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Updated: March 27th, 2020
As mentioned in our previous guide on Truth-In-Advertising laws, there are regulations in place to protect consumers from unfair and deceptive advertisements. As a small business owner, it might be difficult to determine if your advertising campaign complies with the many Truth-In-Advertising laws enforced by the Federal Trade Commission (FTC) as well as state and local governments. If your ad is deceptive, you risk facing legal problems whether you intended to mislead the customer or not. Here are three tips to consider when evaluating the legality of advertisements for your small business:
The FTC and consumer protection agencies tend to carefully scrutinize advertisements that offer “free” merchandise or services to make sure consumers are not misled. Basically, if your business advertises something for free, you cannot recoup the cost of the “free” item in any way. For example, if you have a “Buy 1 Get 1 Free” offer, you cannot raise the price of the non-free item to make up for the “free” item. Similarly, you cannot lower the quality of the “Buy 1” item to raise profit margins because that is still recouping the profits of the “free” item.
Your business should also make sure any terms and conditions associated with your “free” offer are clearly and prominently disclosed. Do not attempt to hide the real cost of the critical terms or conditions by putting them in obscure locations, burying them in lots of fine print, or placing them in small-type footnotes.
For more information, check out the FTC’s Guide Concerning Use of the Word “Free” and Similar Representations
The FTC has guidelines on the use of endorsements and testimonials from consumers, experts, and organizations. Generally, endorsements and testimonials should reflect the honest opinions and experience of the endorser. For example:
If you’re on Instagram, you’ve likely seen a post from an “influencer” who has partnered with a certain brand to promote a product. With advertisements evolving with social media and technology, regulators are making an effort to ensure consumers are not misled.
Recently, fashion label Lord & Taylor settled charges brought by the FTC stemming from deceptive ads. The ads in question? Instagram posts from select online “influencers” and a seemingly objective article on Nylon.com that were not conspicuously noted as paid promotions for its newest clothing collection. The label gave 50 online influencers a free dress as well as $1,000 to $4,000 to post a photo in the item on Instagram, with a mention to their official Instagram account and a particular hashtag. The company also pre-approved each sponsored post. The FTC’s suit was based on charges that Lord & Taylor did not require the influencers to disclose that the company compensated them for these posts, thus creating a deceptive ad for the public.
Though this was an instance of a large company facing scrutiny, the lesson is still valuable for small business owners. No matter the advertised product or medium of promotion, transparency is key.
Businesses of all sizes and industries can be penalized by local, state, or federal government agencies for misleading advertisements, and consumers can file civil lawsuits of their own under state consumer protection laws. But more importantly, deceiving consumers can cause irreparable damage to your brand. Before publishing a new advertisement, review your content carefully with these three tips in mind.
Samantha Novick is a senior editor at Funding Circle, specializing in small business financing. She has a bachelor's degree from the Gallatin School of Individualized Study at New York University. Prior to Funding Circle, Samantha was a community manager at Marcus by Goldman Sachs. Her work has been featured in a number of top small business resource sites and publications.