Business counselors need to be aware of the Federal Trade Commission regulation of advertising

October 31, 2014

5273While business counselors often spend a good deal of time advising their clients on manufacturing and distribution arrangements for new products, they also need to be in a position to remind clients about the scope of regulation of advertising activities by the Federal Trade Commission (FTC).  While the FTC focuses primarily on false advertising and advertisements that make claims relating to health and safety, there are numerous other specific FTC rules that apply to various types of advertising including alcoholic beverage advertisements (§ 89:37), catalogs and direct marketing (§ 89:38), children’s advertising (§ 89:39), contests and sweepstakes (§ 89:40), mail order advertising (§ 89:43), and telemarketing (§ 89:45). In addition, advertisements that include disclosures and disclaimers (§ 89:41), endorsements or testimonials (§ 89:42) or warranties (§ 89:44) must satisfy certain requirements. Other areas of concern include:

  • “Bait and switch” advertising, which occurs when a company advertises a product that it has no intention of selling, but instead plans to sell a consumer something else, usually at a higher price.
  • Advertising (as well as labeling) of clothing or other textiles, which are governed by special statutes and regulations.[2]
  • Comparative advertising, which must be truthful and is more fully discussed in the FTC’s Comparative Advertising Policy Statement, dated August 13, 1979.
  • Advertising for consumer credit, which is subject to the federal Truth in Lending Act and other federal and state laws that generally mandate that certain disclosures must be made to consumers regarding the terms and conditions of credit.
  • Advertising for dietary supplements, including claims for “health foods,” vitamins, dietary supplements, and similar products.
  • Advertising jewelry, including gold, silver, platinum, pewter, diamonds, gemstones, and pearls.
  • Advertisements for over-the-counter drugs, which must not only be truthful and non-deceptive but are also subject to a higher level of scrutiny with respect to substantiation of claims due to the significant health and safety issues involved.
  • Energy savings claims for applicants, lighting products, and insulation, which must be based on specific standardized tests.
  • Environmental claims, such as using words like “biodegradable,” “recyclable,” and “environmentally friendly” in advertisements.
  • Health claims in food advertising, such as using words like “lite,” “low fat” or “high fiber”. The Food and Drug Administration is also involved in this area through its regulation of food labels.
  • Advertising relating to leases for cars, household goods, or other products, which must satisfy the special rules in the Consumer Leasing Act and Regulation M.
  • Advertising for telephone services, including long-distance calling plans, dial-around (or “10-10” numbers) and pre-paid phone cards. The FTC shares jurisdiction with the Federal Communications Commission regarding regulation of advertisements for long-distance services. Advertising of “900 number” and “pay-per-call” services is also regulated with specific requirements regarding “clear and conspicuous” disclosures of the costs of calls.
  • Tobacco advertising (i.e., advertisements for cigarettes, cigars, or smokeless tobacco products), which is prohibited on radio, television or other forms of electronic media regulated by the FCC and otherwise subject to the general rules against deceptive or unfair advertising. In addition, the FTC is responsible for enforcement of federal requirements relating to the inclusion of health warnings on advertising, point-of-purchase displays, and the packaging used for tobacco products.
  • Weight loss products, which have been the subject of numerous enforcement actions by the FTC against advertisers who have made false promises to consumers regarding easy weight loss.
  • Claims that products are “Made in the U.S.A.,” which can only be made if a product has been “all or virtually all made in the United States.

There are, of course, extensive federal and state disclosure and registration rules that must be followed in connection with marketing and sale of franchises and business opportunities. For more information, see Franchising (§§ 45:1 et seq.) and Business Opportunities (§§ 46:1 et seq.). Also, specific aspects of the solicitation and sales transaction involving a consumer may be subject to certain rules and standards governing issues and practices such as “negative option” plans (i.e., plans that involve shipment of merchandise like books or compact discs to consumers who have agreed in advance to become subscribers); advertising a product as “new”; deceptive pricing, including advertisements about sale prices; “free” claims and rebate offers; and rainchecks.

Internet advertising is subject to the same laws and standards that apply offline. In addition, Web marketers must be concerned about their exposure to foreign laws since their online advertisement may be accessed by consumers all over the world. Specific attention should be paid to the collection, use and storage of personal information regarding consumers during the course of e-commerce activities particularly when advertising is directed to children.