When the financial future of millions of Americans is at stake, the FTC must use every tool at its disposal to protect consumers from deceptive and unfair practices. The Federal Trade Commission just announced a return to its existing method of holding companies accountable through financial penalties for violations. Seventy schools in the for-profit education sector will receive penalty notices regarding deceptive or unfair practices in the education market. This is a development worthy of your attention.
First, what is a penalty notice? Pursuant to Section 45(m)(1)(B) of the FTC Act, the FTC may notify a company that certain acts or practices are found to be deceptive or unfair in an administrative decision regarding litigation. Once a company receives a notice outlining a claim or action, it has “actual knowledge” that the practices violate the law. If the company subsequently engages in these acts or practices, the FTC may file suit in federal court seeking civil penalties. Receiving a notice of a penalty violation will help the FTC determine that the company had “actual knowledge.”
You may have heard this process referred to as “Section 205 Summary,” but this statutory abbreviation is a bit obscure. The term “Penalty Violation Notice” more clearly explains what the recipient’s interests are and what steps the FTC is taking to protect consumers.
Why does this new “Notice on Penalties for Illegal Behaviors” target fraud in the education market? Experts have described education costs as the second largest purchase a consumer will make in their lifetime. But given the trajectory of tuition, it might be number one for some. What’s more, consumers who are lured in by misleading promises of better jobs or higher salaries may find themselves saddled with debt burdens for decades to come—a financial hit that could affect not just students, but their Parents, spouse and children. In addition, deceptive claims about employment prospects and salaries often have a disproportionate impact on military members, veterans and their families, the consumers the FTC is committed to protecting.
The just-released Notice of Penalty Violations lists seven education-related practices that the FTC deems to be deceptive or unfair. You’ll need to read the notice to find out the specifics, but according to the cases cited, it is illegal to make direct or implied misrepresentations under Section 5 of the Federal Trade Commission Act:
- the need for people who have graduated or completed courses from a particular institution;
- the employment prospects of graduates, the ease with which they can find employment or employment opportunities in any field on which teaching courses are offered;
- The types of jobs graduates can do or for which they are qualified;
- The number or percentage of persons enrolled in any course or completing any course or degree who obtain employment, or the field or nature of such employment;
- how much money graduates will or are likely to earn;
- Obtain the qualifications required for the job in the field in which the institution provides training, including whether experience or additional education is required or advantageous; and
- The institution’s ability to help students find employment or actually provide graduate assistance, including whether it has job placement services.
The Notice of Penalty Violations clearly states that the FTC has not determined whether a specific recipient engaged in unfair or deceptive conduct, but it also notes in bold:
Upon receipt of this notice, your company will be informed that engaging in the conduct described therein may subject the company to civil penalties of up to $43,792 per violation. See 15 USC § 45(m)(1)(B).
The new web page contains court case decisions cited in the notice.
What can businesses gain from this development? First, companies involved in the education market should conduct careful evaluation to ensure that their practices are legal. Second, other companies can conclude that the FTC will use every tool at its disposal to protect consumers from deceptive and unfair practices.
