Advertising and Marketing

on the Internet

Rules of the Road Federal Trade Commission

Bureau of Consumer Protection

September 2000
Inside

General Offers and Claims

Protecting Consumers Privacy Online

Laws Enforced by the Federal Trade Commission

Business Opportunities

Credit and Financial Issues

Environmental Claims

Free Products

Jewelry

Mail and Telephone Orders

Negative Option Offers

900 Numbers

Telemarketing

Testimonials and Endorsements

Warranties and Guarantees

Wool and Textile Products

Made in the U.S.A.

Non-Compliance

For More Information

Your Opportunity to Comment
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he Internet is connecting advertisers and marketers to customers from Boston to Bali with text,

interactive graphics, video and audio. If youre 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.

Rules of the Road

WHOS REACHING A GLOBAL MARKET?

ADVERTISERS ON THE INTERNET.

ADVERTISING MUST TELL

THE TRUTH AND NOT

MISLEAD CONSUMERS.

IN ADDITION, CLAIMS

MUST BE SUBSTANTIATED.
GENERAL OFFERS AND CLAIMS  PRODUCTS AND SERVICES

T

he Federal Trade Commission Act allows the FTC 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:

● mislead consumers and

● affect consumers behavior or decisions about the product or service.

In addition, an act or practice is unfair if the injury it causes, or is likely to cause, is:

● substantial

● not outweighed by other benefits and

● not reasonably avoidable.

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 thats 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 website 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.

● Advertising agencies or website designers are responsible for reviewing the

information used to substantiate ad claims. They may not simply rely on an

advertisers assurance that the claims are substantiated. In determining whether an ad

agency should be held liable, the FTC looks at the extent of the agencys participation

in the preparation of the challenged ad, and whether the agency knew or should have

known that the ad included false or deceptive claims.

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Rules of the Road
● To protect themselves, catalog marketers should ask for material to back up claims

rather than repeat what the manufacturer says about the product. If the manufacturer

doesnt come forward with proof or turns over proof that looks questionable, the

catalog marketer should see a yellow caution light and proceed appropriately,

especially when it comes to extravagant performance claims, health or weight loss

promises, or earnings guarantees. In writing ad copy, catalogers should stick to claims

that can be supported. Most important, catalog marketers should trust their instincts

when a product sounds too good to be true.

Other points to consider:

● Disclaimers and disclosures must be clear and conspicuous. That is,

consumers must be able to notice, read or hear, and understand the

information. Still, a disclaimer or disclosure alone usually is not enough to

remedy a false or deceptive claim.

● Demonstrations must show how the product will perform under normal use.

● Refunds must be made to dissatisfied consumers  if you promised to make

them.

● Advertising directed to children raises special issues. Thats because

children may have greater difficulty evaluating advertising claims and

understanding the nature of the information you provide. Sellers should take

special care not to misrepresent a product or its performance when

advertising to children. The Childrens Advertising Review Unit

(CARU) of the Council of Better Business Bureaus has published

specific guidelines for childrens advertising that you may find helpful.

Dot Com Disclosures: Information About Online Advertising, an FTC

staff paper, provides additional information for online advertisers.

The paper discusses the factors used to evaluate the clarity and

conspicuousness of required disclosures in online ads. It also

discusses how certain FTC rules and guides that use terms

like writing or printed apply to Internet activities and

how technologies such as email may be used to comply

with certain rules and guides.

Click on Dot Com Disclosures: Information About Online Advertising.

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Rules of the Road
PROTECTING CONSUMERS PRIVACY ONLINE

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he 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.

These consumer concerns present an opportunity for you to

build on consumer trust by implementing effective

voluntary industry-wide practices to protect consumers

information privacy. The FTC has held a number of

workshops for industry, consumer groups and privacy

advocates to explore industry guidelines to protect

consumers privacy online.

In June 1998, the FTC issued Online Privacy: A Report

to Congress. The Report noted that while over 85 percent

of all websites collected personal information from

consumers, only 14 percent of the sites in the FTCs

random sample of commercial websites provided any

notice to consumers of the personal information they

collect or how they use it. In May 2000, the FTC issued

a follow-up report, Privacy Online: Fair Information

Practices in the Electronic Marketplace. While the 2000

survey showed significant improvement in the percent of

websites that post at least some privacy disclosures, only 20

percent of the random sample sites were found to have implemented four fair information

practices: notice, choice, access and security. Even when the survey looked at the percentage of

sites implementing the two critical practices of notice and choice, only 41 percent of the random

sample provided such privacy disclosures. You can access the FTCs privacy report at

www.ftc.gov.

The Childrens Online Privacy Protection Act (COPPA) and the FTCs implementing Rule took

effect April 21, 2000. Commercial websites directed to children under 13 years old or general

audience sites that have actual knowledge that they are collecting information from a child must

obtain parental permission before collecting such information.

