Is a statement safe if every word of it is literally true?

No, not if it leaves consumers with a misleading expectation that the omitted information would have corrected. Omissions may be deceptive where the representations made are not literally misleading, if those representations create a reasonable expectation or belief among consumers which is misleading, absent the omitted disclosure.

Does the FTC treat a fee that is disclosed only after the customer has paid as a material omission?

Yes. A cost the customer will bear is presumed material, so it has to be disclosed. In the BlueHippo proceeding, the district court held that because shipping, handling, and taxes increased the overall cost of merchandise, those costs were material and should have been clearly and conspicuously disclosed to consumers.

Does a business have to disclose everything a customer might want to know?

No. A business has to disclose only information that is material and needed to keep the claim or the consumer’s reasonable expectation from being misleading. A misleading omission is defined by reference to qualifying information necessary to prevent a practice, claim, representation, or reasonable expectation or belief from being misleading.

DeceptionLegal test

Material omission

Q: Do I have to tell customers that a purchase enrolls them in a recurring-charge program?

Yes, enrollment in a recurring-charge program has to be made known, and putting it in the fine print is not enough. In FTC v. Jason Cardiff, the court held that failing to inform consumers that they will be enrolled in an autoship program that includes monthly charges is a material omission likely to mislead reasonable consumers.

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

In consumer protection law, a material omission is a failure to disclose qualifying information, necessary to prevent a practice, claim, representation, or reasonable expectation or belief from being misleading, that is likely to affect a person’s choice of, or conduct regarding, goods or services. Source: Commercial Alert Request Regarding Deceptive Buzz Marketing, § B (quoting FTC Deception Policy Statement, footnote) To be deceptive, the omission must also be likely to mislead consumers acting reasonably under the circumstances, to their detriment. Source: Plaintiff’s Memorandum in Support of Its Ex Parte Motion for Temporary Restraining Order with Asset Freeze, § B.1 (citing 15 U.S.C. § 45)

Key legal rules

These are the main rules that apply when a business leaves material information out of a sale:

The omission of material information is itself a violation of Section 5 of the FTC Act, even in the absence of express falsehoods. Source: Plaintiff’s Memorandum in Support of Its Ex Parte Motion for Temporary Restraining Order with Asset Freeze, § B.1 (citing 15 U.S.C. § 45)
An act or practice is deceptive under Section 5(a) if it involves a material representation or omission that is likely to mislead consumers, acting reasonably under the circumstances, to their detriment. Source: Plaintiff’s Memorandum in Support of Its Ex Parte Motion for Temporary Restraining Order with Asset Freeze, § B.1 (citing 15 U.S.C. § 45)
In determining whether an omission is deceptive, the Commission examines the overall impression created by the practice, claim, or representation. Source: Commercial Alert Request Regarding Deceptive Buzz Marketing, § B (quoting FTC Deception Policy Statement, footnote)
Omissions may also be deceptive where the representations made are not literally misleading, if those representations create a reasonable expectation or belief among consumers which is misleading, absent the omitted disclosure. Source: Commercial Alert Request Regarding Deceptive Buzz Marketing, § B (quoting FTC Deception Policy Statement, footnote)
Information is material when it is likely to affect a person’s choice of, or conduct regarding, goods or services. Source: FTC brief, BlueHippo Consent Order contempt (Rensin appeal), Argument § 2
Information concerning cost is presumed material. Source: FTC brief, BlueHippo Consent Order contempt (Rensin appeal), Argument § 2

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.

Send us a message through our online form to talk through yours.

Send a message

Response within 24 hours

Why these rules exist

A buyer can weigh only what the seller reveals, so an omitted fact that bears on price or on what the buyer will actually receive leaves the buyer deciding on a false picture. The duty to disclose puts that fact in front of the buyer before the money changes hands. In the BlueHippo contempt proceeding, the FTC argued that the store-credit terms had to be disclosed before any payment because store credit was likely the only benefit most customers would ever get for what they paid. Source: FTC brief, BlueHippo Consent Order contempt (Rensin appeal), Argument § 2

The same logic explains why the harm is measured from the start of the transaction: if customers had known the truth, they might not have bought at all. The FTC cited decisions reasoning exactly that way. Source: FTC brief, BlueHippo Consent Order contempt, § B (injury caused by a widespread material omission)

Enforcement examples

FTC v. Jason Cardiff (autoship program)

FTC v. Jason Cardiff, et al., summary judgment order (Dkt. 511)

In FTC v. Jason Cardiff, online customers were enrolled by default into an autoship program with no notice of enrollment at the checkout page, and the autoship terms were buried in the terms and conditions section of the website. Source: FTC v. Jason Cardiff, et al., summary judgment order (Dkt. 511), § B.e The program went unmentioned in person as well: when an FTC investigator bought TBX-FREE undercover, he was not told about the autoship program. Source: FTC v. Jason Cardiff, et al., summary judgment order (Dkt. 511), § B.e The FTC also submitted testimony of former Redwood employees indicating that Jason instructed them not to disclose the autoship program and that, when they did mention it, they falsely reassured customers they would not be enrolled. Source: FTC v. Jason Cardiff, et al., summary judgment order (Dkt. 511), § B.e

