Avoid Unlawful Advertising: Seven Rules for Your Business

Crow all you want about your product or service, but keep your advertising claims truthful or you might find you’re eating crow.

Advertising laws are designed to protect consumers from making purchases based on false or misleading information. Advertisers who fail to follow the rules face considerable financial consequences.

What Is False, Misleading, or Unfair Advertising?

Put simply, the law requires you to tell the truth about your products and services. Making a deceptive, unfounded, or misleading claim in your advertising is not just unethical, it's a crime.

You can't claim or imply that your product or service does something it doesn't, exaggerate the way your product performs, fudge on what it contains or the materials used to make it, claim it's appropriate to use in a situation for which it is not designed, or make false or misleading comparisons or claims about your competitors.

States and the federal government set rules and guidelines for truthful advertising. It doesn't matter if you use print, TV, digital, radio, direct mail, in-store ads, posters, or any other media to tout your products or services, regulators can issue fines, prohibit you from advertising, and even compel you to run ads correcting your misstatements.

The law breaks down unlawful advertising into three categories, which are often used interchangeably:

  • false or deceptive advertising
  • misleading advertising, and
  • unfair advertising.

False or deceptive advertising. False advertising is a claim that is patently untrue. It's unlawful to say that customers who wear your sneakers will lose weight, or that eating your yogurt can cure disease unless you can show credible scientific evidence to prove your assertions.

You also can't omit information vital to the features or benefits of a product or service. Advertising a vacuum cleaner at a deep discount and failing to say that it is not new, but refurbished, would be misleading customers by omission.

Misleading advertising. Advertising doesn't have to be an outright lie to be unlawful. It is also unlawful to mislead customers by implying your product does something it won't.

For example, advertising that ingredients in yogurt contain enzymes that prevent certain diseases would be misleading because it implies that the yogurt prevents diseases, even though the ad doesn't expressly make that claim.

Unfair advertising. Unfair advertising refers to ads or practices that might cause unavoidable injury to consumers. Sometimes, injury or the risk of harm is an inevitable part of the product or service, but to run afoul of the strictures against unfair advertising, the disadvantages of the product or service must outweigh the benefits. For example, pharmaceutical drugs typically have negative side effects, so pharmaceutical companies routinely disclose the potential side effects to fairly convey the health risks of using their products.

Avoid Unlawful Advertising—10 Rules to Follow

#1. Keep claims accurate. Claims about your product or service must be true and tell buyers exactly what they are purchasing. For example, you can't say your shampoo is made of 100% natural ingredients if it contains some synthetic ingredients, unless the amount of synthetic content is nominal.

#2. Back up claims with evidence. If you are claiming a product benefit such as weight loss, wrinkle reduction, improved memory, download speeds, gas mileage, energy efficiency, and such, you'll need to be prepared to substantiate your assertions. Credible sources are a respected independent, third party—usually a university, hospital, or research laboratory study. You can't say your moisturizing cream is clinically proven to reduce wrinkles just because you have a few testimonials from friends and family.

Even when you go through the expense of a clinical study or other research, you'll have to be certain that the product is the only reason for the result you claim it achieves. For example, you should not claim that those using your weight loss supplement lost an average of 10 pounds if the subjects of the study were also required to follow an exercise regime (the exercise might have been equally responsible for the resulting weight loss).

#3. Don't call it a sale price if it isn't. You can't advertise a sale or discounted price unless you've previously sold it at a higher price, and you offer the discounted price for a limited period of time. (You can sell an item at an "everyday low price" all the time, but you can't call it a sale price if there's no end in sight for when the item will again be sold at the higher price.)

#4. Make sure advertised items are in stock for sale. When you advertise an item at a discounted price, you must have enough inventory on hand to meet reasonably anticipated demand. If quantities of an advertised product are limited (such as close-out items you'll never carry again), include a clear and prominent statement to that effect in your ad. The same goes when you want to limit the number of items a customer may buy—your ad must clearly and prominently state the number of items allowed.

Some states require grocers to issue rain checks that allow customers to purchase the advertised item at the sale price at a later date when supplies run out during the sale period.

#5. Never use bait and switch tactics. The term "bait and switch" refers to the illegal practice of advertising an item for the sole purpose of enticing customers to come to the store with no intention of selling that item. Customers who respond to the ad are told the item isn't available or that it's an inferior quality product, and they are encouraged to purchase a different item at a higher price.

#6. Use truthful testimonials, endorsements, and reviews. You can't make up customer testimonials or reviews you use in your ads, or feature endorsements from people who haven't used your product. If you offer customers incentives (such as entry into a prize drawing for submitting a review), you must include wording such as, "This review was part of a promotion."

