- Rihanna Company Accused of False Advertising
- Google Disables 500 Ad Fraud Chrome Extensions
- FTC Shuts Down Deceptive Ad Scheme Targeting Small Businesses
- Ad Groups Push Back Against State Privacy Legislation
- NAD Blasts CfA for Advertising NAD Decision, Violating Self-Regulatory Rules
Rihanna Company Accused of False Advertising
Truth in Advertising (TINA) has filed a complaint with the Federal Trade Commission (FTC) accusing music star Rihanna’s lingerie company Savage X Fenty of deceptive advertising. TINA claims that Savage X Fenty promotes products on its website using a deceptive negative option offer, along with a number of other wrongful marketing tactics.
Launched in 2018, Savage X Fenty is one of the mega star’s successful fashion and beauty brands, which include collaborations with luxury goods conglomerate, LVMH and her own Fenty Beauty makeup line. Savage X Fenty has reported annual revenues of $150 million, according to TINA.
The advertising watchdog claims that Savage X Fenty advertises discounted prices on its website when in reality those prices are only available to customers who sign up for a $50 a month VIP membership. Not until users get to the very end of the purchase process—after entering billing and shipping information—are they informed that they must pay for the monthly VIP membership to receive the advertised discounted price, TINA says.
The company’s "advertisements promote prices and sales that are only available to consumers who are bound to the company's Xtra VIP Membership, but it does not clearly and conspicuously disclose this fact," alleges TINA.
TINA's letter claims that the company’s website is designed to create the perception that the advertised prices are as marked and not subject to any special restrictions. From the moment users visit the company’s home page, TINA claims, advertisements for the products promote the lower prices but only mention that they apply to Xtra VIP members in the fine print.
Advertising in large print of a "50% off sitewide" sale that only applies to VIP members on the homepage likewise only features the VIP information in fine print.
Shoppers encounter what TINA calls an "unclear and inconspicuous negative option offer," in which prices listed are those available only to VIP members, with the regular price greyed out, giving the appearance that only the discounted prices are available. When customers add items to their shopping cart, nothing on the website shows a change in price based on regular versus VIP membership either.
TINA asserts that only when customers provide their shipping and payment information does the site disclose the terms of the VIP membership, and the fact that consumers must sign up for the membership to get the discounted price. At that point, many customers sign up for the membership to obtain the discount, but still are not made aware the membership is a negative option offer which they must affirmatively cancel to stop charges, alleges TINA.
The watchdog's complaint included a number of customer grievances accusing Savage X Fenty of "an extremely predatory" business model and of signing customers up for subscriptions without their knowledge. Additionally, TINA details a number of other deceptive advertising tactics employed by the company, including marketing materials that fail to disclose the way a store credit works, difficulty cancelling subscriptions, and deceptive social media ads featuring influencers who do not clearly disclose their paid relationship to the company.
All in all, the accusations leveled at Savage X Fenty amount to a "who's who" of false advertising offenses—from negative option offers, to marketing terms that don’t disclose accurate information, to questionable influencer promotions. TechStyle, Savage X Fenty’s parent company, has been in trouble for allegedly deceptive marketing practices before. It settled a false advertising suit in 2014 for $1.8 million with a promise to cease making negative option offers.
Google Disables 500 Ad Fraud Chrome Extensions
Google has disabled over 500 Google Chrome web browser extensions after an independent researcher discovered that ad fraud scammers used them to redirect users to malicious advertisements and, in turn, earned a portion of the revenue from the redirected ads.
Google extensions are add-on software that change Google Chrome internet browser’s functionality by, for example, managing passwords or allowing users to add notes to Chrome. Many Google extensions are created and run by third parties, as was the case with these extensions.
The scam worked by redirecting Chrome to specific websites which then sent users to both legitimate ads (from affiliate links on websites like Macy's and Best Buy) and illegitimate ads (such as malware download websites).
Even the legitimate ads assisted in the ad fraud, thanks to "the large volume of ad content shown, the fact that the user does not see many if not the majority of these ads, and the fact that malicious third-party actors are actively using these streams to redirect the user to malware and phishing," according to researchers who discovered the scam.
Jamila Kaya, an independent security researcher, discovered the fraud together with Cisco Duo's security team and subsequently alerted Google. The researchers initially detected around 70 fraudulent extensions with Google then running its own research and finding a significant number of additional fraudulent extensions which it removed.
"[T]he Chrome extension creators had specifically made extensions that obfuscated the underlying advertising functionality from users. This was done in order to connect the browser clients to a command and control architecture, exfiltrate private browsing data without the user's knowledge, expose the user to risk of exploit through advertising streams, and attempt to evade the Chrome Web Store’s fraud detection mechanisms," explained the researchers.
