FTC’s Arise Case Gives Consumer Advocates a Pick-Me-Up

Just as consumer advocates were reeling from the loss of the Chevron doctrine after the recent Loper Bright Supreme Court decision (which drastically cut back on the power of the FTC – and other federal agencies – to interpret the laws they administer), the commission released some *brighter* news: On Tuesday, it reached a $7 million settlement in a case against gig work company Arise Virtual Solutions for making false earnings claims.

It’s not really the seven-figure monetary relief that has us applauding the agency (though that’s great too). It’s how it got there, and what this may mean for future enforcement actions. Let’s dig in.

What is Arise?

Arise is an online platform based in Florida that provides third-party customer service support to companies. According to the FTC’s complaint, Arise recruits customer service agents, primarily women, by advertising a pay of “up to $18/hour” for a job that can be done from home and as a replacement for a full-time job, using phrases such as “Kiss Your 9-to-5 Goodbye” and featuring testimonials from agents touting their ability to quit their jobs and support their families solely through Arise.

The reality, though, according to the complaint, is that 99.9 percent of consumers earned less than the touted pay – the average pay for jobs on Arise’s gig work platform was just $12/hour. And once lured to enroll with Arise, consumers then incurred substantial unreimbursed costs, including hundreds of dollars spent on computers and office equipment, hundreds of dollars spent on required training programs, and monthly mandatory fees.

What legal violations did the FTC action allege?

In its complaint against Arise, the FTC alleged that the company not only violated Section 5(a) the FTC Act, but that it had also violated the agency’s Business Opportunity Rule. What’s more, the FTC alleged that Arise knowingly engaged in acts that the commission had determined to be deceptive and unlawful by virtue of the fact that it had received a Notice of Penalty Offenses from the commission in 2022 regarding false and unsubstantiated earnings claims in money-making opportunities. (Note: The FTC sent Notices of Penalty Offenses regarding earnings claims to more than 1,100 businesses in October 2021.) By sending a Notice of Penalty Offenses, the FTC placed Arise (and the other companies) on notice that it could incur significant civil penalties – now up to $51,744 per violation – if it makes claims about its money-making opportunity that run counter to prior FTC administrative cases.

What does the settlement require?

In addition to the $7 million payment, Arise will also be permanently prohibited from making any false or misleading earnings claims to consumers once the settlement becomes finalized and the order is in effect. In the meantime, however, such earnings claims continue to circulate the internet. (Here are just a couple examples.)

As for the monetary relief, the money will be refunded to harmed consumers. Note, however, that the ability to refund consumers is not a direct result of the alleged knowing violations following the receipt of a Notice of Penalty Offenses — such violations may result in civil penalties, not consumer redress, which are two different things. That said, as former FTC Commissioner Rohit Chopra and current Director of the FTC’s Bureau of Consumer Protection Samuel Levine have stated, “When the Commission has a clear basis to seek civil penalties against a firm, it is well positioned to instead seek fulsome redress as part of a negotiated settlement, or to seek a combination of the two.” But there’s no doubt that Arise’s alleged violations of the Business Opportunity Rule played a major role in the number of zeros in the settlement amount. (More on that below.)

What makes this action particularly significant?

The FTC’s action against Arise stands out for several reasons. Among them is the fact that this settlement was approved by a 5-0 vote, just four months after the newest FTC Commissioners Holyoak and Ferguson were confirmed. This is also the first time the FTC has ever sued a gig economy provider for violating the Business Opportunity Rule. In addition, as noted, the FTC cited one of its Notices of Penalty Offenses to support the allegation that Arise knowingly deceived consumers. (Note here, though, that Commissioner Holyoak, in her concurring statement, stated that she believed the monetary relief in this case was warranted based on the alleged violations of the Business Opportunity Rule and therefore did not consider whether the complaint adequately alleged that Arise knew it was violating the law by virtue of having received a Notice of Penalty Offenses Concerning Money-Making Opportunities.)

What does this mean for future enforcement actions?

Money-making opportunities – particularly MLMs and direct-selling companies – should take note. While MLMs are currently largely exempt from the FTC’s Business Opportunity Rule, the FTC’s Arise action cites some striking parallels to the MLM industry, including:

• The FTC’s complaint alleges that about 90 percent of Arise agents are women and that the company targets women of color and stay-at-home moms. Meanwhile, women make up the majority of distributors of MLMs, which similarly prey on stay-at-home moms and women “in economically disadvantaged communities.”
• The marketing tactics employed by Arise and recited in the FTC’s complaint are quite similar to those used by the MLM industry. And TINA.org would know, especially after investigating 100 MLM companies last year and finding that 98 percent of them used atypical and unsubstantiated income claims to promote the companies’ business opportunities.
• Several hundred MLM companies also received a Notice of Penalty Offenses regarding earnings claims, which TINA.org encouraged.
• Just because MLMs are currently largely exempt from the Business Opportunity Rule does not mean that will always be the case. In fact, TINA.org has urged the commission, which is reviewing the rule, to do just that.

Do these parallels hint at a looming FTC enforcement action against an MLM company? Only time will tell.

In the meantime, while the FTC may have an uphill battle to fight after losing the Chevron doctrine, the commission’s unanimous decision to pursue atypical and unsubstantiated earnings claims – in a case that cited a previous Notice of Penalty Offenses – is giving us reason to view the FTC’s glass as half full. At least for now.