July 2024 – Dickinson Law's Inside Entrepreneurship Law Blog

By: Nicole M. Chew

Tic Tok, Instagram, Twitter (now X), Facebook, & YouTube. To say that the world of social media is expansive would be an understatement. The boom of the virtual world, exacerbated by the COVID-19 pandemic, has created jobs that no one would have dreamed of 10 years ago: social media advertising specialists, social media managers, and an ever-increasing number of content creators and influencers. Numerous companies have taken advantage of this new world, and ground is constantly being broken in the field of marketing and advertisements. The Federal Trade Commission is responsible for regulating fair advertising practices, and more companies than one have run into federal regulations pertaining to social media marketing and product endorsements.

Celebrity product endorsement is nothing new, companies like Nike and Under Armour have long-since sponsored athletes. Celebrity personalities like the Kardashians have been present in television ads for cosmetics for years. It’s easy to see that these athletes and personalities are being paid for their time and testimonials. The question gets more complicated when you look at “small-time” social media influencers like makeup artists, and fitness gurus who posted the majority of their content Instagram and Tic Tok. These influencers will often recommend makeup brands like MAC or Fenty Beauty, and fitness equipment like Peloton Bikes or clothing brands like Gym Shark. Are these influencers being paid to recommend these brands? What obligation do these companies have to make sure that consumers know that these influencers are being paid to recommend these products and brands? What obligation do these influencers have? Not knowing the answers to questions like these can cause your company to get investigated by the Federal Trade Commission (FTC), resulting in damage to your company, both in financial and in reputation.

Playing it safe

The Federal Trade Commission (FTC) is responsible for regulating commercial activity in the United States. This agency regulates advertisements made by companies, and endorsements made by individuals, celebrity or not. Specially, section 5 of the FTC Act prohibits deceptive advertisements, and endorsements fall underneath that very broad umbrella. There are specific rules for endorsements, and the FTC makes it clear that the larger corporation is responsible for keeping their “endorsers” in line with the these regulations, and they adopt liability for the failure of their endorsers to comply with the FTC’s Endorsement Guidelines.

To play it safe in the social media marketing sphere, here are 5 simple steps to make sure that you’re in compliance with the FTC Guidelines:

Make sure that your endorser is using the product that they are endorsing, and they continue to use it for as long as they are endorsing it.
Make sure that your endorser shares their HONEST opinions of the product (even if they are the same as yours).
Make sure that your corporation is checking up on your endorser that the endorsements they are making are not misleading.
Make sure the partnership between you and the endorser is CLEARLY disclosed (it needs to be obvious to every viewer that your company is giving some benefit to the endorser).
Take action to correct any non-compliance of an endorser to these guidelines.

These steps are not a safe harbor, but they are a good step into ensuring that your corporation stays in compliance with the FTC Guidelines. The FTC is aware of the ambiguity of the Endorsement Guidelines, and as such, they have taken steps to make it easer for you to find out from them directly if your business and endorsement practices fall under their guidelines.

But what if i have questions about what is allowed?

The “What People are Asking” page has been developed so that you can bring your questions and concerns to the FTC directly, and while the answers given here are not official, they can certainly provide some guidance. Quite simply, you can’t go wrong by asking. This page is set up in an easy Q&A format that easy for someone unfamiliar with the FTC to navigate and understand.

You can get to that page here.

The FTC has also provided access to their enforcement policy for deceptive advertisements (or endorsements). Having access to the enforcement policy statement made by the FTC can provide you with an official answer to any of your questions. Reading over this brief document can help set you up for success in advertising your brand in accordance with the FTC guidelines. Falling under these guidelines can help ensure that you never get investigated, keeping your brand well respected and saving the money involved in lawsuits and settlements.

You can access that document here.

what happens if i don’t abide by the rules?

There are several companies that have failed to abide by the Endorsement Guidelines set forth by the FTC. One of the main criticisms of the FTC is that it relies too much on self-enforcement by corporations, but this does not mean that these guideline violations go unchecked. Companies like Lord & Taylor, Cole Haan, and CSGO Lotto have violated these guidelines and engaged in unfair or deceptive advertising practices as a result of their endorsers failing to disclose the relationship between themselves and the company. The ramifications of such conduct include recurrent monitoring by the FTC, tarnish of a brand name, fines, and the cost of lawsuit settlements.

