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FTC on Advertising

Marketing Degree Guide: FTC Rules for Advertisers

Here is a list of guidelines from the FTC on advertising that makes sure the methods are ethical and non-deceiving.  This can help you learn more about the importance of being honest when it comes to deciding on advertising strategies.  Please refer to our other marketing and advertising resources for valuable information to your research.

The FTC has established three golden rules for advertisers:

  • Advertising must be truthful and non-deceptive
  • Advertising cannot be unfair
  • Advertisers, when they makes claims, must be able to supply evidence

This guide seeks to advise small businesses on how to best keep their advertisements FTC-compliant.  Throughout the guide, we provide definitions, external links to official documents, and pointers to help business owners and employees ensure that their advertising and marketing pass FTC muster.

Definitions of Truthfulness and Unfairness

There are two FTC criteria for deception.  It refers to any representation or omission that can mislead reasonably minded consumers.  If the advertising is directed towards a narrow group, then the ad is judged by whether or not it’s deceptive for a reasonably minded member of that group.  Furthermore, the deception must be “material.”  In other words, it must effect the consumer’s decision to purchase or not purchase the product or service.

A product is defined by the FTC as unfair if the product is in some way injurious to the consumer.  This injury has to be substantial; it has to be unavoidable by a reasonably minded consumer; and it cannot be outweighed by a greater benefit to consumers.

Evidence Supplied by Advertisers

A company needs a “reasonable basis” for any claims made in the advertisement.  This reasonable basis can be a reliable survey, scientific testing, or consumer research, but the methods must be validated by experts in the field.  The FTC evaluates both express claims (claims that make direct statements) and implied claims (indirect claims, or claims that lead consumers to inferences).  Both express and implied claims must, by law, be verifiable before the ad runs.  Letters from consumers do not count as evidence, and money-back guarantees cannot replace substantiation of claims.

What Does the FTC Watch For?

The FTC is most likely to pay attention to ads that make health or safety claims.  They’re also more likely to look at claims that the consumers themselves wouldn’t likely be able to evaluate.  Subjective claims are less likely to be investigated.  The FTC generally focuses on national campaigns, whereas local and regional campaigns are covered by local and state level agencies.  Cases are mostly brought when a product is particularly injurious or a larger scale pattern of deception has been found.  While the FTC can’t review ads before they’re run, advertisers can call to the FTC’s Division of Advertising Practices at 202-336-3090 for general information.

Advertising of some products and services is covered by other governmental agencies, including banks, insurance companies, pharmaceuticals, airlines, and securities companies.  Advertising of some other products, including alcohol, tobacco, and food, is controlled by the FTC in tandem with other federal agencies.

What Are the Penalties for Advertising Violations?

Penalties vary greatly, and are based on the nature and scope of the advertising violation.  One common penalty is for the advertiser to provide corrective advertising to make consumers aware that information in a previous advertisement was faulty.  Cease and desist orders are also common, in which a company must immediately cease running an ad that contains false information.  More severe violations involve monetary redress, whether it’s a civil penalty or a refund to consumers.

Keeping Up with Evolving FTC Regulations

Due to the fluid nature of the business world, the FTC frequently changes its regulations.  The FTC website provides a litany of information, and is easily searchable for information pertinent to your business.  National Consumer Protection Week and the Better Business Bureau provide additional information to help consumers and businesses.

When Competitors are Running Deceptive or Unfair Ads

A good first step for smaller ads is to contact your local Better Business Bureau.  For larger complains, one can contact the National Advertising Division of the BBB, or your state Attorney General’s Office.  Companies can contact the media company that is running the ad, and present a case that the ad campaign is deceptive.  For national cases, the FTC can be contacted directly.  Explore your legal options as well.  Under the Lanham Act, companies can sue competitors for making deceptive claims in advertisements.  Companies have other forms of legal redress under state and federal statutes as well.  The FTC can inform consumers and companies if it has taken formal action against a company.  Investigations, however, are kept confidential.  While there is no guarantee that the FTC will pursue a claim, multiple complaints often lead to investigation.

