_______________

Previous

Next

You are here: Home  FTC Actions FTC Guides & Rules Small Business FAQ

FTC FAQ:  A Guide for Small Businesses

General Advertising Policies

Under the Federal Trade Commission Act:

• Advertising must be truthful and non-deceptive;
• Advertisers must have evidence to back up their claims; and
• 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. And all states have consumer protection laws that govern ads running in that state.

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:

• is likely to mislead consumers acting reasonably under the circumstances; and
• is "material" -- that is, important to a consumer's decision to buy or use the product.

According to the Federal Trade Commission Act and the FTC's Unfairness Policy Statement, an ad 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.

A typical inquiry follows these steps:

• The FTC looks at the ad from the point of view of the "reasonable consumer" -- the typical person looking at the ad. Rather than focusing on certain words, the FTC looks at the ad in context -- words, phrases, and pictures -- to determine what it conveys to consumers.

• The FTC looks at both "express" and "implied" claims. An express claim is literally made in the ad. For example, "ABC Mouthwash prevents colds" is an express claim that the product will prevent colds. An implied claim is one made indirectly or by inference. "ABC Mouthwash kills the germs that cause colds" contains an implied claim that the product will prevent colds. Although the ad doesn't literally say that the product prevents colds, it would be reasonable for a consumer to conclude from the statement "kills the germs that cause colds" that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers would take from an ad.

• The FTC looks at what the ad does not say -- that is, if the failure to include information leaves consumers with a misimpression about the product. For example, if a company advertised a collection of books, it would be deceptive if the ad did not disclose that what consumers actually would receive were abridged versions of those books.

• The FTC looks at whether the claim would be "material" -- that is, important to a consumer's decision to buy or use the product. Examples of material claims are representations about a product's performance, features, safety, price, or effectiveness.

• The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.

Before a company runs an ad, it has to have a "reasonable basis" for the claims. A "reasonable basis" means objective evidence that supports the claim. The kind of evidence depends on the claim. At a minimum, an advertiser must have the level of evidence that it says that it has. For example, the statement "Two out of three doctors recommend ABC Pain Reliever" must be supported by a reliable survey to that effect. If the ad isn't 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 the claim. In most cases, ads that make health or safety claims must be supported by "competent and reliable scientific evidence" -- tests, studies, or other scientific evidence that has been evaluated by people qualified to review it. In addition, any tests or studies must be conducted using methods that experts in the field accept as accurate.

No. Statements from satisfied customers usually are not sufficient to support a health or safety claim or any other claim that requires objective evaluation.

Yes. Offering a money-back guarantee is not a substitute for substantiation. Advertisers still must have proof to support their claims.

The FTC pays closest attention to:

• 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."

• 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 layer."

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.

The FTC weighs several factors, including:

• FTC jurisdiction. Although the FTC has jurisdiction over ads for most products and services, Congress has given other government agencies the authority to investigate advertising by airlines, banks, insurance companies, telephone and cable companies, and companies that sell securities and commodities.

• The geographic scope of the advertising campaign. The FTC concentrates on national advertising and refers local matters to state, county or city agencies.

• The extent to which an ad represents a pattern of deception, rather than an individual dispute between a consumer and a business or a dispute between two competitors. State or local consumer protection agencies or private groups such as the Better Business Bureau (BBB) often are in a better position to resolve disputes involving local businesses or local advertising. To get the address and phone number of your state attorney general's office, your local consumer agency, or the nearest BBB, check your telephone directory or the Consumer's Resource Handbook.

• The amount of injury -- to consumers' health, safety, or wallets -- that could result if consumers rely on the deceptive claim. The FTC concentrates on cases that could affect consumers' health or safety (for example, deceptive health claims for foods or over-the-counter drugs) or cases that result in widespread economic injury.

The penalties depend on the nature of the violation. Among the remedies that the FTC or the courts have imposed include:

• 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 $11,000 per day per ad if the company violates the law in the future.

• Civil penalties, consumer redress, and other monetary remedies. Violation of certain statutes can result in civil penalties ranging from thousands of dollars to millions of dollars, depending on the nature of the violation. In other cases, advertisers have had to give full or partial refunds to all consumers who bought the product.

