Good morning! This is the twentieth edition of the Compliance Connect newsletter.
The goal is simple: to keep you in the loop on what the FTC and other regulatory agencies are up to so that you can protect yourself.
These newsletters will land in your inbox twice a week – Mondays and Thursdays.
Remember: this is NOT legal advice, only information!
Here’s the rundown today…
- 🚗 The FTC Cracks Down on Lyft’s Earnings Claims
- 🥪 Subway Gets Sued For Being Stingy With The Meat
- 👀 Why Did The FTC Target Lyft?
- 💰 The Largest FTC Settlement
- 🤑 Why “Passive Income” Can Get You Into Trouble
Compliance Digest: What You Should Read Today
FTC Hits Lyft With $2.1M Penalty For False Earnings Claims
Lyft has agreed to pay $2.1 million to settle with the FTC after allegedly misleading drivers about potential earnings, inflating advertised hourly rates and omitting that these figures were based on the top-earning drivers.
The FTC found that Lyft also included customer tips in its earnings estimates and used confusing language around “guaranteed” promotions, leading to thousands of complaints.
The settlement requires Lyft to clarify its earnings claims and promotional language moving forward.
Subway Sued For Being Short On Meat
A class action lawsuit was filed in New York against Subway. The complaint claims that Subway sold sandwiches based on false and misleading advertising about the amount of meat in their sandwiches.
The complaint includes images taken by customers of the subs they got, along with pictures of the subs in the company’s ads.
According to the complaint, “Subway materially overstates the amount of meat in its advertisements for the Product by at least 200%”
The lawsuit claims that Subway violated New York’s Deceptive Acts and Practices Act.
Here is a link to the complaint.
Case Breakdown: Lyft
In October, Lyft reached a settlement with the FTC. The focus of the complaint were deceptive earnings claims in advertisements targeting drivers.
Here is an article from Lyft addressing the FTC’s complaint.
Lyft is a popular ride sharing app. A key part of Lyft’s business model is recruiting drivers.
Lyft promoted itself as a platform where drivers could earn substantial income.
Ads on social media, job boards, and even Lyft’s own website featured attractive hourly earnings claims, drawing many drivers into what they believed were high-earning opportunities.
The FTC accused Lyft of multiple deceptive practices in how it advertised driver earnings.
Typical Results
Lyft advertised specific hourly earnings. For example, in Los Angeles they said that drivers could “Earn up to $42/hour.”
However, these earnings were based on the top 20% of drivers, meaning the vast majority made less than advertised. It was not a typical result.
Lyft also included tips in these figures without clarifying this, misleading many drivers into thinking tips would be extra.
Misleading Earnings Guarantees
Lyft’s “Earnings Guarantee” promotions led drivers to believe they would receive bonus payments after reaching a certain number of rides.
In reality, Lyft only covered the difference if drivers fell short of the guarantee amount, and drivers who earned more than the threshold received no extra compensation.
This alleged misrepresentation frustrated drivers who expected a guaranteed bonus in addition to their regular earnings.
Settlement
The FTC and Lyft agreed to a settlement. Here are the main points…
- Lyft will pay a $2.1 million fine as part of the settlement.
- If Lyft says drivers make a certain amount, it must be based on solid evidence showing that’s true for most drivers.
- Lyft can’t say drivers make a certain amount per hour if that figure includes tips unless it’s clearly explained.
- Lyft must clearly explain any promotions that guarantee minimum earnings, especially if they aren’t bonuses.
- Lyft must notify drivers about this settlement in the app and make sure the notice is visible for 60 days so drivers can read about what’s changing.
Click here to read the full complaint
Click here to read a dissenting opinion from an FTC commissioner
Did You Know…
The largest settlement the FTC ever reached with a company was in 2019 when it settled with Facebook for $5 billion.
Quick Compliance Tip: Passive Income
For many people, passive income is the dream. Who wouldn’t want money coming in without any effort?
We see this used a lot with real estate educators, business opportunity offers and more.
It’s the kind of phrase that makes anyone who’s invested in real estate or built a business laugh.
Have you ever owned real estate? Have you ever had tenants? Have you ever dealt with brokers or contractors? It is DEFINITELY not passive!
Same with owning a business. There is no such thing as a passive business unless you inherit it and aren’t involved with running it.
It is true that when you achieve a level of success as an investor or business owner, you can go on vacation and still have money coming into your bank account.
However, getting to that point usually takes a lot of time, effort and money.
That’s not what most of your prospects think of when they hear “passive income.” They think all they have to do is use your product, get everything set up and then money starts streaming in forever.
That’s why saying something will be 100% passive or even “mostly” passive is definitely going to be a red-flag with regulators because it’s almost impossible not to create a misleading net impression about how easy it is to make money.
That’s why it comes up in cases all the time, including the recent Blueprint To Wealth case.
Big takeaway: Be careful with the phrase “passive income” and make sure you only use it with proper context.