Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—5th Cir.: Dismissal of FTC deceptive advertising action affirmed despite district court’s “dubious” Section 5 analysis, (Aug 13, 2013)

By Tobias J. Gillett, J.D., LL.M.

In an FTC action against debt reduction companies over their allegedly misleading advertising, substantial evidence supported a district court’s ruling for the companies on the ground that consumers would not be deceived at the point of purchase, the U.S. Court of Appeals in New Orleans has ruled (FTC v. Financial Freedom Processing, Inc., August 12, 2013, Higginbotham, P.). The Fifth Circuit affirmed the district court’s ruling, despite finding the district court’s consideration of point-of-purchase disclosures when evaluating the advertisements to be “dubious.”

In 2010, the FTC sued three companies--Financial Freedom Processing, Inc., Debt Consultants of America, Inc., and Debt Professionals of America, Inc.—and five individuals involved in debt negotiation. The FTC alleged that the defendants had violated Section 5 of the FTC Act “by deceptively claiming, in radio ads, on their websites, and in sales calls, that the Companies could eliminate 30 to 60% of consumers’ credit card debt in as little as 18 to 36 months.”

At trial, the companies relied on their disclosures in sales calls and enrollment agreements—disclosures made at or shortly before the point of purchase—to contend that the consumers would have understood that the advertised debt reduction excluded the companies’ fees and clients who had dropped out of the programs. The district court agreed with the companies that the evaluation of Section 5 deception should include “all information the companies disclosed to consumers up to the point of purchase,” and entered judgment in favor of the companies.

On appeal, the Fifth Circuit found the district court’s analysis of Section 5 to be “dubious.” The appellate court noted that other circuit courts had concluded that “the law is violated if the first contact is secured by deception, even though the true facts are made known to the buyer before he enters into the contract of purchase.” Therefore, the court found there was “an argument with considerable purchase” that the district court erred in considering the disclosures made at the point of purchase when evaluating the content of individual radio ads and websites.

However, the court observed that the FTC “did not clearly challenge the district court’s §5 analysis on this ground in its briefs or during oral argument.” Instead, the FTC “chose to challenge the district court’s factual determination that reasonable consumers at the point of purchase would have interpreted the Companies’ debt-reduction and timing claims in a non-deceptive manner,” a conclusion the appellate court reviewed only for clear error. Although the radio ads and websites could be misleading, and the court found it was “difficult to conclude that the websites are not deceptive,” the court was “satisfied that substantial evidence supports the district court’s finding that reasonable consumers were no longer deceived at the point of purchase.”

In a concurring opinion, Circuit Judge Edith H. Jones agreed with the rationale that the district court’s findings of fact were not clearly erroneous, but was “not so sure the district court misapplied the law, had the FTC properly raised the issue.”

The case is No. 12-10520.

Attorneys: John Andrew Singer for Federal Trade Commission. Robert Kenneth Wise (Lillard Wise Szygenda, P.L.L.C.) for Financial Freedom Processing, Inc.

Companies: Financial Freedom Processing, Inc.; Debt Consultants of America, Inc.; Debt Professionals of America, Inc.

Cases: Advertising ConsumerProtection FederalTradeCommissionNews LouisianaNews MississippiNews TexasNews