What to do when companies deceive you

Yahoo Finance
In this Thursday, Oct. 24, 2013, Snapchat CEO Evan Spiegel poses for photos, in Los Angeles. Spiegel dropped out of Stanford University in 2012, three classes shy of graduation, to move back to his father's house and work on Snapchat. Spiegel’s fast-growing mobile app lets users send photos, videos and messages that disappear a few seconds after they are received (AP Photo/Jae C. Hong)
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Snapchat has settled a lawsuit filed by the Federal Trade Commission that claimed it secretly tracked its users.  (AP Photo/Jae C. Hong)

What do a trendy running shoe, granola bars and a sexting app have in common?

They’re all allegedly based -- at least in part -- on deceptive marketing.

This week, the companies behind Vibram five-finger running shoes, Kashi and Bear Naked’s “all natural” snack products and texting app Snapchat paid dearly for misleading consumers about certain qualities of their products.

Vibram agreed to pay $3.75 million to settle a class action lawsuit alleging the privately held company made unsubstantiated claims that its minimalist shoes prevent injury and strengthen muscles. In a similar class action, Kellogg agreed to remove “all natural” labeling from its line of Kashi and Bear Naked products, which the lawsuit claimed contain several artificial ingredients. In addition, they're setting aside $5 million in a fund to dole out 50-cent refunds to Kashi customers and $325,000 for Bear Naked customers. Both companies deny the claims despite settling.

Lastly, Snapchat earned itself 20 year’s worth of babysitting by the Federal Trade Commission after it was discovered the popular “secret” texting app wasn’t so secret after all. Photos and videos taken in the app actually didn’t delete themselves as marketed, and the app was also secretly collecting personal information about its users. In a blog post on its site, Snapchat pledged to redouble its efforts in customer privacy.  

Of course, none of these incidents is the first time consumers have been burned by false marketing claims. Who could forget the $40 million fine Skechers paid in 2012 over its Kim Kardashian-backed line of weight-loss shoes? That same year, Vita Coco agreed to pay $5 million to consumers for exaggerating nutrient levels in its popular line of coconut water, and Naked Juice recently settled a class action lawsuit claiming it used genetically-modified ingredients while touting its line of juices as “all natural.”

Even if a lawsuit is settled, it can take years for consumers to get a check, says David Torok, director of the FTC’s Division of Planning and Information. (And not all false advertising cases result in financial restitution.) For example, Skechers customers waited nearly three years to get refunds from the time the FTC filed its case in 2010.

“People may not realize how long the actual litigation process takes,” Torok says.

Even when a case reaches settlement, there's more work to do. In FTC cases, defendants are given anywhere from 30 to 90 days to come up with the money to settle their fine. Then the defendant has to supply the agency with a list of impacted consumers. That list is passed on to a team of contractors, who are charged with reviewing the addresses, weeding out duplicates, and mailing checks. Consumers have anywhere from two to three months to cash their checks before the window closes. If any money is left uncashed, the FTC will send out a second round of checks.

“It can take a full year or more to truly distribute all the funds in case,” Torok says. “And that’s after you have all the money and the information you need."

Cases that are handled by a private law firm usually operate in a similar fashion. TopClassActionSettlements.com is a good place to start if you want to look for open class action settlements. If you want to complain about a company or product, use this form from the FTC.

The first line of defense against false advertising and misleading product claims is simple enough: you. Here are a few ways to spot scams in some popular industries:

“All Natural”

As businesses compete for eyeballs at the grocery store, they increasingly rely on aggressive marketing practices to entice shoppers to open their wallets. Food makers are especially prone to over-exaggerating nutritional benefits of their products for a simple reason — people are willing to shell out big bucks for it. The natural and organics food business brought in $81.3 billion in 2012, up 14% from the year before.  

The problem is that while the U.S. Department of Agriculture actively polices “organic” claims on food labels, the Food and Drug Administration still hasn’t gotten around to clearly defining the term “natural.” As a result, food makers are free to slap the label on their products, but consumers can’t be sure the food is actually “from nature” as claimed. Arguably, any food, no matter what garden or local greenhouse it came from, is “processed” the minute it’s put in a box and shipped to stores.

It’s not that these foods are inherently unhealthy, but the fact that they’re often being sold at a premium and marketed as “better than” other alternatives is what irks regulators and consumers alike.

If you want truly natural foods, your best bet is to look for “100% organic” labels. By law, organic means foods weren’t made using pesticides, growth hormones, antibiotics, or genetically engineered ingredients. But make sure to look for “100%” on the label — the USDA allows products to be labeled organic even if they aren’t entirely made using organic ingredients. 

If you’re just worried about eating overly processed foods, the folks at EatRight.org have a nice set of guidelines on what ingredients to keep an eye out for on food labels.

“Weight loss fads”

The $61 billion weight-loss industry is also rife with opportunities for marketers to over-promote the “fat-blasting” power of certain products  — from vitamins and supplements to exercise equipment and so-called “fitness-wear.” In January, the FTC fined a handful of health and beauty companies — including L'Occitane and Sensa —  $34 million for allegedly making false weight-loss claims about products such as slimming body lotions and powdered food that was supposed to make people eat less.

If a weight-loss product promises it makes losing weight “quick, easy and effortless!” chances are it’s a sham. Anyone who’s ever killed themselves on the treadmill to shed a pound a week will tell you there are only two ingredients needed for weight loss: sweat and discipline, both of which are free.

The FTC cautions against trusting “before and after” photos in ads as well, as there’s no easy way to prove their legitimacy. See its guidance on “Weighing the Claims in Diet Ads” before buying into any weight loss product sales pitch. They also have a good Health & Fitness buying guides with tips on how to spot misleading advertising.

“Privacy”

For Snapchat, which has attracted millions of users based on its promise that the photo messages they send “disappear forever” and that their information wasn’t being collected, the FTC’s ruling is particularly jarring.

We could write volumes on the issue of consumer privacy in the age of Big Data (and we have). In a nutshell, we’d take any company’s promises to keep your personal data completely private with a large grain of salt.

If you carry a smartphone, chances are at least some of your apps are tracking you in some way. You should take time to adjust your privacy settings in each app by tapping into your phone’s privacy settings. The latest iPhone and Android updates also offer a new feature that stops apps from using ad tracking, which allows them to tailor ads to you based on your browsing history, but you’ll need to turn it on yourself. To do so, tap your "settings" icon, scroll down to 'privacy' and find the tab labeled 'advertising'. Turn 'limit ad tracking' on.

The bottom line: Regulations can only go so far to protect consumers from misleading advertising. Always do your due diligence before opening your wallet.

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