Stay ADvised: What's New This Week, September 20
In This Issue:
- Trio of Class Action Suits Accuses Chocolate-Makers of Fudging Claims
- FTC and FDA Warning Letters Not Sugarcoating Seriousness of False Diabetes Claims
- CFPB Gives LendUp a Thumbs Down for "Doubling Down" on Its Ladder to Nowhere
- It’s a Good Day for Being an Org. and a Good Day for Suing a Corp. (In D.C.)
Trio of Class Action Suits Accuses Chocolate-Makers of Fudging Claims
Fudge, now with "a waxy and oily mouthfeel!" Surely, no marketer has promoted a chocolate product using this slogan, but recent false advertising lawsuits claim that "a waxy and oily mouthfeel" would be more accurate than the advertised representations.
Separate putative class action lawsuits all filed in federal court in Illinois accuse three chocolate-snack makers of misrepresenting the fudge content of their popular—some might even say iconic—treats: Kellogg's "Chocolate Fudge Pop Tarts," Bimbo Bakeries' Entenmann's "Chocolate Fudge Brownies," and Hershey's "Hot Fudge."
The lawsuits, which were all filed by the notoriously-prolific false advertising attorney recently known as the "Vanilla Guy," all fundamentally assert the same thing: the so-called fudge products aren't really fudge, and the snack-makers misrepresent the products by labeling them as such.
Alleging violations of Illinois consumer protection laws, plaintiffs argue that the fudge-labeled products are impostors because "real" fudge is made with fatty ingredients like cream and butter—according to multiple dictionary definitions, "fudge experts," recipes, and, of course, Google. Dairy fat, say plaintiffs, is "essential to fudge." They assert the products don't contain fudge but a less-fatty, synthetic version of the treat.
The complaint asserts that the fudge in these toaster pastries, brownies, and hot fudge is made with lower-quality and lower-price ingredients like vegetable oil, skim milk, and whey. Not only are these products allegedly inferior, but they also apparently contribute to a texture and taste difference from fudge as they are less thick, "provide less satiety," have a "waxy and oily mouthfeel," and leave an aftertaste. This "has a material bearing on price and consumer acceptance, and most consumers believe the expected dairy fat ingredients are present in an amount greater than is the case," claim the complaints.
The result, say plaintiffs, constitutes false advertising and misbranding. By marketing the products as "fudge," the complaint alleges that the companies are misrepresenting to consumers what they're selling. Kellogg's, Bimbo Bakeries, and Hershey's are all running afoul of federal and state regulations that require labeling to accurately describe the basic nature and characterizing properties or ingredients of the food, allege plaintiffs.
"Whether a chocolate cake [or toaster pastry] is iced with fudge and the ingredients which comprise it or substitutes lesser-quality ingredients in place of fudge, is basic front label information consumers rely on when making quick decisions at the grocery store," say plaintiffs. Further, reasonable consumers are misled by the "identifying term" fudge because they expect fudge will contain milk fat like butter or cream rather than the skim milk, whey or vegetable fat sold by defendants, allege plaintiffs.
Unlike other chocolate products that are defined by federal regulations, "fudge" is not one of them. Thus, plaintiffs' success will depend in large part on what consumers commonly understand "fudge" to be. As with many food labeling class action lawsuits, plaintiffs' argument that the snack-makers' marketing of "fudge" is false or misleading may or may not proceed, so it remains to be seen whether it's time for a new nickname for the Vanilla Guy.
FTC and FDA Warning Letters Not Sugarcoating Seriousness of False Diabetes Claims
The Food and Drug Administration (FDA) and Federal Trade Commission (FTC) have teamed up to warn supplement makers advertising unproven and unregulated cures and treatments for diabetes that they're risking legal action if they don't cease their unlawful marketing.
The agencies sent cease and desist letters to 10 companies they accuse of falsely marketing supplements as diabetes treatments. The letters warn that these claims about the ability of medical supplements to treat diabetes are in violation of the FTC Act and the Federal Food, Drug, and Cosmetic Act (FD&C Act). Companies that don't cease making the claims could face the seizure of their products and other legal action, the agencies warn.
The companies that received the warnings include: a manufacturer of berry-flavored "collagen supplements;" a purveyor of halal dietary supplements' and a self-proclaimed organic purveyor of supplements marketed as "optimized by nature; authenticated by science." One of the companies, for example, goes by the name "Lysulin" and claims that its "patented" product can remove glucose "like a sponge."
Another company, for example, made claims that customers struggling for years to have normal blood sugar levels finally found relief using their product. Another promoted supplements as "breakthrough, all-natural blood sugar control support." And another advertised its product as an "effective prediabetes diabetic supplement" that "brings sugar balance."
The FDA and FTC took issue with the companies' claims for different reasons. The FDA warned the companies the products are considered misbranded under FDA law because they don't contain adequate directions for safe use and it is impossible for them to provide that information while they are not FDA-approved. The FDA warned the companies that because the supplements are not recognized by the FDA as safe and effective for the advertised uses, it considers the supplements "new drugs" that are unapproved.
For its part, the FTC warned the companies that they are also violating the FTC Act by advertising that their products can prevent, treat, or cure diabetes without competent and reliable scientific evidence to substantiate these claims.
The letters threaten offenders who fail to adequately address the agencies' concerns with seizure of their products and an injunction. The FTC may also fine the companies a civil penalty of up to $43,792 per violation, plus require them to pay refunds to consumers who purchased the allegedly deceptively marketed products.
Since the start of the pandemic, the FDA and FTC have teamed up to tackle false advertising claims made by supplement marketers, largely of course related to COVID-19. These letters remind manufacturers that the agencies are by no means ignoring other curative or disease-prevention claims they likewise consider false and deceptive.
