How to lose millions of dollars

In trust we trust

Federal Trade Commission has a bill for you

A recent episode of Silicon Valley addressed what happens when a company violates a Federal Trade Commission (FTC) regulation. One of the show’s characters accidentally violates the FTC’s Children’s Online Privacy Protection Act (“COPPA”).  The COPPA rules are meant to protect kids from all the perves lurking out on the interwebs. By overlooking these regulations, the company’s app lures in a bunch of creepy old dudes. By the time the characters figure out their mistake, they’ve already racked up millions of dollars in penalties and fines. 

Hopefully you’re well aware of and not violating COPPA if it pertains to your business. There are, however, lots of other FTC regulations, and lots of ways for you to rack up a bill with Uncle Sam.

CAN-SPAM

Lots of business owners and side-hustle aficionados violate the FTC’s CAN-SPAM rules.  You can read more at the link, but basically CAN-SPAM addresses sending emails. There are some pretty straightforward rules for sending emails to people, but if you don’t follow the rules, you can get a hefty fine. I’m always surprised by how people violate CAN-SPAM considering that most email-delivery software helps/forces you to comply. For example we use MailChimp, and we are forced to enter in the information that will make our emails compliant with CAN-SPAM. Seriously folks…have an “unsubscribe” button and post your business address in the email and you’re pretty much good. Two of my favorite bloggers these days have failed on these requirements (one listed the business address for Google, which I find hilarious). Whenever I receive their emails, all I can think about is how they just rang up another million dollar fine from the FTC.

Paying the Man

Now, while these violators are inflicting millions of dollars in fines upon themselves, it’s unlikely the FTC would ever come after them. The FTC goes for the big fish. It seems you need to really be making bank and blatantly violating the rules to get busted. The little guy just slides under the radar. The FTC doesn’t even bother following up with you (or even acknowledging) when you report CAN SPAM violations through their official process. If you’re like me though, you’d rather not have the potential liability of so many fines hanging over your head. Why create such a large liability when you can easily avoid it? (Also, important to note, most states have adopted FTC regulations into state laws and they will go after little guys. I know this because before law school, I used to help prosecute naughty businesses!)

So why do so many businesses violate these regulations? I imagine it has to do with the rise of DIY legal products. When a robot or some other non-attorney will form your LLC for $8, that can seem like a great deal. Or download a bunch of templates for all your contract and employment needs! The problem with operating that way, is it requires you to identify the legal issues in your business, but you don’t know what you don’t know. If you don’t know that COPPA is a thing, or CAN-SPAM is a thing, then you won’t know how to be compliant. By saving a few bucks and not bringing a professional in to issue spot and advise you, you end up putting your business at risk.

Keep the ox out of the ditch

This is why it is important and valuable to have an attorney on your team (or a CPA for taxes, insurance advisor, etc). Being proactive with spotting legal issues, can be much more valuable (and save more money) then waiting to bring in an attorney to fix the mess that you created. Here come some analogies: “you don’t wait to put your seatbelt on until after a crash” – “you don’t buy insurance after your house burns down” – and my favorite – “it’s easier to build a fence, then to pull an ox out of a ditch.”

Find yourself a fence-builder, my friend, and keep your ox from being slaughtered by the FTC.

Colin Ley is a Seattle asset protection attorney. He is also the co-founder of LayRoots along with his wife, Shreya Ley. Shreya offers outside general counsel services to proactive business owners looking to stay out of the ditch.