• 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. Advertisers also have had to notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumer

• Bans and bonds: In some cases, individuals have been banned from an industry or have been required to post a bond before continuing business.

FTC staff cannot clear your ads in advance. However, there is guidance to help you comply with the law. See Business Guidance for our library of materials for advertisers. For more general information on advertising policies, call the FTC's Division of Advertising Practices at (202) 326-3090.

The Federal Trade Commission Homepage is updated almost every day, so bookmark it for instant access to FTC news and views, including recent enforcement actions, speeches, public hearings, and other business information. Before running an ad, check out what the FTC has had to say about products or advertising claims similar to yours. From the homepage, you can search the entire FTC web site using key words or phrases. For example, a search using the word "diet" will yield cases, reports, news releases, and other materials related to FTC policies about the advertising of diet products and services. In addition, see www.consumer.gov for consumer and business information from the FTC, FDA, SEC, and other federal agencies. You may also want to check the Better Business Bureau for tips on truthful advertising, the BBB's voluntary Code of Advertising, and information about scams targeting small businesses.

In its continuing commitment to regulatory reform, the FTC has repealed almost 50% of its trade regulation rules and has streamlined and simplified remaining rules. The FTC's Small Business Compliance Assistance Policy Statement describes other forms of assistance available to small businesses to help them comply with truth-in-advertising laws. For example, the Business Guidance section of the FTC homepage includes an expanding library of materials written especially for small businesses. Small businesses also may contact the FTC headquarters or one of the FTC's ten regional offices with specific inquiries about how to comply with the law. In addition, one of the FTC's top law enforcement priorities is fighting fraudulent and deceptive practices aimed at small businesses. The agency has taken lead in challenging deceptive invention promotion services, questionable franchise opportunities, bogus office supply scams, and other practices that prey on aspiring entrepreneurs.

You can:

• Explore your legal options under federal and state statutes that protect businesses from unfair competition. For example, the Lanham Act gives companies the right to sue their competitors for making deceptive claims in ads.

• File a complaint with the National Advertising Division (NAD) of the Council of Better Business Bureaus, if your competitor's ad is running nationally or regionally. The NAD is a private, self-regulatory group affiliated with the BBB. It investigates allegations of deceptive advertising and gives advertisers a mechanism for resolving disputes voluntarily

• Call your local BBB or file an on-line complaint with the Better Business Bureau if the ad is local. Many BBBs have procedures for resolving disputes between businesses.

• Contact the radio station, television station, or publication where you saw the ad. Let them know that they're running an ad you think may be deceptive.

• Contact your state Attorney General's Office or your city, county, or state Office of Consumer Affairs. To get their phone numbers, check your telephone directory or the Consumer's Resource Handbook.

• Contact the Federal Trade Commission.

The FTC is authorized to act when it appears that a company's advertising is deceptive and when FTC action is in the public interest. Although the FTC cannot intervene in an individual dispute between two companies, the agency relies on many sources -- including complaints from consumers and competitors -- to find out about ads that may be deceptive. To file a complaint, call the FTC's Division of Advertising Practices at (202) 326-3090, or write to:

Federal Trade Commission
Division of Advertising Practices
6th Street and Pennsylvania Avenue, N.W.
Washington, D.C. 20580

No. The FTC keeps investigations confidential. Matters become public only after the FTC reaches a settlement with a company or files a lawsuit. However, you can be assured that complaints received from companies alleging that competitors are advertising deceptively are reviewed carefully.

The FTC can tell you if it has already taken formal action (e.g., filed or settled a lawsuit) against a particular company or against similar kinds of advertisements or products. But the FTC cannot disclose whether an investigation is going on. To find out if a company or product has been the subject of a recent FTC action, search the Federal Trade Commission homepage.

The above article was reprinted from an announcement on the Federal Trade Commission web site.  Check the FTC web site for changes to the article.

This page was last modified on July 22, 2007.

Privacy Policy | Disclaimers | Terms of Use | Suggestions  | Credit Card Security

Website Created by & Copyright ©  2001-2009 Richard Keyt, All Rights Reserved