Outcome. The court held that failing to inform consumers that they will be enrolled in an autoship program that includes monthly charges is a material omission that is likely to mislead reasonable consumers. On that basis it granted summary judgment on Counts 10 and 11 for violations of Sections 5(a) and 12 of the FTC Act. Source: FTC v. Jason Cardiff, et al., summary judgment order (Dkt. 511), § B.e

FTC v. BlueHippo (computer layaway and store credit)

FTC reply brief, BlueHippo Consent Order contempt (Rensin appeal)

BlueHippo enticed consumers with very poor credit into a transaction in which they could buy a computer only if they met stringent payment requirements. Most could not, so store credit was usually the only way to get anything for the money paid. Source: FTC brief, BlueHippo Consent Order contempt (Rensin appeal), Argument § 2 The district court found that BlueHippo failed to disclose that consumers would need to pay additional amounts for shipping and handling fees and taxes before receiving any store credit merchandise, that money already paid did not cover those expenses, and that consumers could order only one item at a time and would pay the expenses on each item. Source: FTC brief, BlueHippo Consent Order contempt (Rensin appeal), Argument § 2

Outcome. As the FTC’s appellate brief describes the ruling, the district court held that BlueHippo violated the Consent Order by failing to disclose three material conditions of its store credit refund policy. The court concluded that those conditions were material because they increased the cost of store credit, and that they should have been disclosed before any payment was received. Source: FTC brief, BlueHippo Consent Order contempt (Rensin appeal), Argument § 2

FTC v. Agora Financial, LLC (income-opportunity book)

Agora Financial, LLC: Complaint for Permanent Injunction and Other Equitable Relief, Count IV

In the Agora Financial complaint, the Congressional Checks Defendants are alleged to have represented, directly or by implication, that consumers could collect hundreds to thousands of dollars per month by following the instructions in the book Congress’ Secret $1.17 Trillion Giveaway. Source: Agora Financial, LLC: Complaint for Permanent Injunction and Other Equitable Relief, Count IV The complaint further alleges that they failed to disclose that consumers must spend tens of thousands to hundreds of thousands of dollars to collect the promised amounts. Source: Agora Financial, LLC: Complaint for Permanent Injunction and Other Equitable Relief, Count IV

Outcome. The complaint alleges that, in light of the earnings representation, the failure to disclose that material information is a deceptive act or practice in violation of Section 5(a) of the FTC Act. Those are allegations in a complaint, not findings. Source: Agora Financial, LLC: Complaint for Permanent Injunction and Other Equitable Relief, Count IV

Exposure

A business that omits material information can be held liable without a trial if it cannot show the disclosures were actually made. In FTC v. Jason Cardiff, the defendants offered no evidence beyond general denials that they made the required disclosures, and the court found no genuine dispute of material fact. Source: FTC v. Jason Cardiff, et al., summary judgment order (Dkt. 511), § B.e The court then granted summary judgment on the autoship counts. Source: FTC v. Jason Cardiff, et al., summary judgment order (Dkt. 511), § B.e

The financial stakes can reach the money consumers paid. In the BlueHippo contempt proceeding, which involved a Consent Order, the Commission sought $14,062,627.51 in compensation for 55,892 orders placed by consumers who paid and received nothing, based on the failure to disclose the store credit terms. Source: FTC brief, BlueHippo Consent Order contempt, § B (injury caused by a widespread material omission) The FTC argued that, where a material omission is widespread, each consumer is presumed to have relied on it and been injured. Source: FTC brief, BlueHippo Consent Order contempt, § B (injury caused by a widespread material omission) On that footing, the Commission argued, gross receipts minus refunds and fulfilled orders provide a reasonable approximation of consumer injury. Source: FTC brief, BlueHippo Consent Order contempt, § B (injury caused by a widespread material omission) That was the Commission’s position on appeal, not an entered award.

FAQs

1.Commercial Alert Request Regarding Deceptive Buzz Marketing. Commercial Alert Request Regarding Deceptive Buzz Marketing, § B (quoting FTC Deception Policy Statement, footnote)See also Corel Office Document. FTC brief, BlueHippo Consent Order contempt (Rensin appeal), Argument § 2
2.Plaintiff’s Memorandum in Support of Its Ex Parte Motion for Temporary Restraining Order with Asset Freeze, Expedited Discovery, and Other Equitable Relief, and Order for Defendants to Show Cause Why a Preliminary Injunction Should Not Issue. Plaintiff’s Memorandum in Support of Its Ex Parte Motion for Temporary Restraining Order with Asset Freeze, § B.1 (citing 15 U.S.C. § 45)
3.Plaintiff’s Memorandum in Support of Its Ex Parte Motion for Temporary Restraining Order with Asset Freeze, Expedited Discovery, and Other Equitable Relief, and Order for Defendants to Show Cause Why a Preliminary Injunction Should Not Issue. Plaintiff’s Memorandum in Support of Its Ex Parte Motion for Temporary Restraining Order with Asset Freeze, § B.1 (citing 15 U.S.C. § 45)See also Corel Office Document. FTC brief, BlueHippo Consent Order contempt, § B (injury caused by a widespread material omission)