Is a customer testimonial or success story an earnings claim?

It can be, and FTC orders define the term that way. The stipulated order as to Brandon Boyd defines an earnings claim to include success stories, endorsements, and testimonials about the performance or profitability of representatives, endorsers, instructors, or customers. In the Growth Cave matter, the FTC's amended complaint alleged that testimonials presented as coming from clients came from Growth Cave employees, and that the presenters never disclosed that fact or the percentage of purchasers who reach the stated income.

Does a claim have to state a dollar figure to be an earnings claim?

An implied claim can qualify, as long as the message conveys a specific level or range of earnings. The Business Opportunity Rule's definition reaches statements from which a prospective purchaser can reasonably infer a minimum level of income, such as “earn a six-figure income.” The FTC explained that the Rule is not limited to express claims because implied claims are at least as likely to mislead prospective purchasers as express ones. In an appellate brief, the FTC went further and argued that prompting a consumer to state an earnings goal and then persuading him it is attainable is the functional equivalent of an express earnings claim.

Does a small-print disclaimer like “results vary” fix an earnings claim?

Not when the overall message still promises substantial earnings; a disclaimer is weighed as part of the net impression, and it is only as good as its ability to correct that message. In a memorandum supporting a preliminary injunction, the FTC argued that “Results vary” mouseprint was wholly ineffective because it failed to correct the overall message of the advertisements. A court reached a different result on a summary-judgment record about Response's training programs, finding a genuine dispute over net impression partly because the defendants produced evidence that their disclosures and disclaimers kept some consumers from expecting substantial income. Under the Business Opportunity Rule, a seller also may not disclaim, or require a purchaser to waive reliance on, any statement in a required disclosure document or attachment.

Is an “up to” hourly figure an earnings claim, and what has to back it up?

The FTC has treated “up to” figures as earnings claims that need evidence behind them, though how much evidence is enough is contested. The Arise complaint alleged that “up to $18 per hour” ads were false when the hourly base pay for 99.9% of agents was below $18. Commissioner Ferguson has described the Commission's position since 2012 as requiring advertisers using “up to” claims to demonstrate that consumers are “likely to achieve” the promised performance. The Arise stipulated order, for its part, requires substantiation that future “up to” claims are typical for consumers similarly situated to those to whom the claim is made. Even so, in the same matter Commissioner Ferguson withheld judgment on what Section 5 requires, noting that the Commission appears to have articulated at least three inconsistent standards.

What if we make no earnings claim at all?

Then the disclosure document says so, and the sales staff has to stay consistent with it. A seller that makes no earnings claim checks the “no” box. A seller that checks “no” but in fact makes an earnings claim would violate Section 5 and be subject to civil penalties, as a DOJ representative noted at the FTC's June 1, 2009 workshop. The regulation separately bars any oral, visual, or written claim that contradicts the required disclosures.

Do these earnings-claim rules apply to every business that advertises income?

Only when the sale is a business opportunity as the regulation defines it, though Section 5 reaches false or unsubstantiated earnings claims either way. A business opportunity is an arrangement in which a seller solicits a new business, the purchaser makes a required payment, and the seller represents that it will provide locations, outlets, accounts, or customers (or buy back the purchaser's goods or services). The regulation does not apply to a business opportunity that is a “franchise” under the Franchise Rule, subject to stated exceptions. Outside that scope, false or unsubstantiated earnings claims remain deceptive and unlawful under Section 5.

OpportunityLegal test

Earnings claim

Also known as "Lifestyle claim" or "Hypothetical / “up to” income"

Berkeley Robinson, Managing Attorney at Robinson Law Firm PLLC

Author

Berkeley Robinson, Esq.

Managing Attorney, Robinson Law Firm PLLC

Berkeley has served as the go-to counsel for many scaling businesses in a transactional and litigation management capacity. Before becoming an attorney, Berkeley grew sales teams, ran online marketing campaigns, and did everything else an entrepreneur does—and still does today as the founder of two online businesses.

