$5.5 million total FTC settlements with Kohl’s and Walmart challenge “bamboo” and eco claims, shed light on Penalty Offense enforcement

For consumers shopping for textiles for the home, products promoted as made from bamboo are a popular draw. But the FTC says some items advertised by global retailers Kohl’s and Walmart as “bamboo” were actually made of rayon. According to separate FTC settlements, the companies’ misleading representations violated the FTC Act and the Textile Act. In addition, the FTC says Kohl’s and Walmart engaged in “greenwashing” by making deceptive eco-friendly claims for those products. And even businesses that don’t have anything to do with textiles should take note of these settlements. Why? Because they use the FTC’s revived Penalty Offense Authority to support a $2.5 million civil penalty from Kohl’s and a $3 million civil penalty from Walmart for violating the Textile Act when they were on notice that improper labeling and advertising of textile products could subject them to civil penalties.

The complaint against Kohl’s charges that the company falsely represented that sheets, pillows, bath rugs, and towels advertised as made wholly or in part from bamboo were, in fact, made of rayon. What’s more, the company described them with terms like “sustainable,” “highly renewable,” and “environmentally friendly.” Kohl’s also advertised some of the products online with a “Cleaner Solutions” seal that linked people to a “Sustainability at Kohl’s” webpage describing initiatives suggesting that the company “care[s] about the planet.”

According to the complaint against Walmart, the company also made false bamboo claims in promoting sheets, towels, blankets, and nursing bras. In addition, Walmart marketed the items with phrases like “eco-friendly & sustainable” and “renewable and environmentally sustainable”

So what’s the real story about bamboo? And how does the FTC know that Kohl’s and Walmart were aware of the truth about bamboo before the companies made those deceptive claims to market the products? That’s where the story gets interesting.

As the complaints explain, under the Textile Act and Rules, rayon is the generic name for a type of fiber made from cellulose through a manufacturing process that uses chemicals like sodium hydroxide that are hazardous to the environment. Although the cellulose could come from bamboo fiber, “hazardous air pollutants (HAP) emitted from cellulose products manufacturing operations” include – according to the Code of Federal Regulations – carbon disulfide, carbonyl sulfide, ethylene oxide, methanol, methyl chloride, propylene oxide, and toluene.

If you think back to high school chemistry, sodium hydroxide is also known by some more evocative names, including “lye” and “caustic soda” – facts that belie the “green” impression conveyed by the word “bamboo.”

Under the Textile Act and Rules, ads for products that reference or imply fiber content must disclose the generic fiber names recognized or established by the FTC and can’t misrepresent fiber content. Therefore, marketing materials for manufactured textile products composed, in whole or in part, of regenerated cellulose fiber must use the generic fiber name – in this case, “rayon” or “viscose.”

How can the FTC be so sure that Kohl’s and Walmart knew that? Because the FTC told them in January 2010 Warning Letters sent directly to those companies and others. FTC staff explained in detail why selling rayon products as “bamboo” was against the law. In addition, the letters enclosed a “synopsis” – we now call them Notices of Penalty Offenses – expressly stating that the FTC was putting the company on notice that “the failure to correct improper labeling or advertising of textile products could subject the company to civil penalties.”

The complaints against Kohl’s and Walmart charge them with making false or unsubstantiated claims, in violation of Section 5 of the FTC Act. According to the FTC, they misrepresented that the products were made of bamboo and that they provided environmental benefits when, in fact, the rayon manufacturing process uses toxic chemicals and emits hazardous pollutants. The complaints also allege violations of the Textile Act and Rules.

Companies that follow what’s up at the FTC have been wondering how the agency would use its recently revived penalty offense authority. Count III in the Kohl’s and Walmart complaints may help to answer that question. Citing Section 5(m)(1)(B), the FTC alleges the companies had actual knowledge that falsely or deceptively advertising textile products would subject them to civil penalties.

In addition to imposing combined penalties totaling $5.5 million, the proposed settlements with Kohl’s and Walmart include injunctive provisions that will change how the companies make textile representations and bamboo-related environmental claims in the future.

Even if bamboo isn’t your business, two reasons demonstrate why these cases merit your attention. First, they illustrate how the FTC intends to use its penalty offense authority – a notable development for the many companies that recently received Notices of Penalty Offenses regarding money-making opportunities, endorsements, and education. In addition, in conjunction with this announcement, the FTC has revived additional Notices of Penalty Offenses issued in the 70s and 80s, but just as relevant now as tools to fight deception in the marketplace. Those notices cover, for example, energy savings, fur products, home improvement products, auto rentals, bait and switch, toys, and weight loss.

More about Notices of Penalty Offenses in an upcoming Business Blog post.