KNOWLEDGE BASE Advertising Regulations In The US

 

Advertising Regulations In The United States

 

There are a number of federal and state laws and regulations that govern advertising in the United States. Because they can differ significantly state to state, you should make sure you are familiar with both the federal laws and regulations and those of the state or states in which you conduct business.

 

Federal Laws and Regulations

 

Truth-in-Advertising Standards:

Under the Federal Trade Commission Act:

  • advertising must be truthful and non-deceptive;

  • advertiser’s must have evidence to back up their claims; and

  • advertisements cannot be unfair.

There are additional industry specific laws that governing advertising. Furthermore, each state has its own consumer protection laws that govern advertising within that state.

 

What are the important terms to understand?

Deceptive:

Under the FTC’s Deception Policy Statement, an advertisement is deceptive if it contains a statement, or omits information, that:

  • is likely to mislead consumers acting reasonably under the circumstances; and

  • is “material,” meaning important to a consumer’s decision to buy or use the product.

Unfair:

Under the Federal Trade Commission Act and the Federal Trade Commission’s (FTC) Unfairness Policy Statement, an advertisement or business practice is unfair if:

  • it causes or is likely to cause substantial consumer injury, which a consumer could not reasonably avoid; and

  • it is not outweighed by the benefit to consumers.

 

How do I comply with the Federal Trade Commission Act?

To determine whether an advertisement is deceptive, the FTC typically follows these steps:

  • the FTC looks at the advertisement from the point of view of the “reasonable consumer,” meaning the typical person looking at the advertisement. The FTC looks at the advertisement in context, i.e., words, phrases, and pictures, rather than focusing on certain words to determine what it conveys to consumers.

  • The FTC looks at both “express’ and “implied” claims. An express claim is a claim literally made in the advertisement. For example: “ABC Mouthwash prevents colds” is an express claim that the product will prevent colds. An implied claim is a claim made indirectly or by inference. For example: “ABC Mouthwash kills germs that cause colds” implies that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers take from an advertisement.

  • The FTC looks at what the advertisement does not say, that is, if the failure to include information leaves consumers with a misrepresentation about the product.

  • The FTC looks at whether the claim would be “material,” meaning important to a consumer’s decision to buy or use the product. Examples include representations about a product’s performance, features, safety, price, or effectiveness.

  • The FTC looks at whether you (the advertiser) have sufficient evidence to support the claims in the advertisement. The law requires that you (advertisers) have this proof before running the advertisement.

The type of evidence you must have to support your claim(s) is a “reasonable basis” for the claim(s). That means, before you run an advertisement, you must have a “reasonable basis” for any claims you make in the ad. The type of evidence required depends on the claim(s). At a minimum, you must have the level of evidence that you say you have For example, the statement “Two out of three doctors recommend ABC Pain Reliever” must be supported by a reliable survey to that effect. If your claim isn’t that specific, the FTC looks at several factors to determine what level of proof is necessary, including what experts in the field think is needed to support your claim.

Letters or comments from satisfied customers are not sufficient to substantiate a claim that requires an objective evaluation, i.e., a health or safety claim. Offering a money-back guarantee is not a substitute for substantiation of a claim.

 

What are the risks of noncompliance?

The penalties for a violation of the Federal Trade Commission Act depend on the nature and seriousness of the violation. Penalties include:

  • Legally-binding cease and desist orders that require you to stop running the deceptive advertisement or engaging in the deceptive business practice, to have substantiation for claims made in future advertisements, the requirement that you report periodically to the FTC about the substantiation you have for claims in new advertisements, and fines of $16,000 per day per advertisement if you violate the law in the future.

  • Civil penalties, consumer redress, and other monetary remedies that range from thousands of dollars to millions, depending on the nature of the violation. In some cases, advertisers have been ordered to give full or partial refunds to all consumers who bought the product.

  • Advertisers have been required to take out new advertisements to correct the misinformation conveyed in the original advertisement, notify purchasers about deceptive claims in their advertisements, and include specific disclosures in future advertisements or provide information to consumers.

 

Specific types of advertising

Comparative Advertising:

Comparative advertising is permitted and legal as long as it is truthful.

 

Testimonials and Endorsements in Advertisements:

The FTC's Guides Concerning the Use of Testimonials and Endorsements offer practical advice on endorsements by consumers, celebrities, and experts. All endorsements must reflect the honest experience or opinion of the endorser. Endorsements may not contain representations that would be deceptive, or could not be substantiated, if you (the advertiser) made them directly.

  • Endorsements by consumers must reflect the typical experience of consumers who use your product, not the experience of just a few satisfied customers. If an endorsement doesn't reflect users' typical experience, your advertisement(s) must clearly disclose either what consumers can expect their results to be or the limited applicability of the endorser's experience. Saying "not all consumers will get these results" or "your results may vary" is not enough.

  • Endorsements by celebrities must reflect the celebrity's honest experience or opinion. If the endorsement represents that the celebrity uses the product, that celebrity must actually use the product. Once a celebrity (or expert) has endorsed a product, you have an obligation to make sure the endorsement continues to reflect the endorser's opinion.

