reports about advertising scams and misinformation, a solid step they can take is to support the advertising industry’s established and trusted system of self-regulation.
The self-regulatory process could be even stronger and more effective with more support from the platforms that carry much of the misleading advertising in the marketplace. The rapid rise of digital advertising has increased the difficulty of ensuring both truth and transparency in advertising. That’s why consumers and competition alike would benefit from a wide embrace of the advertising industry’s system of self-regulation, one that includes the industry’s leading digital platforms.
Most platforms have advertising policies that prohibit misleading advertising, so it would make sense that the platforms would support independent self-regulatory review of advertising claims with direct reporting channels for advertising found to be misleading, just as Facebook partnered with BBB National Programs to do in 2020.
Other platforms should take a similar approach or even expand a partnership between platforms and independent self-regulation to demonstrate commitment to enforcing truth-in-advertising. Such a step would strengthen the advertising marketplace so that consumers can trust what they see, and competitors are held to a common standard for truthful advertising. Self-regulatory guidance, applied broadly across the advertising marketplace, prevents consumers from being misled and allows competitors to play by the same set of rules.
Increased coordination among independent self-regulation, brands, and platforms can inject enhanced vitality into the advertising self-regulation ecosystem and demonstrate to lawmakers, regulators, and consumers that we can work together to build a more trusted marketplace.