The Internet is connecting advertisers and marketers to customers from Boston to Bali with text, interactive graphics, video and audio. If you're thinking about advertising on the Internet, remember that many of the same rules that apply to other forms of advertising apply to electronic marketing. These rules and guidelines protect businesses and consumers - and help maintain the credibility of the Internet as an advertising medium. The Federal Trade Commission (FTC) has prepared this guide to give you an overview of some of the laws it enforces.
|Advertising must tell the truth and not mislead consumers.
|In addition, claims must be substantiated.
GENERAL OFFERS AND CLAIMS
PRODUCTS AND SERVICES
The Federal Trade Commission Act allows the FTC to act in the interest of all consumers to prevent deceptive and unfair acts or practices. In interpreting Section 5 of the Act, the Commission has determined that a representation, omission or practice is deceptive if it is likely to:
- mislead consumers and
- affect consumers' behavior or decisions about the product or service.
In addition, an act or practice is unfair if the injury it causes, or is likely
to cause, is:
- not outweighed by other benefits and
- not reasonably avoidable.
The FTC Act prohibits unfair or deceptive advertising in any medium. That is,
advertising must tell the truth and not mislead consumers. A claim can be misleading if
relevant information is left out or if the claim implies something that's not true. For
example, a lease advertisement for an automobile that promotes "$0 Down" may be
misleading if significant and undisclosed charges are due at lease signing.
In addition, claims must be substantiated, especially when they concern health,
safety, or performance. The type of evidence may depend on the product, the claims, and
what experts believe necessary. If your ad specifies a certain level of support for a
claim - "tests show X" - you must have at least that level of support.
Sellers are responsible for claims they make about their products and services. Third parties - such as advertising agencies or website designers and catalog marketers - also may be liable for making or disseminating deceptive representations if they participate in the preparation or distribution of the advertising, or know about the deceptive claims.
Advertising agencies or website designers are responsible for reviewing the information used to substantiate ad claims. They may not simply rely on an advertiser's assurance that the claims are substantiated. In determining whether an ad agency should be held liable, the FTC looks at the extent of the agency's participation in the preparation of the challenged ad, and whether the agency knew or should have known that the ad included false or deceptive claims.
To protect themselves, catalog marketers should ask for material
to back up claims rather than repeat what the manufacturer says about the product. If the
manufacturer doesn't come forward with proof or turns over proof that looks questionable,
the catalog marketer should see a yellow "caution light" and proceed
appropriately, especially when it comes to extravagant performance claims, health or
weight loss promises, or earnings guarantees. In writing ad copy, catalogers should stick
to claims that can be supported. Most important, catalog marketers should trust their
instincts when a product sounds too good to be true.
Other points to consider:
Disclaimers and disclosures must be clear and conspicuous.
That is, consumers must be able to notice, read or hear, and understand the information.
Still, a disclaimer or disclosure alone usually is not enough to remedy a false or
Demonstrations must show how the product will perform under normal use.
Refunds must be made to dissatisfied consumers - if you promised
to make them.
Advertising directed to children raises special issues. That's because children may have greater difficulty evaluating advertising claims and understanding the nature of the information you provide. Sellers should take special care not to misrepresent a product or its performance when advertising to children. The Children's Advertising Review Unit (CARU) of the Council of Better Business Bureaus has published specific guidelines for children's advertising that you may find helpful.
Dot Com Disclosures: Information About Online Advertising, an FTC staff paper, provides additional information for online advertisers. The paper discusses the factors used to evaluate the clarity and conspicuousness of required disclosures in online ads. It also discusses how certain FTC rules and guides that use terms like "writing" or "printed" apply to Internet activities and how technologies such as email may be used to comply with certain rules and guides.
PROTECTING CONSUMERS PRIVACY ONLINE
The Internet provides unprecedented opportunities for the collection and sharing of information
from and about consumers. But studies show that consumers have very strong concerns about the security and confidentiality of their personal information in the online marketplace. Many consumers also report being wary of engaging in online commerce, in part because they fear that their personal information can be misused.
These consumer concerns present an opportunity for you to build on consumer trust by implementing effective voluntary industry-wide practices to protect consumers' information privacy. The FTC has held a number of workshops for industry, consumer groups and privacy advocates to explore industry guidelines to protect consumers' privacy online.