The FTC also launched a special site at www.ftc.gov/kidzprivacy to help children, parents and

site operators understand the provisions of COPPA and how the law will affect them.

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Rules of the Road
LAWS ENFORCED BY THE FEDERAL TRADE COMMISSION

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isted here are some FTC laws about specific marketing practices and the promotion of

products and services in specific industries. For copies of the rules and commentaries relevant

to your Internet enterprise, contact: Consumer Response Center, Federal Trade Commission,

Washington, DC 20580; toll-free: 1-877-FTC-HELP (382-4357); TDD: 202-326-2502. Or visit

the FTC at www.ftc.gov.

Business Opportunities

The Franchise and Business Opportunity Rule requires franchise and business opportunity

sellers to give consumers a detailed disclosure document at least 10 days before the consumer

pays any money or legally commits to a purchase. The document must include:

● the names, addresses, and telephone numbers of other purchasers;

● a fully-audited financial statement of the seller;

● the background and experience of the businesss key executives;

● the cost of starting and maintaining the business; and

● the responsibilities of the seller and purchaser once the purchase is made.

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.

Click on Franchise Rule and Business Opportunity Ventures.

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

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Rules of the Road
the Franchise Rule, must comply with the Rules requirements about disclosing the number and

percentage of existing franchisees who have achieved the claimed results, as well as cautionary

language.

Click on Franchise Rule and Business Opportunity Ventures.

Credit and Financial Issues

The Truth in Lending Act requires creditors who deal with

consumers to disclose information in writing about finance charges

and related aspects of credit transactions, including finance charges

expressed as an annual percentage rate. In addition, the Act

establishes a three-day right of rescission in certain transactions

involving the establishment of a security interest in the consumers principal dwelling (with

certain exclusions, such as interests taken in connection with the purchase or initial construction

of a dwelling). The Act also establishes certain requirements for advertisers of credit terms.

Click on 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 consumers 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 consumers account, and either refund overpayments or credit them to the

consumers account.

Click on Fair Credit Billing Act.

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.

Click on Fair Credit Reporting Act, Credit Reports: What Information Providers Need to

Know, Using Consumer Reports: What Employers Need to Know, and Credit Reports:

What Insurers Need to Know.

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 applicants good faith exercise of any rights under the Consumer Credit Protection Act. The

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Rules of the Road
ECOA requires creditors to provide applicants with the reasons credit was denied if the applicant

asks.

Click on Equal Credit Opportunity Act.

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.

Click on Electronic Fund Transfer Act.

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.

Click on Advertising Consumer Leases and How to Advertise Consumer Credit.

Environmental Claims

Its deceptive to misrepresent  directly or indirectly  that a product offers a general

environmental benefit. Your ads should qualify broad environmental claims  or avoid

them altogether  to prevent deception about the specific nature of the benefit. In

addition, your ads shouldnt imply significant environmental benefits if

the benefit isnt significant. Say a trash bag is labeled

recyclable without qualification. Because trash bags

ordinarily are not separated from other trash for

recycling at a landfill or incinerator, it is

unlikely that they will be used again.

Technically, the bag may be recyclable,

but the claim is deceptive because it asserts an

environmental benefit where there is no significant or meaningful benefit.

Click on Environmental Advertising and Marketing Practices Guide, and Complying with

the Green Guides.

Free Products

A product thats advertised as free if another is purchased  buy one, get one  indicates that

the consumer will pay nothing for the one item and no more than the regular price for the other.

Ads like these should describe all the terms and conditions of the free offer clearly and

prominently.

Click on Guide Concerning the Use of the Word Free and Similar Representations.

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Rules of the Road
Jewelry

The FTCs Jewelry Guides tell you how to make accurate and truthful claims about jewelry you

offer for sale.

The Guides cover claims made for gold, silver, platinum, pewter, diamonds, gemstones, and

pearls and define how certain common terms may be used in ads. For example, the

Guides explain when a product can be called gold plated or when a diamond can

be called flawless.

The Guides also describe information that sellers should disclose in their ads so that

consumers are not misled. For example, if you sell synthetic or imitation gemstones, you

must tell the consumer that the gemstone is not natural. In addition, you should tell consumers if

the pearls that you are selling are cultured or imitation, so that consumers are not misled about

the type of pearl being offered.

Click on Guides for the Jewelry, Precious Metals and Pewter Industries.

Mail and Telephone Orders

According to the Mail or Telephone Order Merchandise Rule, you must have a reasonable basis

for stating or implying that a product can be shipped within a certain time. If your ad doesnt

include a shipping statement, you must have a

reasonable basis to believe you can ship within 30 days.

If you cant ship when promised, you must notify the

customer of the delay and the right to cancel. For

definite delays of up to 30 days, you may treat the

customers silence as agreement to the delay. For

longer or indefinite delays, and second and

subsequent delays, you must get the customers

consent. If you dont, 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.