Definition

An earnings claim is any oral, written, or visual representation to a prospective purchaser that conveys, expressly or by implication, a specific level or range of actual or potential sales, or gross or net income or profits. Source: 16 C.F.R. § 437.1 That meaning includes a chart, table, or mathematical calculation showing possible results, and any statement from which a prospective purchaser can reasonably infer a minimum level of income, such as “earn a six-figure income.” Source: 16 C.F.R. § 437.1 Some FTC orders define the term more broadly, to cover any representation, specific or general, about income, revenues, financial gains, profit, or return on investment. Source: Ex Parte Temporary Restraining Order With Asset Preservation, Appointment of a Temporary Monitor, and Other Equitable Relief, and Order to Show Cause Why a Preliminary Injunction Should Not Be Issue [Unsealed]

Key legal rules

Because an earnings claim is still a claim, it has to be truthful and substantiated. Seven rules put that to work for business opportunities:

A seller may not make an earnings claim to a prospective purchaser unless it has a reasonable basis for the claim and written materials substantiating it when the claim is made, makes that written substantiation available on request to the purchaser and the Commission, and furnishes the purchaser an earnings claim statement. Source: 16 C.F.R. § 437.4
The earnings claim statement must be a single written document titled “EARNINGS CLAIM STATEMENT REQUIRED BY LAW” that names who made the claim and when, states the claim, and, among other required content, gives the dates the represented earnings were achieved and the number and percentage of all purchasers who achieved at least the stated level. Source: 16 C.F.R. § 437.4
The seller must furnish the earnings claim statement in writing at least seven calendar days before the earlier of the purchaser signing a contract or making a payment, and must notify the purchaser in writing of any material changes affecting the relevance or reliability of that statement before the purchaser signs or pays. Source: 16 C.F.R. § 437.2
A seller making an earnings claim in the general media must have a reasonable basis and written substantiation, and must state in immediate conjunction with the claim the beginning and ending dates of the represented earnings and the number and percentage of purchasers who achieved at least that level. Source: 16 C.F.R. § 437.4
A seller may disseminate industry financial, earnings, or performance information only if it has written substantiation that the information reflects, or does not exceed, the typical or ordinary experience of purchasers of the business opportunity being offered. Source: 16 C.F.R. § 437.4
On the disclosure document, a seller that makes an earnings claim must check the “yes” box and attach the earnings statement (or check “no” if it makes none), and a seller may not make any oral, visual, or written claim that is inconsistent with or contradicts the information required in the disclosure document and the earnings claims document. Source: 16 C.F.R. § 437.3
Business opportunity sellers and their principals must keep, for three years and available for inspection by Commission officials, all substantiation the seller relies on for each earnings claim from the time the claim is made. Source: 16 C.F.R. § 437.7

For the sake of space, this page lists only the primary rules related to this term that most businesses should follow. More may apply to your situation, and your unique facts affect how they apply.

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Why these rules exist

Earnings claims get their own rules because they drive the purchase: in the Commission's experience they are typically the single most decisive factor in an investment decision and lie at the heart of business opportunity fraud. Source: Business Opportunity Rule, Statement of Basis and Purpose Because buyers take a stated figure at face value, a false or invented number moves their money before anyone has checked it. Source: Business Opportunity Rule, Statement of Basis and Purpose The substantiation duty addresses that by requiring the proof to exist in writing when the claim is made, while a buyer or the Commission needs to receive it only on request. Source: Business Opportunity Rule, Statement of Basis and Purpose

The required dates and the number and percentage of purchasers who reached the claimed level let a prospect test whether the claim is typical. A seller may advertise average earnings of $50,000 a year, yet a few unusually high earners can skew that average, so the share of purchasers actually earning $50,000 might be very low. Source: Business Opportunity Rule, Statement of Basis and Purpose The written statement also gives the buyer something to hold against what a salesperson says aloud, since the disclosures are meant to arouse suspicion when an earnings claim is made orally but disclaimed in writing. Source: Business Opportunity Rule, Statement of Basis and Purpose

Enforcement examples

FTC v. Nationwide and Transnet (kiosk business venture)

Order and Opinion Granting Plaintiff's Motion For Summary Judgment

Defendants directed prospective purchasers to a website whose charts depicted the earnings consumers were projected to make. Source: Order and Opinion Granting Plaintiff's Motion For Summary Judgment They explained that each kiosk made money based on the number of transactions at the kiosk, and the chart converted the daily transaction range salespeople quoted into net profits of $3,960 to $33,120 per kiosk per year. Source: Order and Opinion Granting Plaintiff's Motion For Summary Judgment Sales scripts added figures of their own, such as a $20,652 annual net profit on each machine. Source: Order and Opinion Granting Plaintiff's Motion For Summary Judgment The defendants also failed to disclose the number and percentage of prior purchasers known to have achieved the same or better results, and gave purchasers no earnings claim document substantiating the claims. Source: Order and Opinion Granting Plaintiff's Motion For Summary Judgment