In June 1998, the FTC issued Online Privacy: A Report to Congress. The Report noted that while over 85 percent of all websites collected personal information from consumers, only 14 percent of the sites in the FTC's random sample of commercial websites provided any notice to consumers of the personal information they collect or how they use it. In May 2000, the FTC issued a
follow-up report, Privacy
Online: Fair Information Practices in the Electronic Marketplace. While the 2000
survey showed significant improvement in the percent of websites that post at least some
privacy disclosures, only 20 percent of the random sample sites were found to have
implemented four fair information practices: notice, choice, access and security. Even
when the survey looked at the percentage of sites implementing the two critical practices
of notice and choice, only 41 percent of the random sample provided such privacy
disclosures. You can access the FTC's privacy report at www.ftc.gov.
Online Privacy Protection Act (COPPA) and the FTC's implementing Rule took effect
April 21, 2000. Commercial websites directed to children under 13 years old or general
audience sites that have actual knowledge that they are collecting information from a
child must obtain parental permission before collecting such information.
The FTC also has a great deal of information on Protecting Kids’ Privacy
to help children, parents and site operators understand the provisions of COPPA and how
the law affects them.
LAWS ENFORCED BY THE
FEDERAL TRADE COMMISSION
Listed here are some FTC laws about specific marketing practices and the
products and services in specific industries. For copies of the rules and commentaries
relevant to your Internet enterprise, contact: Consumer Response Center, Federal Trade
Commission, Washington, DC 20580; toll-free: 1-877-FTC-HELP (382-4357); TDD: 1-866-653-4261.
Or visit the FTC at www.ftc.gov.
The Franchise and Business Opportunity Rule requires franchise and business
opportunity sellers to give consumers a detailed disclosure document at least 10 days
before the consumer pays any money or legally commits to a purchase. The document must
- the names, addresses, and telephone numbers of other purchasers;
- a fully-audited financial statement of the seller;
- the background and experience of the business's key executives;
- the cost of starting and maintaining the business; and
- the responsibilities of the seller and purchaser once the purchase is made.
In addition, companies that make earnings representations must give consumers the
written basis for their claims, including the number and percentage of owners who have
done at least as well as claimed.
See Franchising and Business Opportunity Ventures.
Multi-level marketing (MLM)
MLM - also known as "network" or "matrix" marketing - is a
way of selling goods and services through distributors. These plans typically promise that
people who sign up as distributors will get commissions two ways - on their own sales and
on the sales their recruits have made.
Pyramid schemes - a form of multi-level marketing - involve paying commissions to
distributors only for recruiting new distributors. Pyramid schemes are illegal in most
states because the plans inevitably collapse when no new distributors can be recruited.
When a plan collapses, most people - except those at the top of the pyramid - lose their
MLMs should pay commissions for the retail sales of goods or services, not for recruiting
new distributors. MLMs that involve the sale of business opportunities or franchises, as
defined by the Franchise Rule, must comply with the Rule's requirements about disclosing
the number and percentage of existing franchisees who have achieved the claimed results,
as well as cautionary language.
and Business Opportunity Ventures.
Credit and Financial Issues
The Truth in Lending Act requires creditors who deal with consumers
to disclose information in writing about finance charges and related aspects of credit
transactions, including finance charges expressed as an annual percentage rate. In
addition, the Act establishes a three-day right of rescission in certain transactions
involving the establishment of a security interest in the consumer's principal dwelling
(with certain exclusions, such as interests taken in connection with the purchase or
initial construction of a dwelling). The Act also establishes certain requirements for
advertisers of credit terms.
See Truth in Lending Act.
The Fair Credit Billing Act is important if you are a creditor billing
customers for goods or services. The Act requires you to acknowledge consumer billing
complaints promptly in writing and to investigate billing errors. The Act prohibits
creditors from taking actions that adversely affect the consumer's credit standing until
the investigation is completed, and affords other consumer protections during disputes.
The Act also requires that creditors promptly post payments to the consumer's account, and
either refund overpayments or credit them to the consumer's account.
See The Fair Credit
The Fair Credit Reporting Act requires that consumer reporting agencies
(CRAs) - such as credit bureaus and resellers of consumer reports - that provide
information to creditors, insurers, employers, and others, do so with due regard for the
confidentiality, accuracy, and legitimate use of such data. When those parties take
adverse action on the basis of information in a credit report, they must identify the CRA
that provided the report so that the consumer can learn how to get a copy to verify or
contest its accuracy and completeness. Creditors and others may not knowingly provide
false information to CRAs, which are required to maintain reasonable procedures to ensure
the maximum possible accuracy of their data.
