FAIR TRADE

25 Years and Counting

By:

25 Years and Counting

When ERA formed 25 years ago, what topics were on the agenda for the organization’s first meeting with the Federal Trade Commission (FTC) staff? Advertising formats, substantiation, endorsements, the use of upsells and negative options, and the role of self-regulation in protecting the interests of consumers and competition. Fast-forward a quarter of a century, and those topics are still top-of-mind for retailers and regulators. What have we learned since 1990—and where is law enforcement likely to lead in the coming years?

Advertising formats. The FTC’s first law enforcement action involving an infomercial focused on an ad for sunglasses that the agency said looked deceptively like independent, investigative programming. The consideration then was whether consumers understood that what they were watching was an ad. And as the FTC’s 2013 “Blurred Lines” workshop demonstrates, ad formats remain a hot issue.

Whether the question arises in infomercials, native ads, or social media, the lessons of that early case apply with full force today. Savvy marketers avoid methods that deceive consumers about the source of the information or the nature of the transaction.

Substantiation. Early FTC infomercial cases challenged misleading claims for weight loss, cellulite reduction, and hair growth. Twenty-five years later, and there’s still no pill or potion that’s guaranteed to make us thinner, sleeker, or younger-looking.

Something else hasn’t changed: Companies that pitch their products’ health benefits must support their claims with competent, reliable scientific evidence. Depending on the representations made, that support may require randomized clinical testing, as the recent POM Wonderful court decision clarified.

Endorsements. Consumer endorsements were a staple of early infomercials, and they remain an effective marketing tool for electronic retailers today. But if a company doesn’t have objective proof supporting the underlying advertising claim, it shouldn’t attempt the end-run of conveying it through a testimonial.

If you use endorsements in your ads, three fundamental principles apply: (1) Endorsements must be truthful and not misleading; (2) If you don’t have proof that the endorser’s experience represents what consumers will achieve by using the product, the ad must clearly and conspicuously disclose the generally expected results in the depicted circumstances; and (3) If there’s a connection between the endorser and the marketer of the product that would affect how people evaluate the endorsement, you must disclose it.

Upsells and negative options. It’s illegal—and it always has been illegal—to bill consumers without their express authorization. Whether marketers use direct mail, mobile media, or anything in-between, the onus is on them to explain the material terms and conditions upfront and get consumers’ informed consent to the charges. Failure to get authorization was one of the allegations in a 1991 FTC lawsuit against an infomercial marketer that ultimately settled for a then-record-breaking $3.5 million in consumer refunds.

Although the basic principles remain the same, some things have changed. For example, the Telemarketing Sales Rule (TSR) and the Restore Online Shoppers’ Confidence Act (ROSCA) have imposed specific requirements on marketers that offer upsells or negative options. Another major development? Law enforcement actions related to unfair billing practices have resulted in settlements that add a zero (or two) to the dollar figures typical of 25 years ago.

Self-regulation. When the FTC goes to court, it represents the public interest. But that doesn’t refer just to consumers. The FTC also wants to encourage a competitive marketplace, and companies that work hard to comply with the law shouldn’t have to compete against companies that cut corners. That’s why the FTC has long supported the self-regulatory efforts of the electronic retailing industry—and will continue to work with ERA for at least another 25 years.

Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection.