Specific earnings and income claims entice the customer. These claims are often made in connection with offering business opportunities and with MLM plans online. Misleading earnings or income claims are deceptive and illegal in general under Section 5 of the FTC Act. But, they pose other concerns in connection with offering business opportunities and in selling MLM type plans.
The basic premise behind FTC endorsement disclosure requirements is that the advertiser cannot claim through an endorsement anything that cannot be claimed directly. Advertisers must have a reasonable basis and must be able to back up any specific claim made. Exaggerated earnings claims are deceitful and are always deceptive. Claiming extraordinary results by making a specific earnings or income claim that is not representative of the results achieved by a substantial number of consumers is deceptive. Advertisers are not free to make such direct claims without properly qualifying them through the use of appropriate disclosures and disclaimers.
The following summary will teach you when and how your MLM or other business must use an income or earnings disclaimer and/or disclosure(s).
Types of Claims
1. Specific Earnings & Income Claims
These are basically claims based on your own or others specific amount of earnings achieved by using some product or service being sold. Earnings claims are “any statements from which a prospective purchaser can reasonably infer that he or she will earn a minimum level of income.” Earn up to $10,000 each month,” “Make over $3,000 a week from your couch!” or “I made $22,222 my first month using this powerful system and so can you” are all examples of specific earnings claims.
Not all truthful income claims are improper; the key is presenting proper disclosures to support the claim so that it is not deceptive. The problem is that usually these claims are exaggerated where the advertiser has no reasonable basis for making the clam. When they aren’t exaggerated, the claim usually boasts about extraordinary results and, of course, fails to mention this fact prominently to the consumer. Both practices are deceptive and violate Section 5 of the FTC Act.
The FTC believes earnings claims are highly relevant to consumers in making their decisions and typically are the single most decisive factor. Due to the significance of earnings claims in a purchaser’s decision and the number of complaints that it receives about earnings claims, the FTC scrutinizes them. (Earnings claims also include any chart, table, or calculation that demonstrates possible results). You should really avoid advertising any specific earnings/income claims on your website altogether. Unfortunately, for most Internet advertisers, using proper disclosures will defeat the purpose (i.e. the message) of using the exaggerated or uncommon earnings claims to begin with.
2. Vague & General Claims
Vague and general claims such as “achieve all of your dreams” or “get everything you ever wanted!” may not be deceptive. If those claims are phrased in terms of an opportunity or possibility or a chance that can come true with hard work, maximum effort, etc., they tend not to mislead the reasonable consumer. “Explode your sales” may not be misleading given the overall context of the ad. But, “explode your sales overnight” really makes a specific claim is likely misleading. Of course the entire context of the claim will be evaluated. It is better to err on the side of caution and simply avoid using these types of claims if possible.
3. Lifestyle & Hypothetical Claims
Lifestyle and hypothetical income claims are viewed, at a minimum, as implied claims by the FTC. They are usually made in connection with business opportunities. They will be considered income claims and the same disclosure requirements as with any other earnings or income based claim must be followed. Examples of these types of claims include “check out my new Porsche” or “I vacation 10 times a year.” A picture of someone sitting on the hood of a brand new BMW with a mansion in the background presents an implied lifestyle claim. Someone sitting on a yacht on their laptop as an image on your website is yet again an implied lifestyle claim if made in connection with an earnings claim. These claims give off the impression of a certain hypothetical outcome. Avoid making these types of claims as they can be just as deceptive as specific earnings/income claims.
Using Specific Earnings Disclosures
There are different ways to use disclosures on your website. There is no “exact” placement, magic language or a required manner of making disclosures. But, given the nature of specific income and results claims, a general website disclaimer and an “in-line” or natural type of disclosure within or immediately after the claim should both be used. The disclaimer can flow naturally within the content in order not to disrupt the flow of your message. The bottom line is that income and earnings disclosures are an integral part of the underlying claim. Again, these are ‘hot button’ type claims from the FTC’s point of view. Potential customers are likely going to purchase you product based upon their expectations created by the earnings or results claims made.
The less likely potential customers are to notice a disclosure the greater the probability the claim will be deceptive. Simply put, using disclosures immediately after an earnings claim will greatly increase the odds the disclosure will be effective.
As an example, the claim “I made $5,322 dollars in my first 6 months and you can too,” could be followed by the sentence “most customers should expect to make around $100 in the first six months.” Similarly, “Obtain a credit line in as little as 2 months” could be followed by “most customers should expect to receive a credit line within 8 months”. “Earn up to $1,000 per week with my proven system” could be followed by “most members earn approximately $50 per week.” Of course, you must have a reasonable basis for making any disclosures in the first place.
