The FTC Cracks Down on Deceptive Marketing Practices | May 2023
The Federal Trade Commission (FTC) issued warnings to nearly 700 companies about unsubstantiated product claims in an ongoing effort to re-assert its authority in penalizing companies for deceptive marketing practices, according to The Wall Street Journal. These firms have not necessarily engaged in inappropriate behavior, but the FTC wants to make its position clear on deceptive marketing.
The Federal Trade Commission
The FTC was created in 1914 to regulate unfair competition. Today, the FTC influences business activities related to questionable practices that create disputes between businesses and their customers. Although the FTC has many divisions (from the Division of Privacy and Identity Protection to the Division of Financial Practices), it allocates a large portion of resources to curbing false advertising, misleading pricing, and deceptive packaging and labeling.
When the FTC receives a complaint or otherwise has reason to believe that a firm is violating a law, the FTC issues a complaint stating that the business is in violation. If a company continues the questionable practice, the FTC can issue a cease-and-desist order. The charged firm can appeal to the federal courts to have the order rescinded. However, the FTC can seek civil penalties in court—up to a maximum penalty of $10,000 a day for each infraction—if a cease-and-desist order is violated.
The FTC and Advertising
Regardless of the message or platform, the product claims in ads must be honest and truthful. The FTC has oversight and takes action to stop deceptive advertising.
In December 2022, The FTC issued new advertising guidance for health-related products (replacing the guide it created in 1998) to emphasize the need for strong scientific research and evidence to support marketing claims and the need for ad agencies, endorsers, and others making claims to follow the rules.
The publication also clarified that the guidelines apply to all health-related claims, not just claims for dietary supplements as the previous publication implied. Health-related products can include dietary supplements, foods, homeopathic products, health equipment, health apps, and more. Health-related product claims should be truthful, supported by concrete scientific evidence, and not misleading. These rules are not laws but are intended to help advertisers comply with the FTC’s laws.
Some are concerned the FTC’s crackdown could negatively affect direct-to-consumer and other small businesses because they may not have the financial resources to conduct high-quality, randomized, controlled human clinical trials necessary to support health claims. Some say the previous guidelines were more flexible and the new guidelines adopt a one-size-fits-all approach.
Looking to the Future
Since updating the health-related product guidelines in 2022, the FTC issued 670 warnings to companies, including pharmaceutical company AstraZeneca, retailer CVS Health, packaged goods company General Mills, and media company Goop. It’s important to note, however, that the FTC said just because a company appeared on the list does not mean it actually engaged in deceptive or unfair behavior. The FTC’s motive in issuing the warnings was to re-establish itself as an authority in this area, discourage false advertising, and improve its ability to hold companies accountable. Companies must receive a notice (such as this) before the FTC can issue penalties.
Many companies will likely review and update their marketing practices due to these recent events. Last year, Walmart and Kohl’s were sued by the FTC for falsely claiming some rayon products (synthetic fiber) were environmentally friendly and made from bamboo (natural fiber). Rayon can be made from bamboo but the synthetic fiber is not environmentally friendly, so the FTC considered the labeling to be greenwashing. They agreed to pay a combined $5.5 million.
Since the late 90s when the original health-related guidelines were published, the FTC has overseen 200 cases of false or misleading advertising claims of health-related products.
In the Classroom
This article can be used to discuss fairness and honesty (Chapter 2: Business Ethics and Social Responsibility) and advertising (Chapter 12: Dimensions of Marketing Strategy).
Discussion Questions
- What is the FTC’s role in advertising and marketing?
- Why did the FTC issue a warning?
- How could the FTC’s crackdown negatively affect direct-to-consumer and other small businesses?
This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.
Sources:
Lesley Fair, "What's New—and What Isn't—in the FTC's Just-Published Health Products Compliance Guidance," Federal Trade Commission, December 20, 2022, https://www.ftc.gov/business-guidance/blog/2022/12/whats-new-what-isnt-ftcs-just-published-health-products-compliance-guidance
Megan Graham, "What Marketers Need to Know About the FTC’s Updated Guidelines on Health Claims," The Wall Street Journal, January 6, 2023, https://www.wsj.com/articles/what-marketers-need-to-know-about-the-ftcs-updated-guidelines-on-health-claims-11673021785
Patrick Coffee, "FTC Alerts Nearly 700 Companies About Potential Penalties for Misleading Claims," The Wall Street Journal, April 14, 2023, https://www.wsj.com/articles/ftc-alerts-nearly-700-companies-about-potential-penalties-for-misleading-claims-f240b92b