Federal Regulations on Advertising

Advertising is all about creatively getting consumers to buy a product. But can this creativity be misleading? Of course yes and to fight it we have Federal Trade Commission. This independent agency has guidelines on permitted and prohibited contents to be used in the advertising. Companies are expected to voluntarily abide by them. In case of failure, they risk being in trouble.

Typically, whether an ad is deceptive is decided through three steps formalized by FTC. They are:
1. Ad Contents or actions that are false, partially true or carry some form of exclusion
2. May dupe
3. An objective consumer

Also consider the following to know how the ad contents can be presented:

Puffing: Puffing means using general statements or exaggeration in an ad. FTC allows it to some extent. But to make sure it is being used correctly, an ad should contain subjective instead of objective statements. They should be such that lab test of the product is not needed.
"Gone are the days of desktop computers"
"It tastes like chicken"
"As cute as kitten"

Ad substantiation: Ad substantiation means showing validity of a claim in the ad through experts, studies or any other visible proof. FTC allows this only if the company truly documents as backup. Also any studies mentioned in the ad must be those that are done through valid scientific method. Failure to do it means the ad has half truth and thus, deceptive. Examples of ad substantiation are:
"It is clinically proven"
"The product most dermatologists recommend"
"Top rated"
"It comes in 7 different sizes"

If the ad here is factually correct it adheres to FTC rules on substantiation

Bait and Switch advertising: In simplest form, bait and switch ad is the mismatch between what is shown and given to the consumers. Say that you come across an ad showing a $200 red laptop. You go to buy it, but the company tells you that since it is no more available, you may try buying their other laptops priced over $200. In the virtual world, it is called bait-and-click advertising. In general, FTC prohibits it in all forms.

So what happens if the FTC rules are violated? Consumers can report the business entity to the agency. Multiple complaints means investigation. If FTC finds proof of deception a letter containing the complaint is sent to the business. If they reject it FTC takes the case to court. After evaluating it, if the judge finds the violation to be true FTC is allowed to hold cease-and-desist order against the business to terminate their deceptive practice. Of course, things do not need to end there. In fact, the business can challenge the order by taking the case to FTC commissioners. If this does not work they can go to both circuit and supreme courts respectively. But complete rejection of  cease-and-desist order prior to this can either get the business banned or fined. The amount is decided by looking at the number of violations. Each may require a payment as high as $10,000.

To avoid this situation, the business has the option to end the dilemma through the consent order as soon as the first FTC complaint letter is received. The advantage of taking this route is that the business does not need to admit the guilt. However, breaking of the consent can still get it penalized.