Advertising Law

YouTube Adds Sponsored Content Notification Feature

To help influencers achieve compliance with the necessary disclosures about their relationships with advertisers, YouTube has unveiled a new tool to provide notice to viewers about sponsored content.

The new feature adds visible text on a video for the first few seconds watched by a viewer with a label stating "Includes paid promotion." Creators also have the ability to add the text to any existing videos without impacting their video metrics (such as view count).

"YouTube creators are among the most influential voices in media today," according to a post on the site's Creator Blog. "Since brands increasingly recognize the value of the connection creators have with their fans around the world, they are investing in collaborations to reach viewers in interesting and authentic ways. At the same time, viewers appreciate transparency when brands and creators collaborate on paid promotions such as product placements, sponsorships or endorsements."

The company also asked creators to check the "video contains paid promotion" box in their Video Managers, so that the site knows when a video contains removable sponsored content from the YouTube Kids app to comply with company policy.

YouTube cautioned creators that while the new feature is a helpful addition, different countries have their own sets of rules about how and when disclosures are required. Accordingly, "creators and brands should check and follow applicable laws as they may vary greatly," and provide links to regulators including the Federal Trade Commission and the Committee of Advertising Practice in the United Kingdom.

To read YouTube's blog post announcing the new tool, click here.

Why it matters: The feature will be a helpful addition for influencers and other creators seeking to comply with disclosure requirements for sponsored content. Regulators have been increasingly cracking down on the failure to comply with disclosure requirements, as evidenced in recent actions by the Children's Advertising Review Unit and the Federal Trade Commission. The creative community should remember that simply using the notice provided by YouTube alone might not be sufficient to satisfy legal requirements, however.

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FTC Wins Record $1.3B Judgment Against Payday Lenders

A record $1.3 billion fine was entered at the request of the Federal Trade Commission against multiple corporate defendants and racecar driver Scott A. Tucker for engaging in a payday lending scheme.

In a 2012 complaint, the agency asserted that the operators of AMG Services Inc. promised borrowers that they would be charged only one loan amount and a one-time finance fee. Instead, the FTC said the defendants broke the loan payments into several amounts and then charged borrowers a fee for each withdrawal from their bank account. The unexpected additional fees also left borrowers unaware of the actual amount they were required to pay on their loans, the agency added.

For example, a $300 loan that was advertised as costing $390 to repay would actually cost a borrower $975, the FTC said. As a result, defendants violated Section 5 of the Federal Trade Commission Act, as well as the Truth in Lending Act and the Electronic Funds Transfer Act.

The defendants argued that their operations were affiliated with Native American tribes and therefore immune from legal action. U.S. District Court Judge Gloria M. Navarro held otherwise. That ruling triggered deals between some of the defendants and the agency, including a settlement earlier this year by Red Cedar Services Inc. and SFS Inc., which agreed to pay $4.4 million and collectively waived $68 million in fees to borrowers that were not collected.

Most recently, the FTC moved for summary judgment against the remaining defendants: Tucker, AMG Capital Management LLC, Level 5 Motorsports LLC, Black Creek Capital Corporation, and Broadmoor Capital Partners.

Granting the motion, Judge Navarro entered an order in Nevada federal court finding that Tucker was individually responsible for the unlawful conduct as "the evidence abundantly establishes [he] participated in and had authority to control the Lending Defendants" and "at the very least … was recklessly indifferent to the misleading representations of the Lending Defendants."

The court banned the defendants from any aspect of consumer lending and prohibited them from engaging in illegal debt collection practices, from conditioning the extension of credit on preauthorized electronic fund transfers, and from misrepresenting material facts about any good or service.

She also entered a $1.3 billion record-setting financial judgment which represents the difference between what borrowers were told they would have to pay on their loans and what they actually paid, and is the largest litigated judgment ever obtained by the FTC.

To read the complaint and summary judgment order in FTC v. AMG Services, click here.

Why it matters: Even before the court's latest ruling, the agency touted its recovery in the action, which resulted in an estimated $353 million in waived debt and $25.5 million in judgments against the defendants in January alone. With the additional $1.3 billion judgment, the agency can now claim its largest litigated judgment ever. "This significant court judgment demonstrates the FTC's determination to crack down on deceptive payday lenders and the people who run them," FTC Chairwoman Edith Ramirez said. "No consumer should be victimized by an unlawful scheme like this one, and it is especially detestable when those who can least afford to be charged undisclosed and inflated fees are the ones being targeted."

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Modern "Bait-And-Switch" Operation Halted by FTC

The Federal Trade Commission wasn't buying claims from an electronics buyback company when seeking an order halting the operations of Laptop & Desktop Repair in Georgia federal court.

Together with the Georgia Attorney General, the agency alleged that the company and its owner tricked consumers by making high-dollar offers to purchase their used electronics—smartphones and tablets, for example—and then actually paid consumers far less after they sent in their devices.

"This is a classic case of bait-and-switch updated for the 21st century," Jessica Rich, Director of the FTC's Bureau of Consumer Protection, said in a statement about the case. "The defendants in this case lure consumers with false promises of generous payments, then hold consumers hostage once they have mailed their devices to the company."

Once consumers shared information about the product they wished to trade in, the defendants would represent they would pay an exact amount, the FTC said. But after the company received the electronics, it would invariably drop the price to just three to ten percent of the original quote.

