Notice of Penalty Offenses: What FTC’s announcement means for your business

When the financial future of millions of Americans is at stake, it’s important for the FTC to use every tool at its disposal to protect consumers from deceptive and unfair conduct. The FTC just announced the revitalized use of an existing method to hold companies accountable by imposing financial penalties for illegal acts. Seventy schools in the for-profit educational arena will be receiving a Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct in the Education Marketplace. It’s a development that merits your attention.

First, what is a Notice of Penalty Offenses? Under § 45(m)(1)(B) of the FTC Act, the FTC may notify companies that certain acts or practices have been found in litigated administrative decisions to be deceptive or unfair. Once a company has received a notice listing relevant claims or conduct, it has “actual knowledge” that those practices violate the law. Should the company then engage in those acts or practices, the FTC may sue in federal court, seeking civil penalties. The receipt of a Notice of Penalty Offenses will help the FTC establish that the company had “actual knowledge.”

You may have heard this process referred to as a “Section 205 synopsis,” but that statutory shorthand was a bit arcane. The phrase “Notice of Penalty Offenses” explains much more clearly what’s a stake for recipients – and what the FTC is doing to protect consumers.

Why is this renewed Notice of Penalty Offenses aimed at deceptive claims in the education marketplace? Experts used to describe educational expenses as the second biggest purchase a consumer will make in a lifetime. But given the trajectory of tuition, for some people it may be #1. What’s more, consumers who were lured in with misleading promises of better jobs or higher salaries may find themselves burdened with debt for decades to come – financial injury that may impact not just students, but also their parents, spouses, and kids. In addition, deceptive claims about employment prospects and paychecks tend to have a particular impact on members of the military, veterans, and their families – consumers the FTC is committed to protecting.

The just-announced Notice of Penalty Offenses spells out seven education-related practices the FTC has found to be deceptive or unfair. You’ll want to read the Notice for the specifics, but based on the cited cases, it’s illegal under Section 5 of the FTC Act to misrepresent directly or by implication:

• the demand for people who have graduated from, or completed courses at, a specific institution;
• graduates’ employment prospects, the ease with which they’ll be able to get a job, or the employment opportunities in any field in which a course of instruction is offered;
• the types of jobs available to grads or for which they would be qualified;
• the number or percentage of people attending any course or completing any program or degree who have obtained employment, or the field or nature of that employment;
• how much grads will or may earn;
• the qualifications necessary to get jobs in the fields for which an institution offers training, including whether experience or additional education is required or advantageous; and
• the institution’s capabilities for helping students find employment or the assistance actually given to grads, including the existence of job placement services.

The Notice of Penalty Offenses makes clear that the FTC hasn’t determined whether a particular recipient has engaged in unfair or deceptive conduct, but it also states in bold-face type:

Receipt of this Notice puts your company on notice that engaging in conduct described therein could subject the company to civil penalties of up to $43,792 per violation. See 15 U.S.C. § 45(m)(1)(B).

A new webpage includes the litigated case decisions cited in the Notice.

What can businesses take from this development? First, companies involved in the education marketplace should conduct a careful assessment to make sure their practices are lawful. Second, other companies can conclude that the FTC will use every tool at its disposal to protect consumers from deceptive and unfair practices.