See Fair Credit Reporting
Act, Credit Reports: What Information Providers Need to Know, Using Consumer Reports:
What Employers Need to Know, and Consumer Reports: What Insurers Need to Know.
The Equal Credit Opportunity Act prohibits lenders from discriminating on
the basis of race, color, religion, national origin, sex, marital status, age, receipt of
public assistance income, or an applicant's good faith exercise of any rights under the
Consumer Credit Protection Act. The ECOA requires creditors to provide applicants with the
reasons credit was denied if the applicant asks.
See Equal Credit
The Electronic Fund Transfer Act establishes the rights, liabilities, and
responsibilities of participants in electronic fund transfer systems. The EFTA requires
participants to adopt certain practices when they deal with transaction accounting and
preauthorized transfers and error resolution, and sets liability limits for losses caused
by unauthorized transfers.
See Electronic Fund
The Consumer Leasing Act regulates personal property leases that exceed
four months and are made to consumers for personal, family, or household purposes. The
statute requires that certain lease costs and terms be disclosed, imposes limitations on
the size of penalties for delinquency or default and on the size of residual liabilities,
and in some instances, requires certain disclosures in lease advertising.
Consumer Leases and How to Advertise
It's deceptive to misrepresent - directly or indirectly - that a product offers a general
environmental benefit. Your ads should qualify broad environmental claims - or avoid them
altogether - to prevent deception about the specific nature of the benefit. In addition,
your ads shouldn't imply significant environmental benefits if the benefit isn't
significant. Say a trash bag is labeled "recyclable" without qualification.
Because trash bags ordinarily are not separated from other trash for recycling at a
landfill or incinerator, it is unlikely that they will be used again. Technically, the bag
may be "recyclable," but the claim is deceptive because it asserts an
environmental benefit where there is no significant or meaningful benefit.
Advertising and Marketing Practices Guide, and Complying with the Green
A product that's advertised as free if another is purchased - "buy one, get one"
- indicates that the consumer will pay nothing for the one item and no more than the
regular price for the other. Ads like these should describe all the terms and conditions
of the free offer clearly and prominently.
See Guide Concerning the Use of
the Word Free and Similar Representations.
The FTC's Jewelry Guides tell you how to make accurate and truthful claims
about jewelry you offer for sale.
The Guides cover claims made for gold, silver, platinum, pewter, diamonds, gemstones, and
pearls and define how certain common terms may be used in ads. For example, the Guides
explain when a product can be called "gold plated" or when a diamond can be
The Guides also describe information that sellers should disclose in their ads so that
consumers are not misled. For example, if you sell synthetic or imitation gemstones, you
must tell the consumer that the gemstone is not natural. In addition, you should tell
consumers if the pearls that you are selling are cultured or imitation, so that consumers
are not misled about the type of pearl being offered.
See Guides for the Jewelry,
Precious Metals and Pewter Industries.
Mail and Telephone Orders
According to the Mail or Telephone Order Merchandise Rule, you must
have a reasonable basis for stating or implying that a product can be shipped within a
certain time. If your ad doesn't include a shipping statement, you must have a reasonable
basis to believe you can ship within 30 days.
If you can't ship when promised, you must notify the customer of the delay and the right
to cancel. For definite delays of up to 30 days, you may treat the customer's silence as
agreement to the delay. For longer or indefinite delays, and second and subsequent delays,
you must get the customer's consent. If you don't, you must promptly refund all the money
the customer paid you without being asked.
You can give updated shipping information over the phone if your Internet ad prompts
customers to call to place an order. This information may differ from what you said or
implied about the shipping time in your ad. The updated phone information supersedes any
shipping representation made in your ad, but you still must have a reasonable basis for
with the FTCs Mail or Telephone Order Merchandise Rule
Negative Option Offers
The Negative Option Rule applies to sellers of subscription plans who
ship merchandise like books or compact discs to consumers who have agreed in advance to
become subscribers. The Rule requires ads to clearly and conspicuously disclose material
information about the terms of the plan. Further, once consumers agree to enroll, the
company must notify them before shipping to allow them to decline the merchandise. Even if
an automatic shipment or continuity program doesn't fall within the specifics of the Rule,
companies should be careful to clearly disclose the terms and conditions of the plan
before billing consumers or charging their credit cards.
See Negative Option Rule.
