I’m often asked, “Isn’t there a truth in advertising law?!!??” by consumers who feel cheated by a company that embedded a gotcha in its advertisements. My sad answer is often some variation of “No, not really.” At least that’s been the on-the-ground reality for some time. There’s a glimmer of hope that things might be changing, however. The Federal Trade Commission recently sent out hundreds of letters warning companies which sell OTC drugs, homeopathic products, or dietary supplements that they’re being watched for potentially bogus ads — which is both a hopeful sign and a demonstration of just how weak consumer protection efforts are in the USA.
First, to get this out of the way, I’m not a lawyer, and there are actually many, many laws that govern advertising — some generic, some very industry specific. But as I say with only a hint of sarcasm, everything is legal until there’s a lawsuit or an arrest, and that’s the reality most consumers face every day. Basically, TV and radio wouldn’t exist if it weren’t for aggressive snake-oil pitches from companies claiming their lab-tested products will make you younger, or stronger, or more focused — most backed by junk “science,” if at all. But these firms have been given the tactic green light for decades by understaffed federal agencies that could hardly pick 1 in 1,000 battles to fight. And even worse, they’ve often seen a wink and a nod from agencies controlled by a hands-off philosophy derived from a perverted notion of how free markets are supposed to operate.
That’s why I’m encouraged by the announcement recently that the FTC had sent out a pile of so-called “Notice of Penalty Offenses” letters about “substantiation of product claims.” The approximately 700 recipients — large and small firms alike — have been put on notice that the FTC is worried they might be making claims that deceive consumers. The letters do not constitute a legal finding; but they do include warnings that should such a finding occur, the penalty could be about $50,000 per incident. And the letters include reminders of what potential violations look like. Like this:
“Failing to have adequate support for objective product claims; claims relating to the
health benefits or safety features of a product; or claims that a product is effective in the cure,
mitigation, or treatment of any serious disease. These unlawful acts and practices also include:
misrepresenting the level or type of substantiation for a claim, and misrepresenting that a product claim has been scientifically or clinically proven.”
A particular pet peeve of mine in the age of social media is deceptive use of consumer reviews and other endorsements. Apparently, that’s a pet peeve of the current FTC too, because the warning letters also include reminders about that:
“Such unlawful acts and practices include: falsely claiming an endorsement by a third party; misrepresenting that an endorsement represents the experience or opinions of product users; misrepresenting that an endorser is an actual, current, or recent user of a product or service; continuing to use an endorsement without good reason to believe that the endorser continues to hold the views presented; using an endorsement to make deceptive performance claims; failing to disclose an unexpected material connection with an endorser; and misrepresenting that the experience of endorsers are typical or ordinary. Note that positive consumer reviews are a type of endorsement, so such reviews can be unlawful if they are fake or if a material connection is not adequately disclosed.”
“Everyone gets sick, and most of us will experience the infirmities that accompany aging,” wrote FTC Commissioner Rebecca Slaughter about the orders. “That shared vulnerability leaves us all susceptive to health-claim scams and to plausible-sounding treatments that promise to alleviate pain, to restore lost virility, or to help cure the most deadly and tragic of illnesses. At best, many of these product claims are unreliable and waste tens of billions of consumer dollars a year, and, even worse, they can cause serious health problems requiring acute medical attention.”
Advertising is a touchy area and a tough business. There is a centuries-old tradition of sellers doing what they can to get buyers’ attention, with ad-makers walking up to and over the line of what’s deemed legal. That’s to be expected. With attention so divided in our time, those lines have become even more blurry, and the attempts to get consumers’ attention even more desperate. Warning letters sent before dramatic fines certainly seem like a positive way to clean up a murky marketplace before doling out what might be death penalties to smaller companies.
However, the list of warning notice recipients certainly includes companies that could afford to do better research before publishing their ads. Kellogg, AstraZeneca, BASF and Bausch and Lomb are on the list. So are Amazon, Goop, and Kourtney Kardashian’s Lemme, Inc. Again, there is no finding of illegality in these letters. You can see the list yourself.
This isn’t the first set of such warning notices sent out by the FTC recently. In October of 2021, a batch 70 letters went to for-profit colleges focused on alleged exaggerated claims about the future workplace success of graduates. And later that month, another 700 letters went to advertising firms about potentially illegal testimonials and endorsements. And still another 1,000-plus notices went out to companies advertising get-rich-quick offerings to freelancers.
To my knowledge, none of the firms mentioned in the letters have faced fines or penalties, or been found guilty of anything related to the letters.
It might seem uncontroversial to have the nation’s federal watchdog for consumers send out warning letters to companies that could be engaging in deceptive conduct. After all, I’d sure like a warning letter when I’m illegally parked. However, all things have a context, and the strategy of FTC notice of penalty offenses has a deep past.
They were added to the FTC’s toolkit in the 1970s in an effort to more swiftly deal with potential consumer harms. Suing a company takes a long time, and the FTC authority to obtain penalties from law-breaking companies is severely limited. In many cases, the FTC can only claw back ill-gotten gains from misbehaving firms — allowing them a so-called first bite of the apple. In these cases, only after a firm agrees to a settlement with the FTC, then engages in the bad behavior AGAIN, can criminal penalties be assessed. In a fast-changing world, this is an ineffective tool for making sure consumer harm is quickly stopped.
Notice of penalty offenses were added to let the FTC skip to that second step. By telling companies that *other* companies had engaged in the same behavior, and been penalized, that one-bite-of-the-apple step could be skipped. The FTC could go after misbehaving companies straight away, after this warning notice, skipping what I think of as the “FTC two-step.”
This effort is not uncontroversial, however. Use of the letters fell out of practice in the 1980s and instead FTC lawyers used a different legal strategy (the so-called Section 13(b) authority — here’s a history lesson) to obtain penalties or seize and freeze assets belonging to companies engaged in deceptive behavior. That strategy was challenged by a payday lender and in 2021, the U. S. Supreme Court sided with the lender, eliminating this route. So FTC staff resurrected the warning letters.
(Again, I’m not a lawyer. For a different version of this history lesson, visit Veneble’s website).
It’s not hard to find lawyers who think the FTC is on weak legal ground using the warning letters as this first step in the FTC two-step. Cases cited in some of these letters are decades old. I don’t think anyone disagrees this is a workaround, and a less ideal solution than a new law passed by Congress that makes clear the FTC can freeze assets and penalize misbehaving companies on the first offense, the treatment that consumers expect from their local police officer.
If you’ve made it this far, you’ve come to understand my first point, which is how convoluted our efforts are to protect consumers in America — and how we still lay out the welcome mat to scammers and deceptive companies. And I haven’t even delved into all the lame ways advertisers can shield themselves from federal (and state) “truth in advertising” laws. Like “This product is not intended to diagnose, treat, cure or prevent any disease.” Or by our liberal use of the concept of “puffery,” which is legally protected. (It’s ok to say this is the “world’s favorite blog” but it’s not ok to say “4 out of 5 readers prefer this blog” unless I have something to back up that data.)
As I’m fond of saying, free markets are not free-for-all markets. True free markets require perfect information. We don’t have that. And the more imperfect our information is, the more markets require rules to protect the vulnerable. Warning letters take us a step closer to that. Armies of lawyers arguing about Section 12(b) authority for many years does not.
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