Rules of the Road: Basics of Truth in Advertising Laws

In these tough economic times, driving business into the showroom is more important than ever. Many merchants invest significant resources into advertising their products in a manner designed to entice potential customers. It’s a perfectly legal and time-honored tradition, but you have to do it right. And the final arbiter of what is “right” is the Federal Trade Commission.

The FTC is the primary enforcer of federal advertising laws. It has broad powers under the FTC Act, and provides excellent guidance for businesses on its Website at www.ftc.gov. Just type “Advertising FAQs” into the search feature.

In general, the FTC Act requires that advertising not be deceptive. It also must be capable of substantiation. There are other federal laws regulating the advertisement of credit and leases, as well as certain methods of advertising (e.g., telemarketing.) In addition, various states impose additional requirements on advertisers. But for today, we’ll focus on the general rules.

For purposes of FTC enforcement, an ad is deceptive if it contains a “material” statement that is likely to mislead consumers acting reasonably under the circumstances. A material statement is one that is key to a consumer’s decision to buy or use the product. Omitting it from your advertising can also be deceptive. The FTC looks at an ad from the point of view of the “reasonable” consumer (i.e., the typical person looking at the ad). The focus is on the overall context of the ad — how the words, phrases, and pictures work together — to determine what express and implied claims the ad makes.

An express claim is literal and straightforward. Take the following statement, “Our ski boats have a top speed of 45 mph.” It is an express claim that the product is capable of traveling at that speed. It would be deceptive if it wasn’t true, or if the claim was qualified by a small print footnote that said, “When being towed.”

An implied claim is one made indirectly or by inference. Telling customers that your ski boat is the secret weapon of winners implies that competitors who use the boat have an edge. The ad doesn’t literally say the product will result in a win, although it would be reasonable for a consumer to conclude from the statement that the product provides a competitive benefit. Under the law, advertisers must have proof to back up claims that consumers take from an ad. In this example, extrinsic evidence usually means a consumer survey; for example, stopping people at a ski event, showing them sample advertising, and asking them to describe what they think the ad is saying.

The FTC also 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 you advertise a competitive ski boat and fail to disclose that a more powerful (and more expensive) engine would be needed to be competitive; the ad would be viewed as deceptive.

Another important element is whether the claim would be “material” — that is, important to a consumer’s decision to buy or use the product. These include representations about a product’s performance, features, safety, price, or effectiveness.

Finally, the FTC looks at whether you have sufficient evidence to support the claims in the ad. Before you run an ad, you need objective evidence that supports the claim. At a minimum, an advertiser must have the level of evidence it says it has. For example, one must have reliable evidence (e.g., an objective survey) to support a claim such as, “Our ski boats are the fastest in the world.” Subjective statements from satisfied customers would not be sufficient to support the claim.

So, as you run those ads in your pursuit of today’s elusive customers, take a moment to be sure your copy is not deceptive and that you can back up your claims. You’ll be glad you did.

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. He can be reached at [email protected]. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.