Using natural in-line type disclosures can be a very effective way to disclose necessary information while preserving sales. After all, bulky and awkward disclosure text may scare some people away. Placing disclosures next to each earnings or results claim is a much smoother and easier way to transition to these types of disclosures and this method should be followed when possible. For instance, “although these results are extraordinary, some customers have made $5,000 or more each week using this system and we believe you can too.” This type of disclosure may not be appealing from a marketing standpoint, but the only legal alternative is disclose what they can expect if when making an exaggerated earnings claim.
If the claim made requires a long disclosure, a natural disclosure isn’t going to work. In that case, refer to the discussion on disclosure placement above to determine where to place the disclosure. But given the nature of these types of claims, in-line disclosures should not generally be too lengthy anyways.
Using A General Earnings Disclaimer
Not only should specific disclosures be used within or next to any claims, a general earnings disclaimer should also be used. It should state that not every user of the product the subject of the earnings claim will make any money, let alone any amounts claimed. Anything less will land you or your business in hot water since viewers of these types of claims may be led to believe that they too will undoubtedly achieve the same results. Your customers need to understand that there is a degree of risk and that there is no guarantee he or she will achieve the same earnings.
If there is a chance even one single customer who purchases a product may not earn income, an income claim should not be made without an appropriate disclosure. In fact, businesses making these claims should assume that there will be purchasers that won’t make any money since its dependent upon so many different factors, including individual skill, desire, work ethic, etc. Most potential customers may, in fact, earn money. But, all it takes is one to make this claim technically misleading!
Ideally, the disclaimer language should be placed on the visible portion of all pages where claims are made. However, it can be placed on a separate page provided that visitors notice the disclaimer link and are compelled to click on it. Use a separate “Important Earnings Disclaimer” link somewhere prominently on the website if the actual language is not displayed directly on the page. Using link at the bottom of the page where viewers may not scroll down and find it is not advisable. I suggest placing it in the top navigation bar, visible side bar or some other prominent spot on the home page and each webpage any income or earning claim, example or customer testimonial appears.
MLM Pyramid Scheme Earnings Claims Are Illegal!
Specific earnings claims or income testimonials can pose serious problems when used in conjunction with offering business opportunities and in connection with selling MLM programs. They pose a problem in connection with any activity, but specific earnings and income type claims mainly occur with offering business and MLM type opportunities.
Earnings claims made in connection with an illegal pyramid scheme are deceptive. These claims fail to disclose that most consumers who invest don’t receive substantial income, but actually lose money. In fact, the FTC has said so and has used deceptive earnings claims as a way to go after pyramid schemes in many cases. More MLM plans are likely to resemble illegal pyramid schemes then not. By publishing false or exaggerated earnings representations, MLM’s offering pyramid schemes simply that any new participant who pays the sign-up fee can make vast amounts of profit simply by following the blueprint. However, because profits primarily come from new members, it is impossible to earn large profits. This is because of the exponential number of new members needed to sustain the profit stream.
The FTC disfavors earnings claims in the connection with offering franchise and business opportunities in general. In National Dynamics Corporation vs. the FTC (1975), the FTC decided that distributors “should be allowed to make a wide variety of simple, truthful, non-deceptive statements concerning the earnings of their distributors. At the same time, they must be prevented from bandying about high earnings achieved by a minority of purchasers with no indication of the unrepresentativeness of such earnings. If respondents lack evidence that the high reported earnings of a few distributors are in fact representative of the earnings of large numbers of other distributors, then it is clearly deceptive for them to portray the minority results reported to them without a clear indication of their unrepresentativeness.”
MLM Earnings Claims State laws
There are state laws specifically regulating MLM plans and offering business opportunities. Some states flat out prohibit such claims. For example, Massachusetts and Wyoming restrict earnings claims and income testimonials by MLM companies outright. Georgia, Maryland, Louisiana and Puerto Rico regulate earnings claims by MLM’s and in connection with business opportunities. Maryland and Puerto Rico disallow earnings claims unless the results claimed can be achieved by a “substantial number” or by a “reasonable number” of participants. Georgia provides that an MLM company or business opportunity seller cannot represent any earning or income potential unless it has documented evidence to back up whatever earnings claims it provides. The MLM business must provide this evidence upon request by the potential customer.
Other states also condition, limit or restrict any earnings claims made in conjunction with offering any business opportunities (South Carolina, North Carolina, Indiana, Virginia and Texas). Of course, any untrue or misleading earnings or income claims are also deceptive under state deceptive practices statutes as well.
The Bottom Line: MLM based and businesses offering some type of business opportunity should stay away from making specific past or future earnings claims or using income testimonials. If specific earnings or income claims are made, they must: 1) be true; 2) be substantiated somehow-i.e. you need to have a reasonable basis for making the claim; and 3) all claims must be representative of the results achieved by a substantial number of customers.