#7. Treat competitors fairly. When you compare your product or service to a competitor's, compare all the features and benefits, not just those that compare favorably. Suppose you sell phone service at a base price that's lower than your closest competitor, but you charge additional fees and surcharges on top of the base, making the all-in price the same as, or higher, than your competitor. You can't say your rates are less expensive than the other brand unless you also disclose all the information about your fees.

#8. Use artwork that accurately reflects your products. Artwork that accompanies your ad must also accurately represent your product or service. If your store is running a sale on black shoes, you can't use a picture of a red shoe to advertise the promotion, even when your ad copy specifies that only black shoes are on sale.

#9. Don't call it free if it isn't. When you advertise something as "free," it must be truly free of any conditions. Suppose you run a promotion giving customers a free makeup bag with the purchase of makeup. Running an ad that said, "Come in for your free makeup bag," without referencing the purchase requirement, would deceive customers into thinking they didn't have to buy anything to get the free gift. Similarly, you can't advertise free delivery if you require a minimum purchase to qualify. Your ad would have to specify the purchase amount required.

#10. Use realistic demonstrations. Ads that include product demonstrations must show how a product performs under normal use. For example, if your ad demonstrates a model applying mascara to lengthen lashes, using false eyelashes to enhance the effect of the mascara would mislead customers.

Who Decides What's Unlawful Advertising?

The Federal Trade Commission (FTC) is the primary agency that regulates advertising and enforces unlawful advertising laws passed by Congress (and signed by the President). General and industry-specific rules are published on the FTC website.

States also set and enforce their own regulations, usually through the attorney general's office, local district attorney's office, or a state consumer protection agency.

Companies that engage in unlawful advertising can face lawsuits from the FTC and state governments, and competitors and consumers can also bring private lawsuits.

How the FTC Enforces Advertising Laws

Unlawful advertising complaints can be brought to the FTC's attention by consumers, competitors, and citizen watchdog groups. If an investigation finds the complaint is warranted, the FTC sends a warning letter to the advertiser. If the letter goes unheeded, the FTC can issue a stronger warning in the form of a cease and-desist order, and if that doesn't work, the FTC can ask a court for an injunction (a judge's order to stop the advertising). The agency also has the authority to issue fines up to $43,792 per day to companies that violate advertising laws.

In 2021, the U.S. Supreme Court severely limited the FTC's ability to collect damages on behalf of consumers (AMG Capital Management, LLC et al. v. Federal Trade Commission, No. 19-508, 593 U.S. ___(2021). Historically, the FTC was able to return billions to consumers who were harmed by unlawful advertising. Following the Supreme Court's decision, a group of U.S. Senators introduced S. 4145, The Consumer Protection Remedies Act of 2022, a bill that would restore the FTC's authority to seek damages for consumers.

While Congress decides the fate of the 2022 bill, the FTC is bringing some actions for monetary relief under different laws and authorities, such as the COVID-19 Consumer Protection Act, and it partners with states whose laws allow them to seek refunds for consumers.

How States Enforce Unlawful Advertising Laws

States also have authority to seek court orders to stop unlawful advertising and bring civil suits to refund money to consumers. Consumers, too, can sue advertisers and seek refunds under state consumer protection laws.

Class action lawsuits (those brought by a large group of consumers) can be especially influential at deterring unfair advertising because they usually result in very large fines and awards.

Do Unfair Advertising Laws Apply to Social Media?

Social media advertising is subject to the same rules and regulations that apply to any other types of ads, but because social media also involves styles of advertising unique to the medium, additional guidelines apply.

Advertisers are required to include special disclosures for so-called native advertising (ads that look like editorial content written by journalists or other neutral, third parties but are actually paid for by the advertiser). Native advertising is commonly used in social media advertising.

Some examples of native advertising include the use of influencers to discuss or demonstrate products and services, articles written by the advertiser (sometimes called advertorials), and YouTube videos that promote products or services by portraying the advertiser being interviewed.

Advertisers that use native advertising must disclose that they paid for or contributed to the content to avoid misleading consumers into thinking the content reflects the opinion of an objective, third party. The FTC publishes a set of guidelines for these types of ads, including requirements for writing and placing the disclosures.

Some Industries Have Special Advertising Rules

Certain products and services fall under the jurisdiction of government agencies that often operate in combination with the FTC and state laws. Some examples include:

Watch Out for Changes and Additions to Advertising Rules

It's a good idea to keep an eye out for changes and new regulations, because the FTC and state legislatures periodically add laws and guidelines for emerging industries and trends.

For example, while cryptocurrencies like bitcoin have historically been unregulated, more than half the states in the country are now considering or are enacting regulations for the industry.

Other additions and revisions in recent years include regulations for organic products, including the percentage of organic ingredients a product must contain to label foods "organic" or "100% organic." The FTC also regularly updates guidelines for advertising to children.

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