Google said it acted swiftly to detect the additional fraudulent extensions and disable them, an assertion corroborated by Kaya who called Google "receptive and collaborative in eliminating the extensions."
Researchers believe these extensions were the work of one coordinated operation that has been active since at least 2017 and possibly since the early 2010s. At least two million users downloaded the now-scrapped Chrome extensions, but it is not clear exactly how many people actually installed the suspect software.
What is certain is that a significant number of Chrome users were affected by the fraud, and that most were unaware that anything nefarious was occurring. As of this writing Google has not published the names of the affected extensions, but users who suddenly can't use certain of their Chrome extensions may find that the reason is because those extensions were among the fraudulent extensions which were deactivated. Google has flagged these extensions as being malicious. "Chrome browser users will see a popup that notifies them the extension has been disabled, along with a warning that the ‘extension contains malware’ if they try to reactivate it."
We've reported on ad fraud directed at advertisers, a growing problem that has seen scammers charging advertisers for nonexistent ads, often adding up to a hefty price tag for companies. Here, the fraudsters pocketed ad revenue while harming consumers who were misdirected to malicious websites and were thus victims of "malvertising ad fraud." Despite the fact that these extensions existed for some time, Google issued a statement saying that it runs "regular sweeps" to find problematic extensions and remove them from the Google Chrome Web Store.
FTC Shuts Down Deceptive Ad Scheme Targeting Small Businesses
The Federal Trade Commission (FTC) approved a proposed order settling charges against various companies accused of selling bogus ad space to small businesses and making promises of exclusive ad placement that never materialized. The complaint alleges violation of the FTC Act’s prohibition on unfair or deceptive acts or practices.
Since at least October 2014, Oregon-based Production Media Company (PMC) and The Ferraro Group Corp (Ferraro Group) and their principal Jennifer Ferraro, allegedly sold ad space to small business owners under false pretenses. According to the complaint, the companies made telemarketing calls soliciting advertising they said would appear in folders that real estate offices and schools would use to hold and transfer documents which would give advertisers the opportunity to reach hundreds and perhaps thousands of prospective customers.
In reality, in many cases the folders with the ads were never printed. In others, these folders were printed only after affected small businesses complained to the Better Business Bureau or the state attorney general.
The defendants also represented that ad buyers would receive "exclusivity," meaning that theirs would be the only ads placed on a specific folder, but this was never the case. When the folders were printed, they often included ads by more than one competitor.
Moreover, terms and conditions that were provided to customers contradicted many of the representations defendants made.
The complaint also details the companies' selling tactics, described as creating a false "sense of urgency" for advertisers that they had to make a decision about the ads soon because the folders were shortly going into print and so businesses—and their advertisements—would be able to reach potential customers very soon. When small businesses complained to the company that the ads never materialized or that they were not exclusive advertisers as promised, the defendants refused to issue refunds.
The FTC's proposed settlement order bars defendants from future misrepresentations and imposes a $22.2 million judgment against defendants, which will be partially suspended due to defendants' inability to pay the full amount. Defendants must either pay the FTC $100,000 within one year or pay at least that amount towards federal tax liabilities apparently also owed by defendants.
Key TakeawaysThis case is a good example of the fine line that sometimes exists between aggressive marketing tactics and false advertising. Although such tactics may not, in and of themselves, be unlawful, the line is crossed when material promises are made but not fulfilled. Another lesson here: even if a company's fine print provides a full and accurate representation of the services, that information does not absolve an advertiser from liability for contradictory statements made when soliciting buyers of the services.
Ad Groups Push Back Against State Privacy Legislation
A number of advertising trade groups have been hard at work lobbying state officials in California and Washington to amend privacy legislation the groups say has the potential to negatively affect advertisers, businesses, and consumers.
The five trade groups—the American Association of Advertising Agencies, the American Advertising Federation, the Association of National Advertisers, the Interactive Advertising Bureau, and the Network Advertising Initiative—have recently reached out in separate correspondence to California about the state's upcoming privacy law, and to Washington State about proposed privacy legislation.
The California Consumer Privacy Act (CCPA) is the first comprehensive data privacy legislation in the United States to give consumers certain privacy rights regarding their electronically collected data, including the right to know what data companies have collected, to request that data be deleted, or to opt out of the sale of the data. The law took effect on January 1 of this year and Attorney General Xavier Becerra will enforce the law as of July 1 after final implementing regulations are issued. The trade groups have asked the AG to delay enforcement of the rules and give thousands of affected companies an additional six months to comply with the state’s new privacy law until January 2021.
The trade groups have requested the delay because of what they view as significant and unclear compliance requirements arising under the law. They say the CCPA imposes a number of new and onerous obligations, and the AG's rules leave many questions unanswered.