Consumers who requested their products back or argued about the lower price were met with hurdles, the agency alleged. Long hold times and disconnected calls were common, and the defendants often informed consumers that it was too late to return their devices because they had already been processed.

The court entered an order stopping the defendants' practices and freezing their assets while the litigation proceeds.

To read the complaint and the temporary restraining order in FTC v. Laptop & Desktop Repair, click here.

Why it matters: The FTC's complaint—alleging violations of both Section 5 of the Federal Trade Commission Act and Georgia's Fair Business Practices Act—noted that since 2011, consumers lodged more than 4,000 complaints against the defendants with the FTC, state authorities, and the Better Business Bureau.

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FCC Considers ISP Privacy, Data Security Proposal

Federal Communications Commission Chairman Tom Wheeler released his proposed order to regulate the privacy and data security of internet service providers (ISPs) by mandating opt-in consent for ISPs to use and share sensitive information and by requiring notification in the event of a data breach.

The controversial proposal began with the agency's Open Internet Order, which reclassified broadband Internet service as a telecommunications service under the purview of the FCC. In March, the agency released a draft order on ISP privacy and data security and received extensive public comments.

Reflecting those comments, Chairman Wheeler circulated a proposed order to his fellow Commissioners intended to increase choice, transparence, and online security for consumers. While the agency did not release the text of the order, it provided a fact sheet about the proposal.

The draft rules require that ISPs notify customers about what types of information it collects, specify how and for what purposes the information is to be used and shared, and identify the "types of entities" with which the ISP shares the information. Notification "must be persistently available" on the ISP's website or mobile app, when a customer signs up for service, and updated when the privacy policy changes in significant ways. The Commission's Consumer Advisory Committee will develop a proposed standardized privacy notice format that would serve as a safe harbor for the providers who elect to use it.

To increase consumer choice, the proposal divides customers' personal information into sensitive and non-sensitive categories. To use and share sensitive information—which is defined to include geolocation, children's information, health information, financial information, Social Security numbers, Web browsing history, app usage history, and the content of communications—ISPs would be required to obtain opt-in consent from consumers.

For non-sensitive customer information, use and sharing by ISPs would be subject to opt-out consent. "The focus on the sensitivity of the information—rather than how it is used—is in line with customer expectations," the FCC explained.

The agency also included rules about de-identified information (acceptable for use and sharing outside the consent regime required for other consumer data), a prohibition on "take-it-or-leave-it" offers where an ISP refuses to serve customers who don't consent to the use and sharing of their information, and required heightened disclosures for plans that provide discounts or other incentives in exchange for a customer's express affirmative consent to the use and sharing of their personal information. "Consumers should not be forced to choose between paying inflated prices and maintaining their privacy," the FCC said.

Pursuant to the draft rules, ISPs must implement reasonable data security measures and adhere to data breach notification requirements. Eschewing a formal checklist of data security standards, the FCC said covered entities must "take reasonable measures to protect customer data," such as properly disposing of data and implementing robust customer authentication tools.

In the event of a reportable breach (where an ISP determines that an unauthorized disclosure of a customer's personal information has occurred, unless it establishes that no harm is reasonably likely to occur), ISPs must notify affected customers (as soon as possible but no later than 30 days after discovery), the FCC (no later than seven business days after discovery), and, if the breach impacts more than 5,000 customers, the Federal Bureau of Investigation and the U.S. Secret Service (within seven days).

Federal Trade Commission Chairwoman Edith Ramirez praised the proposal. "We know that consumers care deeply about their privacy, and I am pleased to see the FCC moving forward to protect the privacy of millions of broadband users across the country," she said in a statement. "The FTC, which has protected consumers' privacy for decades in both the online and brick-and-mortar worlds, provided formal comment to the FCC on the proposed rulemaking, and I believe that our input has helped strengthen this important initiative."

The full FCC will vote on the proposed order on October 27.

To read a Fact Sheet about the proposed order, click here.

Why it matters: While the draft rules contained some tweaks from the initial proposal, industry members expressed concern about the breadth of the FCC's definition of "sensitive information," which would generally require ISPs to obtain opt-in consent before serving consumers with targeted advertising based on their web browsing history. "There is no record of consumer harm to justify treating web viewing and application use history as sensitive or for it to be subject to opt-in consent," according to a letter from a coalition of advertising groups including the American Association of Advertising Agencies, the American Advertising Federation, the Association of National Advertisers, and the Interactive Advertising Bureau. The proposal "would upend the established and thriving Internet economy, which relies on the support of data-driven advertising."

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Manatt Attorneys Tapped for 38th BAA Marketing Law Conference

Linda Goldstein, Marc Roth and Richard Lawson are featured speakers at the Brand Activation Association's upcoming 38th annual Marketing Law Conference.

Linda Goldstein, chair of Manatt's advertising, marketing and media practice, will share insights on the key issues and developments in her annual Year in Review. Marc Roth, co-chair of the firm's TCPA compliance and class action defense practice, will-moderate a panel on issues surrounding mobile marketing, and Richard Lawson, partner in Manatt's consumer protection practice, will join directors from the Florida and California Offices of the Attorneys General and the Deputy Chief of Consumer Protection of the Texas Attorney General's office. Lawson's session is titled, "State A.G. Policy Enforcement Priorities in Consumer Protection—An Inside and Outside Look."

The conference will be held on November 9-11, 2016 at the Downtown Chicago Marriott. For more information, click here.

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