  • To give an expert endorsement, a person must have sufficient qualifications to be considered an expert in the field. But just being an expert isn't enough. Expert endorsements must be supported by an actual evaluation, examination, or testing of your product that other experts in the field normally would conduct to support the conclusions in the endorsement.

  • You are also required to disclose any material connection between a person endorsing your product and your company. A "material connection" is defined as a relationship that might affect the weight or credibility of the endorsement. For example, if an endorser is your employee or relative, that fact must be disclosed because it is relevant to how much weight a consumer would give to the endorsement. Similarly, you must disclose if a consumer has been paid for giving an endorsement.

 

Advertising to Children:

Because children tend to be more vulnerable than adults to certain types of deceptive, the FTC pays particular attention to advertisements aimed at children. If you advertise directly to children or market child-related products to their parents, you must comply with truth-in-advertising standards. Advertising directed to children is evaluation from a child’s point of view, not an adult’s point of view. In addition to the truth-in-advertising standards, if you advertise to children online, you must comply with the Children’s Online Privacy Protection Act (COPPA). The FTC works with the Children’s Advertising Review Unit, a Council of the Better Business Bureau, which published a self-regulatory guide on advertising to children. Your obligations under the COPPA are explained in more detail in the Email Marketing Section.

 

Free Claims and Rebate Offers:

If you offer something free with the purchase of another product, the price of the purchased product should not be increased from its regular price. Furthermore, if you are advertising a free product or offering it at a low cost in conjunction with the purchase of another item, you advertisement must clearly and conspicuously disclose the terms and conditions of the offer. This requirement is that you disclose the most important information, such as terms affecting the cost of the offer, near the advertised price. For more information, you can review the Guides Concerning the Use of the Word “Free” and Other Representations, the FTC’s Guides Against Deceptive Pricing, and the FTC’s guide on fine print disclosures.

Advertisements that include rebates should prominently state the before-rebate cost of the product, as well as the rebate amount. Rebates should also clearly disclose any additional terms and conditions that consumers should know, including the key terms of any purchase requirements, additionals fees that apply, and when consumers can expect to see their rebate.

 

Guarantees and Warranties:

If your advertisement(s) mentions that a product includes a guarantee or warranty, it should clearly disclose how consumers can get the details. Any conditions or limits on the guarantee or warranty, such as time limits or return requirements, must also be clearly disclosed in the advertisement. The law also requires that you make copies of any guarantees or warranties available to consumers before the sale. This law applies to retail sales, phone sales, mail sales, and online transactions. For more information,  see the FTC’s Guides for the Advertising of Warranties and Guarantees.

 

Mail Order Advertising:

The Truth-in-Advertising standards apply to mail order advertising and marketing. Additionally, the FTC’s Mail or Telephone Order Merchandise Rule (Mail Order Rule) applies when a consumer places and order by mail, telephone, fax, or computer. Under this Rule, you must have a reasonable basis for believing that you can ship the product within the time period stated in the advertisement. If your advertisement does not state a specific time period, you must believe you have a reasonable basis for believing is can ship within 30 days.

This Rule also applies equally to online marketers. For more information, you should review the FTC’s Business Guide to the Federal Trade Commission’s Mail or Telephone Order Merchandise Rule and Selling on the Internet: Prompt Delivery Rules. The Direct Marketing Association, a trade group for members of the direct marketing industry, has voluntary guidelines in place on ethical business practices.

 

Dry Testing a Product:

Dry testing is a practice in which a company places an advertisement for a product to see if there is sufficient consumer interest in the product before going to the expense of manufacturing the product. Although the Mail Order Rule doesn’t specifically apply to this situation, the FTC has issued an advisory opinion that such advertisements must clearly disclose the fact that the product is only planned and may never be shipped.

 

Made in the USA:

Your product must be all of virtually all made in the United States for it to be advertised or labeled “Made in the USA.”

 

State Laws and Regulations

 

For state specific consumer protection laws, review the following state laws and regulations.

California: False Advertising Business and Professions Code sections 17500- 17509

Colorado: Deceptive Trade Practices Colorado Revised Statutes Section 6-1-105 and Unfair Practices Act Colorado Revised Statutes Sections 6-2-101 - 6-2-117

Florida: Consumer Protection Florida Statutes Sections 501.001 - 501.997

Georgia: Uniform Deceptive Trade Practices Act Code of Georgia Sections 10-1-370 - 10-1-375, Fair Business Practices Act Code of Georgia Sections 10-1-390 - 10-1-408, False Advertising Code of Georgia Sections 10-1-420 - 10-1-427

Massachusetts: Consumer Protection 940 Code of Massachusetts Regulations 3.00 - 3.19

New York: False Advertising General Business Statutes Sections 22A.350 and 22A.350A

Texas: Texas Business and Commerce Code Deceptive Trade Practices Sections 17.41- 17.962

KNOWLEDGE BASE Advertising Regulations In The US