CFPB Gives LendUp a Thumbs Down for "Doubling Down" on Its Ladder to Nowhere
A new federal court complaint filed by the Consumer Financial Protection Bureau (CFPB) against an online lender alleges that the company's marketing touting the benefits of climbing its lending ladder was nothing but fluff.
The CFPB alleges that online lender LendUp Loans (LendUp) misled customers about the benefits of its "LendUp Ladder" trusted borrower program. Efforts to climb it were for naught as the company promised lower rates to repeat customers at higher rungs but often didn't deliver. The CFPB claimed LendUp's actions violate a 2016 consent order with the CFPB prohibiting the company from misrepresenting the benefit of its loan products.
LendUp allegedly failed to deliver on the central promise of its marketing and brand identity—indeed, the very features it claimed set it apart from the competition that "repeat borrowers with perfect payment records" would not be charged the same fees as "unproven" borrowers and that repeat borrowers would "earn access to apply for larger loans at lower interest rates." The company claimed it created the "LendUp Ladder" program to incentivize responsible borrowers to "climb" to higher ladder levels.
That's not what happened in the vast majority of instances, alleges the CFPB. Many repeat borrowers who climbed the LendUp Ladder (so to speak) did not receive the promised lower interest rates but actually received the same or higher rates than they had for previous loans. The CFPB complains that LendUp in some cases even unilaterally reduced the maximum available loan amount for customers who had ascended its ladder.
The CFPB's complaint further alleges that consumers in some states were treated differently from consumers in others. For instance, regardless of whether consumers ascended to "Silver," "Gold," "Platinum" or "Prime" ladder levels, in some states Silver and Gold levels received the same maximum loan amount. In other states the ladder ended at Gold, with nowhere to go beyond that.
According to CFPB, LendUp's misleading marketing violates an administrative consent order the company signed in 2016 that prohibited the lender from "misrepresent[ing]...expressly or impliedly[,] [t]he benefits of borrowing from [LendUp], including access to and availability of loan products."
The complaint alleges violations of the Consumer Financial Protection Act (CFPA) related to LendUp's alleged deceptive acts and practices, and an Equal Credit Opportunity Act (ECOA) violation related to its apparent "failure to provide timely and accurate adverse-action notifications to loan applicants."
A new administration and a new CFPB. Enough said.
It's a Good Day for Being an Org. and a Good Day for Suing a Corp. (In D.C.)
In the first appellate interpretation of a 2012 amendment to its consumer protection law, the D.C. Court of Appeals held that consumer protection nonprofits may sue private corporations in Washington, D.C., for false advertising on behalf of consumers, without separately having to prove standing.
Reversing the lower court, the three-judge panel found that the Animal Legal Defense Fund (ALDF) had standing under the D.C. Consumer Protection Procedures Act (CPPA) to sue Hormel Foods for false advertising of certain meat products in violation of the District of Columbia's CPPA.
ALDF sued Hormel, alleging that its ad campaign calling its meat products "natural" with the slogan "Make the Natural Choice" violated the CPPA's prohibition against engaging in unfair and deceptive trade practices because it misled consumers into thinking its meat products are free from preservatives and that the meat comes from humanely sourced animals when, in fact, the company slaughters its livestock using inhumane methods. The lower court had held that ALDF did not have standing to sue under the CPPA, rejecting the nonprofit's argument that the "representational standing" amendment to the CPPA "modifies traditional Article III standing requirements with a statutory test."
The D.C. Court of Appeals disagreed, asserting that the 2012 CPPA amendment empowers public interest organizations to sue "on behalf of the interests of a consumer or a class of consumers" that would otherwise "be capable of bringing a suit in their own right." To do so, organizations must have a "sufficient nexus to the interests involved by the consumer or class." Public interest organizations that meet this test have statutory standing without having to demonstrate Article III standing, wrote the court, and ALDF met this statutory test.
Although the organization's primary mission is to protect the lives and interests of animals, one of its secondary missions is to educate consumers by providing them with accurate information about where their meat is sourced and about the treatment of animals to reduce demand for factory-farmed products. The fact that ALDF has spent more than a decade doing so showed the court that the organization was operating in part to protect consumer interests.
Hormel argued that ALDF forfeited this "public interest organization" argument for statutory standing when it didn't plead it as the basis for standing in its complaint, but the appeals panel again disagreed. Stating that the trial court had subject matter jurisdiction over the case under the CPPA sufficed to plead statutory standing, held the panel.
The complaint's allegations in this case substantiated each of the three critical components of CPPA's section (k)(1)(D) standing: (1) that ALDF is a public interest organization organized and operating, in part, to advance consumer interests; (2) that ALDF has a sufficient nexus to those consumers' interests to adequately represent them; and (3) that there is a class of D.C. consumers who eat meat and were targeted by Hormel's Natural Choice ads that are capable of bringing a suit in their own right (and further substantiating its view that they were likely to be misled by claims like "100% natural").
Finally, the court rejected Hormel's argument that the claims were preempted by federal labeling laws, specifically the Federal Meat Inspection Act and the Poultry Products Inspection Act. In the court's opinion, those laws governed statements made only in product labeling, not in advertising beyond the label.
By empowering consumer rights groups to sue on behalf of consumer interests without having to separately show that they meet other standing requirements, this decision is likely to open the D.C. door to additional lawsuits by watchdog groups alleging false advertising. For example, as we covered on Stay ADvised, Friends of the Earth and Center for Food Safety failed in April of this year to show they had standing to sue Sanderson Farms in the 9th Circuit because they were unable to show their advocacy against the allegedly misleading ads went above and beyond their usual work.