A. This company just settled a case with the FTC for Do Not Call violations and deceptive promises that its purported educational products would improve kids’ grades and standardized test scores.
Q. What is WordSmart?
San Diego-based WordSmart Corporation claimed its products would boost grades, test scores, and IQs. The company guaranteed concrete results, promising to improve kids’ GPAs by at least one point, SATs by at least 200 points, ACTs by at least four points, and GRE and GMAT scores by 100 points or more. But according to the FTC, WordSmart flunked Substantiation 101 and didn’t have proof to support those representations, which were conveyed to consumers through the company's website, telemarketing, direct mail, and an infomercial featuring Alex Trebek.
It also appears that WordSmart treated Truthful Promotional Practices as an elective. In cold calls to parents, WordSmart's reps referred to people’s children by name and falsely said the kids had expressed interest in the products. The defendants also claimed a bogus affiliation with the child’s school or with administrators of standardized tests like the SAT.
The company didn’t score any higher in Basic Telemarketing Compliance because the defendants placed many of those calls to numbers on the National Do Not Call Registry. What happened when consumers expressly told WordSmart to stop contacting them? The calls just kept on coming, in violation of the TSR’s entity-specific Do Not Call provisions. The FTC also says the defendants violated the TSR by failing to connect a consumers to a sales rep within two seconds, resulting in those annoying abandoned calls.
According to the complaint – which names the corporation and company president David A. Kay – the defendants also were deficient in Refund-amentals. The company advertised a “100% Money Back 30-Day Guarantee,” but when consumers tried to exercise that right, WordSmart imposed undisclosed prerequisites. For example, some buyers were told they had to use specific portions of the software and complete a set number of training modules first. The defendants set up so many refund roadblocks that some buyers complained to law enforcement agencies, their credit card companies, and the Better Business Bureaus.
The FTC settlement permanently prohibits WordSmart and Kay from making a host of misrepresentations and from violating the Telemarketing Sales Rule. In addition, the order prohibits themfrom selling or benefiting from consumers’ personal information. Due to the company’s financial condition, the $18.7 million judgment will be suspended when they have paid $147,400.
What’s the lesson plan for other companies?
When it comes to learning claims, do your homework first. WordSmart is the latest in a series of FTC actions challenging deceptive representations about cognition, learning, memory, etc. Before making objective claims about your products, have appropriate proof in hand. “The dog ate my substantiation” is no more effective now than it was in grade school.
Do Not Call covers everything from the Atlantic to the specific. The FTC remains committed to Do Not Call compliance. Even if a number isn’t on the Registry, companies have to honor a consumer’s request not to call again by placing the number on their entity-specific Do Not Call list. Looking for guidance on the TSR? The Business Center has free resources.
Review your refund procedures. There's a reason why so many companies advertise money-back guarantees: They can be a persuasive tool for nudging on-the-fence consumers to make a purchase. But refund representations are no different from any other advertising claim – companies need to deliver on what they promise – so it’s unwise to set up hurdles that make it tougher for consumers to exercise their rights.