Advertising laws are aimed at protecting consumers by requiring advertisers to be truthful about their products and to be able to substantiate their claims. All businesses must comply with advertising and marketing laws, and failure to do so could result in costly lawsuits and civil penalties. So before you start an advertising campaign, it's important you understand some basic rules.
The Federal Trade Commission (FTC) is the main federal agency that enforces advertising laws and regulations. Under the Federal Trade Commission Act:
Â· Advertising must be truthful and non-deceptive
Â· Advertisers must have evidence to back up their claims
Â· Advertisements cannot be unfair
Additional laws apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. State and local governments also regulate advertising, and enforcement is usually the responsibility of a state attorney general, a consumer protection agency or a local district attorney.
What makes an advertisement deceptive?
According to the FTC's Deception Policy Statement, an ad is deceptive if it contains a statement, or omits information, that:
Â· Is likely to mislead consumers acting reasonably under the circumstances; and
Â· Is "material," that is, important to a consumer's decision to buy or use the product.
What makes an advertisement unfair?
Â· it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and
Â· it is not outweighed by the benefit to consumers.
What kind of advertising claims does the FTC focus on?
The FTC pays closest attention to:
Â· Ads that make claims about health or safety, such as:
ABC Sunscreen will reduce the risk of skin cancer.
ABC Water Filters remove harmful chemicals from tap water.
ABC Chainsaw's safety latch reduces the risk of injury.
Â· Ads that make claims that consumers would have trouble evaluating for themselves, such as:
ABC Refrigerators will reduce your energy costs by 25%.
ABC Gasoline decreases engine wear.
ABC Hairspray is safe for the ozone.
Ads that make subjective claims or claims that consumers can judge for themselves (for example, "ABC Cola tastes great") receive less attention from the FTC.
What penalties can be imposed against a company that runs a false or deceptive ad?
The penalties depend on the nature of the violation. The remedies that the FTC or the courts have imposed include:
Â· Cease and desist orders. These legally-binding orders require companies to stop running the deceptive ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to FTC staff about the substantiation they have for claims in new ads, and to pay a fine of $16,000 per day per ad if the company violates the law in the future.
Â· Civil penalties, consumer redress and other monetary remedies. Civil penalties range from thousands of dollars to millions of dollars, depending on the nature of the violation. Sometimes advertisers have been ordered to give full or partial refunds to all consumers who bought the product.
Â· Corrective advertising, disclosures and other informational remedies. Advertisers have been required to take out new ads to correct the misinformation conveyed in the original ad, notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumers.
How prominent does a disclaimer or disclosure have to be in other kinds of ads?
When the disclosure of qualifying information is necessary to prevent an ad from being deceptive, the information should be presented clearly and conspicuously so that consumers can actually notice and understand it. A fine-print disclosure at the bottom of a print ad, a disclaimer buried in a body of text unrelated to the claim being qualified, a brief video superscript in a television ad, or a disclaimer that is easily missed on a website are not likely to be effective. Nor can advertisers use fine print to contradict other statements in an ad or to clear up misimpressions that the ad would leave otherwise.
For example, if an ad for a diet product claims "Lose 10 pounds in one week without dieting," the fine-print statement "Diet and exercise required" is insufficient to remedy the deceptive claim in the ad. To ensure that disclosures are effective, advertisers should use clear and unambiguous language, place any qualifying information close to the claim being qualified, and avoid using small type or any distracting elements that could undercut the disclosure.
Although there is no hard-and-fast rule about the size of type in a print ad or the length of time a disclosure must appear on TV, the FTC often has taken action when a disclaimer or disclosure is too small, flashes across the screen too quickly, is buried in other information, or is otherwise hard for consumers to understand. Most importantly, if you are concerned that a disclaimer or disclosure may be necessary to clarify a claim, evaluate your ad copy and substantiation carefully to ensure that you are not misleading consumers.
What about disclaimers and disclosures online?
Regardless of whether you advertise on TV or radio, in print ads, through direct mail or online, the law is the same: disclaimers and disclosures must be "clear and conspicuous." Dot Com Disclosures offers special guidance for online advertisers regarding 'Net specific issues such as banner ads, pop-up windows, scrolling, hyperlinks, etc.
In the end âtruth in advertisingâ laws exist for the benefit of consumers. But how are they applied? This will be the subject of future articles.