Marketing and Advertising on the Internet
Advertising and Marketing on the Internet:
Who’s reaching a global market? Advertisers on the Internet. A new frontier for advertisers and marketers, the Internet is connecting you to customers from Boston to Bali with text, interactive graphics and video and audio.
If you’re thinking about advertising on the Internet, remember that many of the same rules that apply to other forms of advertising apply to electronic marketing. These rules and guidelines protect businesses and consumers—and help maintain the credibility of the Internet as an advertising medium. The Federal Trade Commission (FTC) has prepared this guide to give you an overview of some of the laws it enforces.
GENERAL OFFERS AND CLAIMS
The Federal Trade Commission Act gives the FTC the tools it needs to act in the interest of all consumers to prevent deceptive and unfair acts or practices. In interpreting Section 5 of the Act, the Commission has determined that a representation, omission, or practice is deceptive if it is likely to:
In addition, an act or practice is unfair if the injury it causes, or is likely to cause, is:
The FTC Act prohibits unfair or deceptive advertising in any medium. That is, advertising must tell the truth and not mislead consumers. A claim can be misleading if relevant information is left out or if the claim implies something that’s not true. For example, a lease advertisement for an automobile that promotes “$0 Down” may be misleading if significant and undisclosed charges are due at lease signing.
In addition, claims must be substantiated, especially when they concern health, safety, or performance. The type of evidence may depend on the product, the claims, and what experts believe necessary. If your ad specifies a certain level of support for a claim—“tests show X”—you must have at least that level of support.
Sellers are responsible for claims they make about their products and services. Third parties—such as advertising agencies or web site designers and catalog marketers—also may be liable for making or disseminating deceptive representations if they participate in the preparation or distribution of the advertising, or know about the deceptive claims.
Other points to consider:
PROTECTING CONSUMERS’ PRIVACY ONLINE
The Internet provides unprecedented opportunities for the collection and sharing of information from and about consumers. But studies show that consumers have very strong concerns about the security and confidentiality of their personal information in the online marketplace. Many consumers also report being wary of engaging in online commerce, in part because they fear that their personal information can be misused.
LAWS ENFORCED BY THE FEDERAL TRADE COMMISSION
Listed here are some FTC laws about specific marketing practices and the promotion of products and services in specific industries. To order copies of the rules and commentaries relevant to your Internet enterprise, contact: Consumer Response Center, Federal Trade Commission, Washington, D.C. 20580; 202-FTC-HELP. TDD: 202-326-2502.
In addition, companies that make earnings representations must give consumers the written basis for their claims, including the number and percentage of owners who have done at least as well as claimed.
Multi-level marketing (MLM)
MLM—also known as “network” or “matrix” marketing—is a way of selling goods and services through distributors. These plans typically promise that people who sign up as distributors will get commissions two ways—on their own sales and on the sales their recruits have made.
Pyramid schemes—a form of multi-level marketing—involve paying commissions to distributors only for recruiting new distributors. Pyramid schemes are illegal in most states because the plans inevitably collapse when no new distributors can be recruited. When a plan collapses, most people—except those at the top of the pyramid—lose their money.
MLMs should pay commissions for the retail sales of goods or services, not for recruiting new distributors. MLMs that involve the sale of business opportunities or franchises, as defined by the Franchise Rule, must comply with the Rule’s requirements about disclosing the number and percentage of existing franchisees who have achieved the claimed results, as well as cautionary language.
Credit and Financial Issues
See Truth in Lending Act.
The Fair Credit Billing Act is important if you are a creditor billing customers for goods or services. The Act requires you to acknowledge consumer billing complaints promptly in writing and to investigate billing errors. The Act prohibits creditors from taking actions that adversely affect the consumer’s credit standing until the investigation is completed, and affords other consumer protections during disputes. The Act also requires that creditors promptly post payments to the consumer’s account, and either refund overpayments or credit them to the consumer’s account.
The Fair Credit Reporting Act requires that consumer reporting agencies (CRAs)—such as credit bureaus and resellers of consumer reports—that provide information to creditors, insurers, employers, and others, do so with due regard for the confidentiality, accuracy, and legitimate use of such data. When those parties take adverse action on the basis of information in a credit report, they must identify the CRA that provided the report so that the consumer can learn how to get a copy to verify or contest its accuracy and completeness. Creditors and others may not knowingly provide false information to CRAs, which are required to maintain reasonable procedures to ensure the maximum possible accuracy of their data.
