Don’t Lead Me On: FTC Issues Complaint Against HomeAdvisor
In order for the FTC to issue an administrative complaint: (1) the FTC must have “reason to believe” that the law has been or is being violated; and (2) it must appear to the FTC that instituting a proceeding is in the public interest.
On March 11, 2022, the Federal Trade Commission (“FTC”) issued a Complaint against HomeAdvisor, Inc., also doing business as Angi Leads, also doing business as HomeAdvisor Powered by Angi (collectively, “HomeAdvisor”) (In the Matter of HomeAdvisor, Inc., a corporation, d/b/a Angi Leads, d/b/a HomeAdvisor Powered by Angi, FTC Docket No. 9407). The Complaint alleges that HomeAdvisor used deceptive business practices in relation to its members, many of whom are small business, by misleading them about the quality and source of, as well as general information about, the leads HomeAdvisor provided.
HomeAdvisor markets, advertises, offers for sale, and sells to home service providers certain products, including potential customer leads, HomeAdvisor memberships, and mHelpDesk, a software solution marketed as specifically suited for service and repair businesses. HomeAdvisor recruits its service providers through general marketing and sales agents who make calls to the providers, trying to persuade them to join HomeAdvisor’s network. Joining the network requires the service provider to pay not only an annual membership fee of nearly $300 but also to pay for each individual lead.
According to the FTC’s Complaint, since at least 2014, HomeAdvisor has made false, misleading, or unsubstantiated representations to service providers about the quality, characteristics, and source of HomeAdvisor’s leads. Most relevantly, the FTC alleges that HomeAdvisor represented to the service providers to whom it provided leads that such leads comprise “people who intend to hire a service provider soon”—even though many of the leads do not. The leads were also supposed to be only ones which match the types of services offered by the respective service providers and their geographic preferences, as well as include individuals who knowingly sought HomeAdvisor’s help in selecting a service provider—yet, many of the leads do not. In fact, many of the leads HomeAdvisor provided to its members were ones it purchased from third parties that, in turn, collected information from individuals without revealing the third parties’ affiliation with HomeAdvisor. Additionally, according to the Complaint, HomeAdvisor represents to service providers that its leads convert into jobs at rates well above what HomeAdvisor can actually substantiate. Lastly, the FTC alleges that since at least 2015, HomeAdvisor’s sales agents have also misrepresented the cost of an optional one-month subscription to a field service software, mHelpDesk, which assists service providers with tasks such as scheduling appointments and processing payments.
The Complaint alleges that HomeAdvisor’s actions violate(d) Section 5(a) of the Federal Trade Commission Act which prohibits “unfair or deceptive acts or practices in or affecting commerce[.]” 15 U.S.C. § 45(a).
On April 6, 2022, HomeAdvisor submitted its Answer and Defenses (“Answer”) to the FTC’s Complaint. In its Answer, HomeAdvisor alleges that the FTC’s Complaint “reflects fundamental misunderstandings of HomeAdvisor’s business, the vast service provider and homeowner networks that HomeAdvisor serves, and the lead generation industry generally.” HomeAdvisor argues that the FTC based its Complaint “on a handful of unsubstantiated statements and out-of-context anecdotes,” and that it lacks “any actual evidence of (1) systemic misrepresentations in HomeAdvisor’s marketing statements, (2) intent by HomeAdvisor and those who operate its business to entice membership through false promises to service providers, (3) actual reliance upon alleged misrepresentations by HomeAdvisor’s service provider members, or (4) quantifiable financial gain by HomeAdvisor (or loss to service providers) that is tied to any alleged misrepresentations.” HomeAdvisor further states that the FTC’s “baseless” Complaint “has afforded an over-zealous FTC a big target and a prominent stage from which to tout its purported efforts to protect ‘small businesspeople’ and ‘gig economy’ workers.” The Answer rests on ten main points. Namely, HomeAdvisor argues that:
- It “established an innovative on-line marketplace” providing great value to service providers and homeowners;
- It sends service providers leads, which the service providers must then convert into jobs;
- The Complaint’s allegations about task and geographic matches are misdirected because those are set and controlled by the service providers;
- The Complaint’s allegations about leads generated by affiliates are conclusory and unsupported;
- The Complaint disregards HomeAdvisor’s extensive lead filtering process;
- The Complaint mischaracterizes representations about “win rates”;
- The Complaint disregards service providers’ return on investment;
- HomeAdvisor stopped offering mHelpDesk over two years ago;
- The FTC’s Complaint and associated claim for monetary relief fail to exclude leads sold by HomeAdvisor to service providers located in Canada through its Canadian subsidiary —transactions over which HomeAdvisor alleges that the FTC does not have jurisdiction; and
- Some claims made by the FTC are time-barred under the three-year statute of limitations applicable to Section 19 of the FTC Act, 15 U.S.C. § 57b(d).
As part of its Answer, HomeAdvisor has also asserted 24 affirmative defenses.
On April 7, 2022, the FTC’s counsel moved for Summary Decision in the matter and submitted a proposed order outlining relief it wishes to be imposed against HomeAdvisor. On April 18, 2022, HomeAdvisor filed an unopposed motion requesting an extension of time to respond to the Complainant counsel’s motion for summary decision. The full case docket for this matter can be found here.
The FTC is scheduled to hold a hearing on the charges set forth in its Complaint on November 9, 2022. Possible relief against HomeAdvisor is wide-ranging and can include, but is not limited to:
- Restitution for past, present, and future consumers and such other types of relief as are set forth in Section 19(b) of the Federal Trade Commission Act;
- A prohibition on misrepresentations, including false or unsubstantiated claims, in connection with the promoting, advertising, marketing, offering for sale, or selling of any product or service;
- A requirement that, for a period of time, HomeAdvisor must send acknowledgments of the potential FTC order to the FTC;
- A requirement that, for a period of time, HomeAdvisor must create and retain certain business records;
- A requirement that, for a period of time, HomeAdvisor must provide prior notice to the FTC of all new business activity;
- A requirement that, for a period of time, HomeAdvisor must submit compliance reports to the FTC; and
- Provisions to enable the FTC to monitor HomeAdvisor’s compliance with the potential FTC order.
The FTC’s Complaint against HomeAdvisor underscores the Commission’s desire to protect small businesses and gig economy workers who can find themselves taken advantage of by large corporate entities promising quality business influx for a handsome fee. Not only are such small businesses and gig workers at risk for lower quality leads as a result of potentially predatory behavior on part of gig economy platforms such as HomeAdvisor: the affected small businesses and gig workers have to spend valuable time and other resources seeking refunds from the company which provided the subpar—and sometimes effectively nonexistent—leads. As summed up by Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, “[g]ig economy platforms should not use false claims and phony opportunities to prey on workers and small businesses…[the] administrative complaint against HomeAdvisor shows that the FTC will use every tool in its toolbox to combat dishonest commercial practices.” This Complaint may therefore signal a warning to large entities operating within the dynamic and quickly-evolving gig referral space to honor their obligations with respect to the paid services they claim to provide. However, the FTC’s Complaint against HomeAdvisor also provides an opportunity for similar entities to observe the development of this matter and improve their transparency and general operations to provide the best possible services to its customers—services which comply with the expectations of both the customers and of the FTC.