The U.S. Federal Trade Commission has ordered home services marketplace HomeAdvisor to pay up to $7.2 million for its use of deceptive and misleading tactics in selling home improvement project leads to service providers, including small businesses operating in the gig economy. The fine is the first gig work–related penalty following the FTC's fall 2022 announcement that it was prepared to crack down on unfair, deceptive, and anticompetitive practices taking place in the gig economy.
Denver-based HomeAdvisor had merged with Angie's List in 2017 to form a new public company called "Angi." However, the FTC's charge against HomeAdvisor wasn't issued until March 2022. The Commission said that since at least the middle of 2014, HomeAdvisor had made unsubstantiated, false or misleading claims about the leads it sells to service providers, like general contractors and lawn care professionals. Specifically, it claimed that the Angi affiliate had misrepresented the quality and source of leads, and the likelihood that they would result in actual jobs.
The Commission found that HomeAdvisor told service providers its leads resulted in home improvement jobs at higher rates than its own data supported and misled service providers about the cost of its one-month subscription to its platform. The company told service providers the first month of the mHelpDesk subscription, which helps with scheduling appointments and processing payments, was free with an annual membership package. But this was not true, the FTC said. Service providers would end up paying $59.99 more than they expected, it noted. (The mHelpDesk program is an optional add-on to the $287.99 annual membership to the HomeAdvisor network).
In addition, the FTC found that while HomeAdvisor claims its leads concern consumers who intend to hire a service professional soon, many of them do not. This is in part because HomeAdvisor would resell leads from affiliates who generate leads from online forms that asked consumers about potential home projects they were considering. However, the company would claim the leads came from its own website, which suggested consumers were seeking out HomeAdvisor's assistance.
The FTC's complaint also said many of the leads didn't match the types of services the providers offered or were outside their preferred geographic area, despite HomeAdvisor's claims to the contrary.
“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, at the time of the original FTC order.
The new administrative order also bars HomeAdvisor from continuing its deceptive practices and sets up two redress funds to provide money to defrauded service providers. The first fund will make payments of up to $30 to service providers impacted by HomeAdvisor’s misrepresentations about its lead quality. Meanwhile, the second fund will make payments of up to $59.99 to service providers who had been told that the first month of their mHelpDesk subscription was free. In total, HomeAdvisor is required to pay up to $7.2 million for redress, the FTC said. (Update: We earlier referenced this penalty as a "fine." It is not technically a fine, so we've updated the wording.)
The Commission voted 4-0 to accept the proposed consent agreement.
In response to the FTC's decision, HomeAdvisor shared the following statement:
"We’ve been in business for over 20 years and do not and would not deceive anyone, let alone customers. The FTC’s announcement was about a settlement agreement -- one that does not admit nor find any wrongdoing. While confident we could win the case, we decided to settle the matter so we could focus our resources and attention on our business, one we have built by putting our customers first. We’ve earned the privilege of becoming trusted partners to hundreds of thousands of local plumbers, roofers, general contractors and electricians—the people who help protect Americans’ greatest asset: our homes."
This gig economy fine follows other warnings issued by the FTC, including one reminding MLMs (multilevel marketers) to not lie to consumers about potential earnings. This one was sent out to 1,100 MLMs, even if they were not under investigation. It also reminded these companies it had previously sued MLMs like Herbalife and AdvoCare for their promotions of high-earning potential even though most participants made little or no money. Herbalife settled with the FTC for $200 million and AdvoCare agreed to pay $150 million. The FTC settled with Amazon as well for using misleading earnings claims to attract drivers to its Flex platform, and sued DeVry University for false claims over the higher incomes graduates received.
Updated 1/23/22, 5:44 PM ET with a statement provided by HomeAdvisor this afternoon.