To make their point, advertising groups note that different advertising groups have presented different frameworks for compliance. Moreover, they point to certain additional proposed ballot initiatives in California that could muddy the waters come November.
For now, Attorney General Becerra said his office would not respond to individual concerns outside the formal rule-making process.
The same trade groups also recently expressed reservations about a proposed version of a privacy bill currently being considered in Washington. The draft Washington Privacy Act would give Washington State residents more control over and access to their personal information, similar to the similar to the European Union’s General Data Protection Regulation.
Although separate House and Senate privacy bills initially did not include a private right of action, instead putting enforcement in the hands of the Washington State Attorney General, the ad groups warn that a recently proposed substitute bill which would allow consumers to sue for damages under the state's consumer protection act, would be a big mistake.
They argue the state should nix the proposed private right of action because it would lead to a "flood" of litigation and create a complex compliance system. They add that the threat of private litigation would stifle innovation.
"The bill's private right of action would create a complex and flawed compliance system without tangible privacy benefits for consumers," wrote the groups in a letter to House Appropriations Committee Chair Timm Ormsby." Allowing such private actions would flood the courts with frivolous lawsuits driven by opportunistic trial lawyers searching for technical violations, rather than focusing on actual consumer harm," they added.
Another concern expressed in the group’s letter is the bill's definition of what constitutes a "sale" from which consumers could opt out for privacy reasons. The latest version of the bill sent to the House Appropriations Committee defines "sale" broadly enough to possibly include many standard data processing activities – "even processing activities that involve no transfers of the personal data to any other parties." As such, the groups implore the state to "refrain from adding a 'processing' component to the definition so it is appropriately limited to exchanges or transfers of personal data for consideration."
Although a similar bill failed to pass in the state last year, lawmakers say they are confident this bill will pass as they are "95% in agreement" with the provisions of the bill, noted Senator Reuven Carlyle, who proposed the original Senate version. Senator Carlyle echoed the trade groups in the opinion that enforcement via the state attorney general was the way to go, however.
Key TakeawaysThe number of states that either have data privacy laws in place or under consideration continues to grow. Given the new territory charted by these laws, advertisers, agencies and others in this ecosystem have legitimate reasons to be concerned about compliance challenges (which will only increase as different states impose different requirements) and the potential regulatory action and litigation that could result from non-compliance.
NAD Blasts CfA for Advertising NAD Decision, Violating Self-Regulatory Rules
In what may be described as a case of holding a "campaign for accountability" accountable, the National Advertising Division (NAD) called out Campaign for Accountability (CfA) over the organization’s promotion of an NAD decision in its favor, breaching confidentiality provisions and violating NAD rules.
As we covered in Stay ADvised earlier this month, CfA challenged advertising claims by solar power provider Sunrun Installation Services, saying its consumer savings representations were false. After reviewing the evidence, NAD found that many of Sunrun's claims about 20% savings on electric bills by switching to solar power were unsupported by the evidence and recommended the claims be discontinued.
CfA, a watchdog organization that works on certain specific issues, including what it says are the "deceptive marketing practices of the rooftop solar industry," apparently disseminated and promoted NAD's decision, in what NAD says is a violation of its rules.
After NAD issued its original recommendation, CfA issued its own press release alerting the public to NAD’s decision, breaching an agreement with NAD not to promote a NAD decision. It also promoted its press release on social media, posted NAD's decision on its website, and provided NAD's press release to a media outlet.
In an unusual rebuke from the advertising industry's self-regulatory group, NAD issued a press release condemning CfA for breaching confidentiality provisions and using NAD's recommendations for promotional purposes. In a press release, NAD said it "is disappointed that CfA violated the procedures requiring NAD to issue this corrective press release."
All of these actions, said NAD, amounted not only to a violation of its procedures but also to a repudiation of the system of self-regulation of the advertising industry:
The self-regulatory process benefits both consumers and fair competition by promoting advertising that is truthful, transparent and not misleading. When an advertiser agrees to voluntarily modify its advertising as a result of NAD's recommendations, the advertiser has participated in good faith and self-regulation has provided the benefits it was designed to provide. As a voluntary process, fair dealing on the part of both parties is essential and requires adherence to both the letter and the spirit of the process. NAD procedures and participation agreements signed by all parties at the outset of a case make clear that participants in NAD proceedings may not use NAD's decisions for promotional purposes.
In response to NAD's request, the CfA withdrew its press release to comply with NAD procedures.
By issuing this "corrective press release," NAD took a stand to protect the principles and rules underlying the system of self-regulation outlined in its statement. For advertisers, this matter is a reminder that, as thrilled as they may be with a decision, NAD's recommendation is the most challengers may get, and they may not promote that outcome.