There has been a trend of the FTC going after the corporation partnered with the endorser, and holding them liable for the statements made by the endorser. As such, it is of the utmost importance that you follow the above steps to keep your company in good standing with the FTC and that your budget can be spent on corporation development, not lawsuits and settlements.

the big picture takeaway

Overall, the FTC incorporates a huge aspect of self-regulation amongst companies. This is in part due to effective allocation of resources, but also because regulation between companies embodies some of the main ideas behind the U.S. economy – free enterprise and capitalism, where the consumer is the one who wins out by finding the best product for the best price. False or misleading endorsements deceive consumers, which undermines their ability to find the best product. By following these simple steps, you can make sure that your company stays free of investigation, establishing the integrity of your company and the integrity of your endorsers and your products.

Nicole Chew is a rising second-year J.D. candidate at Penn State Dickinson Law. She is from Montgomery County, Maryland, and holds a B.S. in Psychology from Frostburg State University. She plans to pursue a career in criminal law litigation, as her background in psychiatric care has given her a unique insight into how the field of psychology interacts with our legal system.

Sources:

16 C.F.R. & sect; 255.0-2

15 U.S.C.A. & sect; 45 (West)

Ashley Luong, All That Glitters Is Gold: The Regulation of Hidden Advertisements and Undisclosed Sponsorships in the World of Beauty Social Media Influencers, 11 Wm. & Mary Bus. L. Rev. 565, (2020).

Aimee Khuong, Complying with the Federal Trade Commission’s Disclosure Requirements: What Companies Need to Know When Using Social-Media Platforms As Marketing and Advertising Spaces, 13 Hastings Bus. L.J. 129, (2016).

Image Sources:

Influencer Marketing – https://www.google.com/imgres?q=influencer%20marketing&imgurl=https%3A%2F%2Fwww.legalandcreative.com%2Fwp-content%2Fuploads%2F2019%2F03%2Finfluencer-marketing-596×300.jpg

Khloe Kardashian Image – https://oscwebdesign.biz/social-media-influencer-marketing/

FTC Logo Image – https://www.google.com/imgres?q=federal%20trade%20commission&imgurl=https%3A%2F%2Feconomie.fgov

By: Barry Howard

From the early twentieth century, with such vibrant economic enclaves like Tulsa’s Greenwood district or “Black Wall Street”, Black entrepreneurship has been in no short supply. However, this entrepreneurial spirit has been stymied by systemic disinvestment, red-lining, and predatory lending, among many other vices of racial prejudice. Black business owners have become fewer in size and vitality. We are here to investigate why that is. But before we start, we must know our history.

to know the past is to control the future

The nation’s first, government-subsidized, bank serving formerly enslaved African-Americans was the Freedmen’s Savings Bank, established in 1865. Despite a rather notable rise, the Freedmen’s Savings Bank was bankrupted in under a decade, partly due to issues regarding the investments of its managers. Quite long after, other banks sprung up–––though this time, Black owned. The first of them: the True Reformers Bank, chartered in March of 1888. From this period into the early twentieth century, black businesses began to boom. According to reports from the National Negro Business League, the period between 1900-1930 saw the most vigorous uptick of black-owned business and trade––with its biggest leap from 20,000 businesses in 1900 to 40,000 in 1914¬¬––an increase of one-hundred percent, making it the “Golden Era of Black Business”, according to historian, Juliet Walker. Black barbers, shoemakers, merchants, dressmakers, undertakers, and restaurateurs were ironically thriving under the enmity of Jim Crow. However, as the paradox suggests, as society began to integrate, the black dollar began to depreciate. Some cite the increasing industrialization of America’s urban centers as the source of this shift.