SPECIFIC ISSUES

  • Advertising Agencies and Catalog Companies – Advertising agencies and catalog companies are also considered culpable in regards to false, deceptive, or unfair advertising.
  • Bait and Switch – Bait and switch advertising techniques are illegal.  The FTC’s guidelines on bait and switch can be found here.
  • Children’s Advertising – Because of the highly manipulable nature of children, the FTC pays strong attention to children’s advertising, and children’s advertising is evaluated from the perspective of a child.  Furthermore, any websites marketed towards children must be compliant with the Children’s Online Privacy Protection Act.
  • Credit – Ads for consumer credit must fully disclose the terms and conditions clearly and conspicuously.
  • Endorsements and Testimonials – While endorsements themselves are fully legal, there are certain additional rules.  Celebrity endorsements must reflect the honest opinion of the celebrity.  Consumer or “man on the street” endorsements must reflect the average customer of the company.  With expert opinions, the expert must be fully credentialed and be able to back up his or her claims with substantial evidence.  Any connection between endorsers and advertisers must be made apparent, whether that connection is through personal relationship or payment.
  • FDA vs. FTC Regulation for Foods and Drugs – As a rule, the labeling of foods, dietary supplements, non-prescription drugs, cosmetics, and medical devices is regulated by the Food and Drug Administration.  The advertising and the marketing of these products is regulated by the FTC.
  • Free Claims – It’s acceptable to include a free offer with the purchase of another product.  However, the price of that product cannot increase with a free offer.  Terms and conditions must be disclosed.  Similarly, if a rebate is being offered, the price of the product before and after the rebate should be disclosed.
  • Guarantees and Warranties – Time limits and other terms and conditions must be fully disclosed when guarantees or warranties are offered.
  • Infomercials – An infomercial must clearly state that it is a form of advertising rather than pure entertainment at the beginning, and before any ordering information is provided.
  • Internet Advertising – The same rules apply to internet advertising as apply to traditional broadcast and print media advertising.  Online business and advertising standards vary from country to country, and companies that do business internationally are advised to read up on the laws of countries with which they do business.  The FTC provides a guide to international e-business at.
  • Leasing – Companies that lease rather than sell are required to include full terms and conditions of their leases, including down payment, interest, and penalties.
  • Newness – In order for a product to be described as “new,” there must be sufficient evidence that it is new within the context of the ad.  Used goods cannot be described as new, and products that have been on the market for a long time can’t be described as new.  The use of the word “new” varies, but one FTC decision has suggested that a “new product” on the market ceases to be new six months after introduction.
  • Pricing – Pricing practices must, like the rest of an advertisement, be truthful and accurate.  However, rules on pricing claims vary somewhat from state to state.  Contact your state’s Attorney General’s Office for further information.
  • Rainchecks – Retail food stores must offer rainchecks or substitutes when they run out of advertised items.  If only a limited quantity of an item is expected, this should be made clear in the advertisement.
  • Sales – In order to be marked as “on sale,” a product must in actuality be marked down from a previous price.  A “going out of business” sale can only occur when a store is actually going out of business.
  • Sweepstakes – Sweepstakes that require purchase are illegal in the U.S.  Promotions with prizes are acceptable as long as purchase isn’t required.
  • Telemarketing and Mail Order – Telemarketing and mail order companies must follow the same rules of advertising as other businesses.  Telemarketers cannot misrepresent themselves.
  • Telephone Services – Telephone services such as phone cards, long distance plans, and dialaround numbers must fully disclose their fees and limitations.  Additionally, 900 numbers must make it clear that 900 numbers cannot be used by anyone under the age of 12, and that their use by individuals aged 12-17 requires parental consent.
  • U.S. Origin Claims – A product has to either all or virtually all be made in the United States to merit a “Made in the USA” label or advertisement.  Special rules apply to clothing and textiles, and these can be found at that website.

FURTHER LINKS