The developer of "Lumosity" will pay a $2 million fine to settle federal allegations that it misled customers about the benefits of its "brain training" games
According to the Federal Trade Commission, the popular program consisting of 40 mental games purported to improve performance at work and in school, and reduce or delay serious health conditions, including dementia and Alzheimer's disease.
"The bigger issue I think the government has is that they said that they have nothing to back it up," CBS News senior business analyst Jill Schlesinger told "CBS This Morning" Wednesday.
In a statement, Lumosity said the federal action does not pertain to the quality of their product, but rather is a "reflection of marketing language that has been discontinued."
"They also used search words so if you searched for 'dementia,' then the company was able to place an ad and pop that in your browser and you would see that ad come up so naturally you'd be inclined" to consider it, Schlesinger explained. "I search for dementia, now I see something that's promising that's going to help me avoid these conditions."
The case points to the larger picture of the state of the brain-training industry which is met with skepticism. In 2014, more than 70 prominent neurology and psychology researchers published a consensus statement rebuking the brain-training industry and its "frequently exaggerated" marketing.
Federal law also mandates that only products that have been vetted by the FDA could claim to treat or prevent serious health conditions -- to date, there are none.
According to the government, the FTC downsized the settlement to $2 million from its initial fine of $50 million, due to the company's poor financial situation.
Schlesinger warned Lumosity's settlement could also have an impact on others in the industry.
"This is really critical because this industry is huge -- it's got estimated sales of about $1 billion -- so there's going to be a lot of careful scrutiny here and also the FTC has gone on a rampage with other companies and other apps. They got this industry in the crosshairs so these companies got to be careful now," Schlesinger said.