Advertisements are an essential element of a thriving small business, but there are regulations on what can be said when you market to consumers. These laws protect consumers by requiring advertisements to be truthful and substantiated. Before your business starts an advertising campaign, be sure it complies with advertising and marketing laws, also known generally as “truth-in-advertising” rules.
The Federal Trade Commission (FTC) regulates advertising and marketing in the United States and has the authority to file lawsuits and impose penalties against companies that do not comply with its rules. Generally, the FTC requires that:
- Advertisements are truthful and not deceptive
- Advertisements with specific claims can be substantiated with evidence
- Advertisements are not unfair
Additionally, there are specific regulations for ads promoting certain products, such as credit, ads with a 900 telephone number, and ads for products sold through mail or by phone. States and local governments also have the authority to enforce their own laws on advertising and marketing.
Consumers can also wield power against companies that deceive them in the form of class action lawsuits, which can result in costly rulings or settlements.
What constitutes deceptive or unfair advertisements under truth-in-advertising laws?
According to the FTC, an ad may be considered deceptive if It contains a statement, or omits information, that is likely to mislead reasonable consumers and is important to a consumer’s decision to buy or use the product.
An advertisement is considered unfair if it causes or is likely to cause substantial “consumer injury” which a consumer could not reasonably avoid, and this injury is not outweighed by the benefit to the consumers.
What are some examples of false advertising?
There have been several highly publicized lawsuits in recent years stemming from deceptive advertisements:
- Snapchat – The FTC filed a case against this mobile messaging app, claiming Snapchat made multiple misrepresentations to consumers about the disappearing nature of messages sent through the platform, the amount of personal data collected, and the security measures in place to protect that data. The case settled with Snapchat agreeing to change the way it markets its product and implement a comprehensive privacy program monitored by a third party for 20 years, with a potential civil penalty of up to $16,000 per violation of the agreement.
- Nissan – Nissan North America and TBWA Worldwide, an advertising agency hired by the automaker, faced a lawsuit filed by the FTC over claims that a television commercial for the Nissan Frontier pickup truck mislead consumers about the truck’s capabilities. The ad showed the truck pushing a dune buggy up a very steep looking hill on its own – something the truck couldn’t actually do. After creating the ad using special effects and including a small print disclaimer noting the fictionalization, the FTC still found the commercial deceptive. No fines were imposed, but Nissan agreed to stop producing such misleading ads and maintain records of all advertisements for Nissan trucks for five years after they air so the FTC can monitor them.
- Activia Yogurt – Advertisements for this once-popular yogurt claimed that the product contained “clinically” and “scientifically” proven nutritional benefits that made it unique from other kinds of yogurt, but these claims could not be substantiated. A class action lawsuit was filed by consumers who asserted the company was deceiving the public, which was eventually settled for a hefty $45 million. The company was also forced to limit its health claims on its packaging strictly to factual ones.
- Classmates.com – This social networking website sent emails to consumers claiming old friends were attempting to contact them and these messages could only be unlocked with a paid upgrade to its “Gold” membership. In fact, there were no such messages and one user filed a class action lawsuit alleging these deceptive emails contained false advertising. The company settled the lawsuit and agreed to pay $3 to every subscriber who upgraded after receiving the email, totaling a settlement of $9.5 million.
It’s important to carefully review all advertisements for your business to ensure they are not misleading consumers and putting your company at risk for a lawsuit. Not only can these legal actions be costly, but they can result in possible permanent reputational harm from consumers who deem your company untrustworthy.
For more information about advertising laws, check out the Small Business Administration’s guide on how to comply with advertising laws.