Outcome. None of the 31 consumers who gave declarations achieved earnings close to those the defendants promised, as the court recounted in its order granting the FTC summary judgment. Source: Order and Opinion Granting Plaintiff's Motion For Summary Judgment

FTC v. Chris Taylor and Medical Billers Network, Inc. (medical billing work-at-home opportunity)

Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendants Chris Taylor and Medical Billers Network, Inc., and Relief Defendant Kalantaryan

In marketing a medical billing employment opportunity, Taylor and Medical Billers Network violated Section 5(a) by misrepresenting that purchasers were likely to earn a substantial income, such as $500 or more per week, according to the stipulated judgment's findings. Source: Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendants Chris Taylor and Medical Billers Network, Inc., and Relief Defendant Kalantaryan

Outcome. The order permanently enjoins them from making any statement about the earnings, income, profits, sales volume, or financial performance likely to be achieved from such an opportunity or business venture without meeting two conditions. Source: Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendants Chris Taylor and Medical Billers Network, Inc., and Relief Defendant Kalantaryan The first is having a reasonable basis for the representation at the time it is made. Source: Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendants Chris Taylor and Medical Billers Network, Inc., and Relief Defendant Kalantaryan The second is producing the materials that make up that basis to the FTC on request. Source: Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendants Chris Taylor and Medical Billers Network, Inc., and Relief Defendant Kalantaryan

FTC v. Arise Virtual Solutions (gig customer-service business opportunity)

Complaint for Permanent Injunction, Monetary Relief, and Other Relief

The FTC's complaint alleged that Arise ran search ads on Google and Bing falsely promising consumers they would earn “up to” $18 per hour working for Arise. Source: Complaint for Permanent Injunction, Monetary Relief, and Other Relief According to Arise's own data, the hourly base pay for 99.9% of its agents was below $18 while the ads were running. Source: Complaint for Permanent Injunction, Monetary Relief, and Other Relief The complaint further alleged that Arise's website posted testimonials from agents touting their ability to quit other jobs and support their families through the opportunity. Source: Complaint for Permanent Injunction, Monetary Relief, and Other Relief

Outcome. The complaint charged that Arise made earnings claims to prospective purchasers while lacking a reasonable basis, lacking written substantiation, or failing to provide an earnings claim statement, in violation of the Business Opportunity Rule. Source: Complaint for Permanent Injunction, Monetary Relief, and Other Relief

FTC v. Lyft, Inc. (rideshare driver recruitment)

Complaint for Permanent Injunction, Civil Penalty Judgment, and Other Relief

The complaint alleged that Lyft widely disseminated inflated hourly earnings claims in web search ads, on social media, on job boards, and on its website. Source: Complaint for Permanent Injunction, Civil Penalty Judgment, and Other Relief One Facebook or Instagram ad read “Drivers Earn Up to $42/hr in Boston.” Source: Complaint for Permanent Injunction, Civil Penalty Judgment, and Other Relief The figures came from the 80th percentile of hourly earnings in each region, so only one in five drivers earned the quoted amounts even by Lyft's own calculations. Source: Complaint for Permanent Injunction, Civil Penalty Judgment, and Other Relief Where the ads carried small-print language that earnings were not indicative of any specific driver's, the complaint said consumers were unlikely to read it given its size, lack of prominence, and legalistic wording. Source: Complaint for Permanent Injunction, Civil Penalty Judgment, and Other Relief

Outcome. The complaint alleged that the vast majority of drivers were not likely to achieve the hourly figures in the ads. Source: Complaint for Permanent Injunction, Civil Penalty Judgment, and Other Relief

FTC v. Click Profit (e-commerce store business opportunity)

Plantiff's Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

The FTC's complaint alleged that Click Profit's social media and search ads promoted a “Fully Automated Turn-Key Ecom Brand” that would generate “insane returns” of tens to hundreds of thousands of dollars in sales per month. Source: Plantiff's Complaint for Permanent Injunction, Monetary Judgment, and Other Relief It also alleged that these general-media claims omitted the beginning and ending dates of the represented earnings and the number and percentage of purchasers who achieved them. Source: Plantiff's Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

Outcome. The complaint alleged that the majority of consumers did not earn anywhere close to the promised income and instead lost money. Source: Plantiff's Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

FTC and State of Florida v. Rivodo (RivX trucking automation business opportunity)

Default Final Judgment and Order for Permanent Injunctive Relief, Monetary Judgment, and Other Relief Against Defendants Antonio Rivodo, et al.

