Just-in-time folder principle?

You’ve heard of the holder-in-time principle.FTC settlement with two Oregon businesses introduces FolderTimely Doctrine: The principle that it is illegal to make misleading claims to induce small businesses to purchase advertising space in promotional folders. This is the latest action by the Federal Trade Commission targeting deceptive practices targeting small companies.

Telemarketers from Production Media Group Corporation, Ferraro Group, and Jennifer Ferraro called and asked them to purchase advertising space in promotional folders. Some telemarketers told businesses they had agreements with local real estate offices to use the folders to distribute documents related to home purchases. Part of the sales pitch was that the folder with the corporate advertisement would be the only folder used by these offices for this purpose. In other cases, the telemarketers said local schools would use these folders, and only these folders, to send essays and assignments home to parents. In either case, they say the folders will be printed quickly, and by purchasing ad space, small businesses can market their services to hundreds or even thousands of potential customers within a year. The millions of dollars received by the defendants suggest that the speech was a success.

If the business was concerned that the folder might contain advertising from a competitor (such as another home inspection service or dentist in the area), the defendant’s telemarketers would be prepared to rebut. Salespeople are asked, “Is your decision based on whether or not you’re exclusive?” If the business agrees, the scripted response is “Great, let’s get you signed up, that’s definitely something I can do for you.” Federal Operators also create a sense of urgency by telling businesses there are only a few spaces left in folders and that a particular folder will be printed in time for the next school year or after the last ad is sold, the trade commission said. A quick turnaround is important for many businesses eager to get their ads out as quickly as possible.

You’ll have to read the complaint to see how the FTC alleges the defendants used so-called “reservation forms” to impose new material conditions and deny the oral statements of their salespeople, but the bottom line is this. Only after providing the defendants with their credit card numbers did the buyers learn that printing could take months, that advertising exclusivity was not guaranteed, and that they could not cancel or receive a refund. The lawsuit alleges that in many cases, the promised ads never appeared or were printed only after the businesses complained to the BBB, consumer protection agencies or their credit card issuers. What’s more, the company solicited under different names over the years and later formed a new company in a different state under a different name. Given the number of negative reviews the defendants received on Yelp and other sites, this action makes it easier for them to stay away from negative customer feedback and makes it more difficult for consumers to research the offer before signing up.

The stipulated order includes broad prohibitive provisions to protect future consumers. It also includes a $22 million judgment, much of which will be suspended due to the defendants’ financial circumstances.

The message to small businesses is to realize that your phone can be a conduit for customers and questionable promotions. Whether the quote involves office supplies, advertising space, or anything else your business is purchasing, educate your employees to use caution and investigate thoroughly before responding to cold calls. The FTC’s handbook, “Scams and Your Small Business,” explains some common forms of B2B deception. Share the link with colleagues and order free copies from the FTC Bulk Ordering Site. (It’s also available in Spanish.)