The FTC and six states allege violations of the FTC Act and various state statutes, prohibiting deceptive trade practices (state UDAP statutes) at a cost of over $27 million to consumers.

Roomster Corp. (Roomster) operates a website and app that can be used, in exchange for payment, to find and connect with roommates or rooms/properties to rent. On August 30, the Federal Trade Commission (FTC) and the attorneys general of California, Colorado, Florida, Illinois, Massachusetts, and New York (collectively, the states) filed a complaint against Roomster in the U.S. District Court for the Southern District of New York. According to the FTC and the states, Roomster committed various legal violations when posting online reviews about its service and allegedly fake listings.

The Complaint

Specifically, the FTC and the states claim that Roomster violated the FTC Act and state UDAP statutes that target unfair and deceptive acts and practices, false advertisements, false endorsements, and false or misleading statements. The FTC and the states alleged three general categories of violations in their complaint:

  • Roomster used fake five-star and four-star reviews of Roomster’s services on review platforms.
  • Roomster misrepresented its offerings of “verified,” “authentic,” or “available” listings and did not verify listings or otherwise ensure their authenticity or availability.
  • On other websites, Roomster advertised fake rental listings that directed users back to Roomster’s website where users had to pay to obtain the information for the listed rental (which ultimately proved to be fake), and users signing up for Roomster’s services were also solicited by fraudsters with more fake listings.

The FTC and the states allege that consumers have suffered (and continue to suffer) substantial injury from Roomster’s actions. According to the complaint, Roomster’s “representations have been published to millions of people,” and “[t]he Roomster Defendants have taken in excess of $27 million from consumers, many of whom can least afford to lose money.” As alleged, Roomster’s clientele consisted primarily of “lower-income individuals” who sought “safe, low-cost housing in markets where such housing is extremely hard to find.”

The FTC and the states requested broad relief against Roomster: (1) a permanent injunction against violations of the FTC Act and state UDAP statutes; (2) monetary and other relief, including restitution of injured customers nationwide and civil penalties under state UDAP statutes; (3) attorney’s fees, costs, and expenses; and (4) any additional relief that the court may deem just and proper.

Roomster’s Response

Roomster has not yet formally responded to the complaint in court, but it addressed the complaint on its website. Specifically, Roomster denies all of the FTC’s and the states’ allegations, claiming it will defend itself in the lawsuit because it denies misrepresenting any services to consumers. Roomster claims it has helped “millions” of consumers over nearly 20 years find suitable “rooming solutions.”

Roomster’s formal response to the complaint is due on October 31. Based on Roomster’s website posting, it disputes the complaint’s allegations, denies liability, and intends to file a motion to dismiss the complaint. With the litigation ongoing, Roomster says it is “going to continue focusing on doing what [it] do[es] best — providing a platform that connects people who are finding a roommate or a room.”

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While still in its early stages, this action illustrates that the FTC and state attorneys general are actively working together to try and protect consumers in the marketplace. It further illustrates that the FTC and state attorneys general are focused on regulating online testimonials and endorsements, as well as alleged offerings of false products or services, to ensure that companies only post truthful and accurate reviews of legitimate products and services. All consumer-centric companies should take notice that this is a hot area for regulators and should review their internal policies and procedures on posting online testimonials and endorsements to limit their risk of exposure.

This is not a new issue for the FTC or the attorneys general across the country. Almost a year ago, the FTC announced that it was “sending a Notice of Penalty Offenses to more than 700 companies, … placing them on notice they could incur significant civil penalties — up to $43,792 per violation — if they use endorsements in ways that run counter to prior FTC administrative cases.” This October 2021 notice was referenced in recent press releases of the FTC and the attorneys general of Illinois and Massachusetts in regard to the case against Roomster.*

We will monitor for further developments.

 


 

* For further reference, the FTC posted a blogpost and press release on this case, and the attorneys general of California, Florida, Illinois, Massachusetts, and New York also issued press releases.