The complaint alleged that the RivX defendants frequently promised consumers an average of $5,000 to $7,000 in net income each month from their trucking automation business opportunity. Source: Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

Outcome. After the defendants defaulted, the court found that they made earnings claims while lacking a reasonable basis, lacking written substantiation, or failing to provide an earnings claim statement, in violation of the Business Opportunity Rule. Source: Default Final Judgment and Order for Permanent Injunctive Relief, Monetary Judgment, and Other Relief Against Defendants Antonio Rivodo, et al. The judgment permanently bars the defaulting defendants from creating, advertising, or selling any Business Opportunity or Investment Opportunity. Source: Default Final Judgment and Order for Permanent Injunctive Relief, Monetary Judgment, and Other Relief Against Defendants Antonio Rivodo, et al. It also entered a monetary judgment of $8,390,025.99 against them, jointly and severally. Source: Default Final Judgment and Order for Permanent Injunctive Relief, Monetary Judgment, and Other Relief Against Defendants Antonio Rivodo, et al.

Exposure

A violation of the Business Opportunity Rule's earnings-claim provisions is also an unfair or deceptive act or practice under Section 5 of the FTC Act. Source: 16 C.F.R. § 437.4 In the RivX matter, the court entered an $8,390,025.99 judgment against the defaulting defendants, jointly and severally. Source: Default Final Judgment and Order for Permanent Injunctive Relief, Monetary Judgment, and Other Relief Against Defendants Antonio Rivodo, et al. The same order permanently bars them from creating, advertising, or selling any Business Opportunity or Investment Opportunity. Source: Default Final Judgment and Order for Permanent Injunctive Relief, Monetary Judgment, and Other Relief Against Defendants Antonio Rivodo, et al.

Settlement orders can attach very large judgments and then suspend most of them. The stipulated order against Traffic and Funnels and related defendants first bars them from making or assisting others in making earnings claims, directly or indirectly, expressly or by implication, unless stated conditions are met. Source: Stipulated Order For Permanent Injunction, Monetary Judgment, and Other Relief as to Defendants Traffic and Funnels, LLC, et al. It then enters a $16,363,073.11 judgment against several of them, jointly and severally. Source: Stipulated Order For Permanent Injunction, Monetary Judgment, and Other Relief as to Defendants Traffic and Funnels, LLC, et al. On payment of the amount due under the order, the remainder of the judgment is suspended. Source: Stipulated Order For Permanent Injunction, Monetary Judgment, and Other Relief as to Defendants Traffic and Funnels, LLC, et al. That suspension is expressly premised on the truthfulness, accuracy, and completeness of the settling defendants' sworn financial statements. Source: Stipulated Order For Permanent Injunction, Monetary Judgment, and Other Relief as to Defendants Traffic and Funnels, LLC, et al. In Mazzoni, a final order likewise awarded the FTC a $17,660,000 judgment, suspended subject to conditions. Source: Mazzoni & Sons, et al Stipulated Final Judgment and Order for Permanent Injunction As to All Defendants

Individuals face exposure alongside their companies. In an appellate brief, the FTC stated that an individual is personally liable for corporate violations of the FTC Act if he participated in the challenged practices or had authority to control them. Source: 2014-02_hoskins_9cir_ftcbrief The same brief describes a judgment holding an individual jointly and severally liable for $130 million in a business coaching case. Source: 2014-02_hoskins_9cir_ftcbrief Orders can also close a field to an individual altogether, as one did for defendant Michele Graham. Source: Stipulated Final Judgment and Order for Permanent Injunction and Other Equitable Relief Another order conditioned defendant Lind's future sale of any franchise, business opportunity, or business venture on first obtaining a performance bond of not less than $250,000. Source: Final Judgment (Hi Tech Mint Systems, Inc., Ron DePung, and Lawrence Lind)

FAQs

1.16 CFR 437.1. 16 C.F.R. § 437.1
2.16 CFR 437.1. 16 C.F.R. § 437.1
3.Ex Parte Temporary Restraining Order With Asset Preservation, Appointment of a Temporary Monitor, and Other Equitable Relief, and Order to Show Cause Why a Preliminary Injunction Should Not Be Issue [Unsealed]. Ex Parte Temporary Restraining Order With Asset Preservation, Appointment of a Temporary Monitor, and Other Equitable Relief, and Order to Show Cause Why a Preliminary Injunction Should Not Be Issue [Unsealed]