The Equal Credit Opportunity Act prohibits lenders from discriminating on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public assistance income, or an applicant’s good faith exercise of any rights under the Consumer Credit Protection Act. The ECOA requires creditors to provide applicants with the reasons credit was denied if the applicant asks.
The Electronic Fund Transfer Act establishes the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. The EFTA requires participants to adopt certain practices when they deal with transaction accounting and preauthorized transfers and error resolution, and sets liability limits for losses caused by unauthorized transfers.
The Consumer Leasing Act regulates personal property leases that exceed four months and are made to consumers for personal, family, or household purposes. The statute requires that certain lease costs and terms be disclosed, imposes limitations on the size of penalties for delinquency or default and on the size of residual liabilities, and in some instances, requires certain disclosures in lease advertising.
Gemstone treatments refer to the way some gems are altered or treated to improve their appearance or durability. Consumers should be told if a gemstone has been treated, if the treatment is not permanent, or if the treated stone requires special care. You also should provide special care instructions for the gemstone.
If you sell synthetic or imitation gemstones, you should tell the consumer that the gemstone is not natural. Synthetic gemstones are made in a laboratory but have the same composition and properties as natural stones. These gemstones can be described as “synthetic gemstones,” “laboratory-created gemstones,” or “[name of manufacturer]-created gemstones.” Imitation gemstones resemble natural stones only in appearance. They may be glass, plastic or less costly stones. You can describe them as “imitation gemstones” or “simulated gemstones,” or use a similar word to let consumers know that the gemstone is not natural or synthetic.
Natural pearls are made by oysters and other mollusks, and you can advertise and describe them as “natural.” But if you sell cultured or imitation pearls, you must tell consumers that the pearl is not natural. Cultured pearls are made by mollusks with human intervention and should be advertised and described as “cultured.” Imitation pearls are man-made and should be advertised and described as “imitation.”
Mail and Telephone Orders
If you can’t ship when promised, you must send the customer a notice advising him of the delay and his right to cancel. For definite delays of up to 30 days, you may treat the customer’s silence as agreement to the delay. For longer or indefinite delays, and second and subsequent delays, you must get the customer’s consent. If you don’t, you must promptly refund all the money the customer paid you without being asked.
You can give updated shipping information over the phone if your Internet ad prompts customers to call to place an order. This information may differ from what you said or implied about the shipping time in your ad. The updated phone information supersedes any shipping representation made in your ad, but you still must have a reasonable basis for the update.
Negative Option Offers
See Negative Option Rule.
Testimonials and Endorsements
Connections between an endorser and the company that are unclear or unexpected to a customer also must be disclosed, whether they have to do with a financial arrangement for a favorable endorsement, a position with the company, or stock ownership. Expert endorsements must be based on appropriate tests or evaluations performed by people that have mastered the subject matter.
Warranties and Guarantees
Wool and Textile Products
When your ad copy makes disclosures or implications about fiber content, generic names (assigned by the FTC) must appear in order of predominance by weight. It is not necessary to include the percentage of each fiber, but the law requires fibers present in amounts of less than 5 percent to be listed as “other fiber(s).”
Made in the U.S.A.
The FTC periodically joins with other law enforcement agencies to monitor the Internet for potentially false or deceptive online advertising claims.
If your advertisements don’t comply with the law, you could face enforcement actions or civil lawsuits. For advertisers under the FTC’s jurisdiction, that could mean:
FOR MORE INFORMATION
The FTC publishes a series of publications to help businesses understand compliance requirements no matter where they advertise. Many are available at BusinessLine. For printed copies, contact: Consumer Response Center, Federal Trade Commission, Washington, D.C. 20580; 202-FTC-HELP; TDD: 202-326-2502.
YOUR OPPORTUNITY TO COMMENT
The Small Business and Agriculture Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards collect comments from small business about federal enforcement actions. Each year, the Ombudsman evaluates enforcement activities and rates each agency’s responsiveness to small business. To comment on FTC actions, call 1-888-734-3247.
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