Through this Post-Depression “New Deal” period blacks were locked out of opportunities to acquire capital to either salvage or sew new seeds of economic growth. Much to our collective shame, these practices continually subsist. Studies indicate that black entrepreneurs receive disproportionately less venture or “start-up” capital than their white counterparts. This trend may be due, also, to financial illiteracy, distrust of financial institutions, and overall lack of notable representation. There is a laundry list of reasons why things are not as they should be. But, what if I told you how better things could become? Banking Black. If black bank account-holders were to re-collateralize their assets with Black-owned banks, this could yield far greater dividends. According to data from the 2021 Home Mortgage Disclosure Act, 15.3% of black Americans were denied mortgages, compared to 6.3% for non-Hispanic white Americans. This is consistent with Black-owned banks comprising less than 1% of all U.S. Banking Systems and only 7.53% of credit unions. Discrimination in lending has been a long practice. Despite similar creditworthiness, Blacks often are rejected access to loans at well over twice the rate than whites.

Alternatively, Black-owned banks have provided mortgages, loans and accounts to those who would otherwise have no services. However, despite black-owned banks service to a majority minority clientele, they are still dwarfed by the overwhelming mass of mainstream lending institutions like–––Bank of America, Citi, Wells-Fargo and JP Morgan Chase. The “Big Four” or, the largest transnational banking institutions in the world, have the most sordid histories of discriminatory practices. From the days of the Antebellum era, institutions like Wells Fargo, mortgaged enslaved Africans as collateral for loans advanced to insolvent southern planters. This legacy has marred the reputation of these institutions.

the way forward

The appropriate financial response to these historic and present day abuses would be an exodus of aspiring black business-owners to more localized, community banks. This will relieve tens of thousands of black barbers, beauticians, nail-techs, fashion designers, and retailers who’ve had to beg their families, churches and communities to do what essentially is the job of a bank or lending institution. This practice underscores the increasing deficit of underbanked and underserved black communities. Big Banks have the benefit of government and private subsidies that have allowed them to endure beyond many devastating financial crises. Black banks have not similarly had this luxury. In fact, the total number of Black-owned banks has steadily decreased since the turn of the last century. With 48 federally recognized black banks existing in 2001 being shrunk to only 20 banks, as of September of 2022. Lest we forget, there are over 4,000 banks insured by the Federal Deposit Insurance Corp, or FDIC. However, despite this discouraging shortfall, there are black-owned banks currently existing¬¬–––the largest being City First Bank in Washington, D.C.––and other non-federally recognized, Black owned “Fintech” banks that are increasingly gaining popularity in the minority-focused banking sector.

if at first you don’t succeed…dust yourself off and withdraw your deposit account

However, the reality remains that most black Americans are not “banking black.” With such creative solutions like Church/community credit unions and even credit unions for members of intercollegiate, social fraternities and sororities, the black entrepreneur may have a path forward. Beyond this, it is incumbent on the aspiring entrepreneur to understand corporate housekeeping and business formation. Many organizations may elect to classify themselves as not-for-profit or B-corps, which may insulate them from some tax liability. This information can be found in your local Department of State. Sifting through the minutiae of these documents can prove burdensome to the untrained eye. The National (negro) Bar Association (NBA) could establish a network of black business attorneys, tax associates, and financial analysts to demystify the jargon and ease the transition of business formation. This is sure to stimulate the black economy and return the black dollar to the black community.

Despite companies such as Netflix and PayPal pledging millions into Black-led financial institutions ,which although noble, accounts for only 2% of their cash-holdings. There must be a greater sense of societal urgency to move the black dollar forward. The banking public need also be disabused of the misconception that Black-owned banks only lend to minorities. If the multiple diversity, equity and inclusion branches of large corporate conglomerates were incentivized to invest low-cost, low-interest business loans with Black banks and businesses, we may expect to see a steady increase in black business owners acquiring start-up capital. This will restore communal trust in black businesses. From then on, black economic success is almost sure to follow. But until we begin to think black, we cannot bank black.

This post has been reproduced and updated with the author’s permission. It can be found here.

Barry Howard recently graduated from Penn State Dickinson Law in Carlisle, Pennsylvania. He is originally from Jackson, Mississippi and received his undergraduate degree from Tuskegee University.

Sources:

https://www.bankrate.com/banking/how-to-support-black-owned-banks/

https://www.forbes.com/advisor/banking/black-owned-banks/

https://www.nerdwallet.com/article/banking/black-owned-banks-and-credit-unions

Month: July 2024

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