On Friday, the Federal Trade Commission filed an administrative complaint against HomeAdvisor, Inc., a Denver-based based company affiliated with Angi, formerly known as Angie’s List. The complaint alleges that, since at the least the middle of 2014, HomeAdvisor has made “false, misleading, or unsubstantiated claims” about the quality and source of leads the company sells to home repair and improvement service providers, including general contractors, small business owners and gig workers, who are looking for potential customers.
“Gig economy platforms should not use false claims and phony opportunities to prey on workers and small businesses,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a March 11, 2022 statement. “Today’s administrative complaint against HomeAdvisor shows that the FTC will use every tool in its toolbox to combat dishonest commercial practices.”
Closing rates for leads lower than stated
Among the allegations is that the company, which also operates under the names Angi Leads and HomeAdvisor Powered by Angi, misled service providers about closing rates for leads. Because of these misleading and deceptive tactics, services providers spent time on leads that were not the quality leads promised. They then spent additional time trying to get refunds from HomeAdvisor for unqualified leads.
Many leads sold by HomeAdvisor were submitted by potential customers on the company’s website. HomeAdvisor bought other leads from third-party affiliates who collected data from consumers on web forms about home improvement projects they were considering. The FTC alleges that while some of the HomeAdvisor leads do result in business for their subscribers, many of them do not.
In HomeAdvisor’s FAQs, the company states they will match members with qualified homeowners who are potential customers. HomeAdvisor connects members with these leads based on a member’s preferences, and they charge the member when they send notification of the lead. HomeAdvisor states, “Leads are not guaranteed jobs. It’s up to you to win the work after you get the lead.”
Lead pricing
The company does not state how lead prices are calculated, but they say that the value of every job is different, and they try to price their leads to reflect that. They refer members to their sales representatives for current and average pricing for the types of leads a member will receive.
“If you find that the leads you’re getting aren’t relevant to you or the work you do, you can change your preferences in the app – or by contacting customer care. In some cases, you may also request to be credited the cost of a lead,” HomeAdvisor says on their website.
How service providers get leads
HomeAdvisor explains the lead process like this:
First month of “optional” mHelpDesk not free as stated
To join the HomeAdvisor network, service providers pay an annual membership fee of $287.99, plus a separate fee for each lead they receive. Service providers also have the option to pay an extra $59.99 for an optional one-month subscription to mHelpDesk, an app that helps schedule appointments and process payments. Subscribers were told the first month was free, when it was actually $59.99 for the first month and then automatically renewed until canceled.
The commission voted to issue the administrative complaint 4-0.
Other recent cases
FTC vs. Raging Bull
This is the third case in the last week where the FTC has taken action against a subscription- or membership-based company who allegedly misled customers. In one case, Raging Bull settled a case with the FTC for $2.4 million. In that complaint, the FTC alleged the company used bogus earnings claims to trick consumers into signing up for subscriptions and then trapping them into plans that were hard to cancel.
“Raging Bull’s baseless earnings claims and hard-to-cancel subscriptions cost consumers millions,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a March 8, 2022 news release. “Today’s proposed order continues the FTC’s crackdown on false earnings claims, returning millions to consumers and requiring click-to-cancel online subscriptions.”
FTC vs. iStream Financial
On March 10, the FTC settled a case with payment processor iStream Financial that helped discount clubs charge customers tens of millions of dollars without authorization. iStream Financial will pay a $2.3 million settlement and faces a permanent ban from working with high-risk clients. In this case, the FTC alleged that iStream Financial debited money from customers looking for payday or cash advance loans. They were enrolled in a bogus coupon service and charged initial fees of up to nearly $100 and as much as $19.95 per month. According to the FTC complaint, 99.5% of consumers who were illegally charged for the “discount clubs” never used any of the coupons. Tens of thousands of customers tried to call and cancel the charges, while thousands more went directly to their banks to complain.
“The order announced today bans iStream from processing high-risk payments and orders it to pay $2.3 million that can be used to provide refunds to defrauded consumers,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a statement. “Unfortunately, this amount represents a small fraction of the approximately $40 million in total losses suffered by consumers—a direct result of the Supreme Court’s decision in AMG. Without a statutory fix to restore the FTC’s strongest authority to obtain refunds, these consumers, and millions more like them, cannot be made whole.”
Increased enforcement against subscription “tricks and traps”
Last October, they issued a new 15-page enforcement policy statement outlining their requirements for subscription companies.
“Today’s enforcement policy statement makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in an October 29, 2021 news release. “Firms that deploy dark patterns and other dirty tricks should take notice.”
These three cases are evidence that FTC means business.
Insider Take
As we stated in our article about Raging Bull last week, the FTC is cracking down on subscription companies that make false or misleading claims and that use deceptive tactics. They will prosecute companies that deceive consumers through negative option marketing practices and hard-to-cancel subscriptions. To comply with FTC guidelines, the agency outlined three key requirements to avoid criminal and/or civil penalties:
- Subscription companies must clearly and conspicuously disclose all material terms of the subscription product or service.
- Subscription companies must obtain the consumer’s express informed consent before they can be charged for subscription products or services.
- Subscription companies must provide easy and simple cancellation procedures for the consumer.
