Their lines of work are as different as can be: an HVAC and electrical contractor, a flooring seller, and a company that takes people on horseback rides. But according to the FTC, they have one thing in common. They all violated the Consumer Review Fairness Act. Read on for details about the FTC’s first cases solely enforcing the CRFA, the form contract provisions the FTC says contravened the law, and tips for keeping your contracts CRFA-compliant.
Passed unanimously in 2016, the Consumer Review Fairness Act makes it illegal for companies: 1) to use provisions in form contracts that restrict a consumer’s ability to communicate reviews or performance assessments about a seller’s goods, services, or conduct; or 2) to impose a penalty or fee against a consumer who engages in communications of that nature. You’ll want to read the three complaints for the specific contract provisions the FTC alleges violated the statute, but here are examples of what landed the proposed respondents on the CRFA radar screen.
Pittsburgh-based A Waldron HVAC used a “confidentiality clause” in its form contracts that – among other things – imposed “the actual amount of damages suffered or two times the contract price” if a consumer told anyone about the terms of the contract. In addition, the clause provided that “Customer also agrees not to file any complaints with the Better Business Bureau.”
National Floors Direct, a Massachusetts company, included a “non-disparagement” clause in its form contracts that imposed financial penalties “not to exceed three times the monetary value of this order, plus attorney’s fees” if consumers “publicly disparage or defame National Floors Direct in any way or through any medium.”
Then there’s LVTR LLC, which consumers may know as Las Vegas Trail Riding. Among other things, their form contract included this provision: “I agree not to call Animal Control or any governmental agency or individuals if there is a discrepancy to how the horses/ animals or property are taken care of.” If consumers “report anything” or make contact with “any persons or agency,” the form contract said the company would assess “a minimum of $5,000 in damages” and hold them “responsible for all fines” and the cost of “our legal representation.”
The three proposed administrative settlements include provisions to ensure CRFA compliance in the future. The agreements with A Waldron HVAC and National Floors Direct require them to notify customers by email or letter that the contract provisions challenged in the complaint are void. LVTR must post a web notice for one year announcing that its non-disparagement provision is void. Once the proposed settlements appear in the Federal Register, the FTC will accept public comments for 30 days.
What can other companies do to stay within the CRFA?
Review your form contracts. Has it been a minute since you’ve read your form contracts? What do they say about consumer reviews or other communications covered by the CRFA? And where did the language come from in the first place? If you haven’t given your contracts the once-over since the CRFA took effect on March 14, 2017, it’s time to take a closer look. Read Consumer Review Fairness Act: What Businesses Need to Know to review the basics.
The FTC and states can enforce the CRFA whether or not a company follows through on its threats. You’ve probably seen press reports about companies that have tried to enforce illegal provisions against consumers. It’s not the kind of publicity any business wants. But it’s a mistake to think you’re in the clear if you include those provisions in form contracts, but haven’t followed through against consumers. The CRFA establishes that the existence of an illegal contract provision alone could subject a company to a federal or state enforcement action – and the consequences can go beyond FTC or court orders. Companies can be subject to financial penalties for knowing violations of the CRFA.
The FTC Act also applies. Courts have looked at companies’ practices related to consumer reviews through the lens of the FTC Act’s prohibition on unfair or deceptive practices. Of course, companies should comply with the Consumer Review Fairness Act, but questionable conduct also can be challenged under Section 5 of the FTC Act.