As a consumer, there's really nothing worse than buying something only to find out you've been lied to. You'd think that by the time a product has been tested and put through the highly standardized retail rigmarole to get to the market, it would ensure that untrue claims cannot be made, but that's not always the case. (The early bird may catch the worm, but in shopping, the worm will come to those who wait. Check out 12 Ways To Shop Smarter.) IN PICTURES: Top 7 Biggest Bank Failures
Fraudulent claims are often seen when products offer unbelievable results, like, "Work out for five minutes a day and get perfect abs," or, "Take one of these pills every morning and lose 20 pounds in your first month!" Claims like these often turn out to be false, and sooner or later the Federal Trade Commission (FTC) catches up to these companies and shuts them down. We'll look at some recent false advertising cases filed by the FTC and some historical cases of companies that benefited by using false claims and advertising.
Not-So-Clean Credit Scams
Given the state of the economy over the past few years, a lot of people are trying to clean up their credit and get their finances back in order. Well, let's hope they didn't go to Clean Credit Report Services for help. Clean Credit ran into hot water with the FTC in September after the company targeted consumers that were desperate to fix their credit, and charged them hundreds and even thousands of dollars without providing much of a service at all. Consumers were charged an up-front fee of $400, which Clean Credit would take from their account before receiving signed contracts, and then the company would do very little, if anything, to help repair the credit. In 2008, the FTC launched Operation Clean Sweep, where it went after 36 credit repair scams like Clean Credit. The FTC filed complaints against them, and many have since been shut down.
Do you want to put some electrodes on your stomach a few times a day and get the body of an Adonis? Of course you do, but you can't always get what you want. Ab Force was a ubiquitous As Seen on TV product that was ultimately found to be making fraudulent claims. The claims were that the belt that you wrapped around your stomach, which electronically stimulated your muscles, thus giving you a work out while you just sit there, did not do any of these things and would not give you rock-hard abs. The final complaint and subsequent $7 million refund took place in 2009, but the FTC had been fighting Ab Force for half a decade, trying to remove the product and its false claims from the market.
If a belt that shocks your stomach muscles into a six-pack doesn't work, what can we believe in anymore? Maybe if the Ab Force doesn't help you lose weight, then you could just take a magic pill. This, for many cases, is also a false claim. To target the false claims that diet pill and weight loss cream manufacturers and marketers were making, the FTC started the Big Fat Lie initiative in 2004. The FTC targeted ads that appeared in many national women's magazines, advertising that rubbing lotion into your skin will produce substantial weight loss (Selfworx.com LLC), taking a pill made from Nepalese Mineral Pitch would allow you to lose up to 37 pounds in eight weeks (AVS Marketing) and other weight-loss patches, pills and lotions with similar claims.
In 2007 the FTC levied $25 million in fines against four weight-loss pill marketers; these pill marketers made claims ranging from weight loss to decreasing the risk of cancer.
Big Names and Historical False Claims
Even bigger companies like Nestle have gotten into trouble with the FTC in recent years for false claims. The FTC recently ordered a Nestle subsidiary, BOOST Kids Essentials, to stop claiming that it would protect against upper respiratory tract infections and stave off colds. The FTC ordered that these claims be suspended until there is actual proof provided by the FDA.
A historical account of false advertising claims can be seen in Listerine. Similar to BOOST, Listerine at one time claimed that it could prevent colds and sore throats. The FTC found that this was false, and ordered that Listerine no longer include these claims, and further, that the company expressly state that Listerine does not help colds or sore throats. Walgreen faced a similar case, where it was ordered to pay $6 million after its claims that its vitamin supplements, Wal-Born, would help prevent colds.
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The Bottom Line
If you investigate the history of big companies, a lot of them have had run-ins with the FTC over the years. For example, in 2009, Coca-Cola had some problems with its claims about Powerade. The FTC website gives tips on how to be a savvy consumer, so you won't have to worry about waiting for your Ab Force refund because you would never believe the unsubstantiated claims in the first place. (Do you know how to distinguish a real opportunity from a fraudulent one? See Wham Bam Micro-Cap Scam.)
Find out what happened in financial news this week. Read Water Cooler Finance: Barack Obama Vs. The World.