The 900-Number Rule requires that ads for pay-per-call services
disclose the cost of the call. Ads for services that promote sweepstakes or games of
chance, provide information about a federal program (but are not sponsored by a federal
agency), or target individuals under 18 years of age require additional disclosures. Ads
for 900-numbers cannot be directed to children under 12 unless the ads deal with a bona
fide education service, as defined by the Rule.
Disclosure and Dispute Resolution Act and Complying with the
Advertisements promoting credit repair, promising loans for a fee in advance, or
touting investment opportunities may trigger application of the FTC's Telemarketing
Sales Rule if the ad allows consumers to order goods or services by telephone. In
general, this Rule does not apply to general media advertisements. If you're advertising
credit repair, advance fee loans, or investment opportunities, or offering to recover
money paid in previous telemarketing transactions, however, the Rule likely applies to
you. Among other things, the Rule requires that certain disclosures be made before a
customer pays for the goods or services. The Rule also prohibits material
See Complying with the Telemarketing
Testimonials and Endorsements
Testimonials and endorsements must reflect the typical experiences of consumers,
unless the ad clearly and conspicuously states otherwise. A statement that not all
consumers will get the same results is not enough to qualify a claim. Testimonials and
endorsements can't be used to make a claim that the advertiser itself cannot substantiate.
Connections between an endorser and the company that are unclear or unexpected to a
customer also must be disclosed, whether they have to do with a financial arrangement for
a favorable endorsement, a position with the company, or stock ownership. Expert
endorsements must be based on appropriate tests or evaluations performed by people that
have mastered the subject matter.
See FTC Guides Concerning
Use of Endorsements and Testimonials in Advertising.
Warranties and Guarantees
The Rule on Pre-Sale Availability of Written Warranty Terms
requires that warranties be available before purchase for consumer products that cost more
than $15. If your ad mentions a warranty on a product that can be purchased by mail, phone
or computer, it must tell consumers how to get a copy of the warranty.
Availability of Written Warranty Terms Rule.
If your ad uses phrases like "satisfaction guaranteed" or "money-back
guarantee," you must be willing to give full refunds for any reason. You also must
tell the consumer the terms of the offer.
for the Advertising of Warranties and Guarantees, A
Businesspersons Guide to Federal Warranty Law, and Consumer Product Warranties.
Wool and Textile Products
The Textile and Wool Acts require you to disclose country of origin
information in catalogs and other mail order advertising and in Internet ads that sell
textile and wool products. The description of each advertised item must include a
statement that it was made in the U.S.A., imported or both. A general statement in your
ads that all products are either made in the U.S.A. or imported is not adequate.
Ads that say or imply anything about fiber content must disclose the generic fiber names
(as assigned by the FTC) in order of predominance by weight. This requirement applies to
all ads, whether or not they solicit direct sales. It is not necessary to state the
percentage of each fiber, but fibers present in an amount less than 5 percent should be
listed as "other fiber(s)." (There is an exception to the 5 percent requirement
for fibers that have a functional significance even in an amount less than 5 percent.)
See Textile Fiber Products
Identification Act and Calling It Cotton: Labeling and Advertising Cotton Products.
Made in the U.S.A.
A product has to be "all or virtually all made in the United States" for
it to be advertised or labeled as "Made in the U.S.A."
See Enforcement Policy Statement on U.S. Origin Claims.
The FTC periodically joins with other law enforcement agencies to monitor the Internet
potentially false or deceptive online advertising claims.
If your advertisements don't comply with the law, you could face
enforcement actions or civil lawsuits. For advertisers under the FTC's jurisdiction, that
orders to cease and desist, with fines up to $11,000 per violation
should they occur.
injunctions by federal district courts. Violations of some Commission
rules also could result in civil penalties of up to $11,000 per violation. Violations of
court orders could result in civil or criminal contempt proceedings.
in some instances, refunds to consumers for actual damages in civil
The FTC works for the consumer to
prevent fraudulent, deceptive and unfair business practices in the
marketplace and to provide information to help consumers spot, stop and
avoid them. To file a
complaint or to get free information
on consumer issues, visit
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft and other fraud-related
complaints into Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
FEDERAL TRADE COMMISSION
FOR THE CONSUMER
YOUR OPPORTUNITY TO COMMENT
The Small Business and Agriculture Regulatory Enforcement Ombudsman and 10
Regional Fairness Boards collect comments from small business about federal
enforcement actions. Each year, the Ombudsman evaluates enforcement activities and rates
each agency's responsiveness to small business. To comment on FTC actions, call toll-free