Click on Complying with the FTCs Mail or Telephone Order Merchandise Rule.

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Rules of the Road

YOU MUST HAVE A REASONABLE

BASIS FOR STATING OR IMPLYING

THAT A PRODUCT CAN BE SHIPPED

WITHIN A CERTAIN TIME.
Negative Option Offers

The Negative Option Rule applies to sellers of subscription plans who ship merchandise like

books or compact discs to consumers who have agreed in advance to become subscribers. The

Rule requires ads to clearly and conspicuously disclose material information about the terms of

the plan. Further, once consumers agree to enroll, the company must notify them before

shipping to allow them to decline the merchandise. Even if an automatic shipment or continuity

program doesnt fall within the specifics of the Rule, companies should be careful to clearly

disclose the terms and conditions of the plan before billing consumers or charging their credit

cards.

Click on Negative Option Rule.

900 Numbers

The 900-Number Rule requires that ads for pay-per-call services disclose the cost of the call.

Ads for services that promote sweepstakes or games of chance, provide information about a

federal program (but are not sponsored by a federal agency), or target individuals under 18 years

of age require additional disclosures. Ads for 900-numbers cannot be directed to children under

12 unless the ads deal with a bona fide education service, as defined by the Rule.

Click on Telephone Disclosure and Dispute Resolution Act and Complying with the 900-

Number Rule.

Telemarketing

Credit Repair, Advance Fee Loans, & Investment Opportunities

Advertisements promoting credit repair, promising loans for a fee in advance, or touting

investment opportunities may trigger application of the FTCs Telemarketing Sales Rule if the

ad allows consumers to order goods or services by telephone. In

general, this Rule does not apply to general media

advertisements. If youre advertising credit repair, advance fee

loans, or investment opportunities, or offering to recover

money paid in previous telemarketing transactions, however,

the Rule likely applies to you. Among other things, the

Rule requires that certain disclosures be made before a

customer pays for the goods or services. The Rule also

prohibits material misrepresentations.

Click on Complying with the Telemarketing Sales Rule.

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Rules of the Road
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Testimonials and Endorsements

Testimonials and endorsements must reflect the typical experiences of consumers, unless the ad

clearly and conspicuously states otherwise. A statement that not all consumers will get the same

results is not enough to qualify a claim. Testimonials and endorsements cant be used to make a

claim that the advertiser itself cannot substantiate.

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.

Click on FTC Guides Concerning Use of Endorsements and Testimonials in Advertising.

Warranties and Guarantees

Warranties

The Rule on Pre-Sale Availability of Written Warranty Terms requires that warranties be

available before purchase for consumer products that cost more than $15. If your ad mentions a

warranty on a product that can be purchased by mail, phone or

computer, it must tell consumers how to get a copy of the

warranty.

Click on Pre-Sale Availability Written Warranties Rule.

Guarantees

If your ad uses phrases like satisfaction guaranteed or

money-back guarantee, you must be willing to give full

refunds for any reason. You also must tell the consumer the

terms of the offer.

Click on Guides for the Advertising of Warranties and

Guarantees, A Businesspersons Guide to Federal

Warranty Law, and A Legal Supplement to Federal Warranty Law.

Wool and Textile Products

The Textile and Wool Acts require you to disclose country of origin information in catalogs and

other mail order advertising and in Internet ads that sell textile and wool products. The description

of each advertised item must include a statement that it was made in the U.S.A., imported or

both. A general statement in your ads that all products are either made in the U.S.A. or imported

is not adequate.

Rules of the Road

YOU MUST TELL THE

CONSUMER THE TERMS

OF THE OFFER.
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Rules of the Road

Ads that say or imply anything about fiber content must disclose the generic fiber names (as

assigned by the FTC) in order of predominance by weight. This requirement applies to all ads,

whether or not they solicit direct sales. It is not necessary to state the percentage of each fiber, but

fibers present in an amount less than 5 percent should be listed as other fiber(s). (There is an

exception to the 5 percent requirement for fibers that have a functional significance even in an

amount less than 5 percent.)

Click on Threading Your Way Through the Labeling Requirements Under the Textile and

Wool Acts, Textile Fiber Products Identification Act, Calling It Cotton: Labeling and

Advertising Cotton Products, and A Direct Marketers Guide to Labeling Requirements

Under the Textile and Wool Acts.

Made in the U.S.A.

A product has to be all or virtually all made in the United States for it to be advertised or

labeled as Made in the U.S.A.

Click on Enforcement Policy Statement on U.S. Origin Claims.

NON-COMPLIANCE

T

he FTC periodically joins with other law enforcement agencies to monitor the Internet for

potentially false or deceptive online advertising claims.

If your advertisements dont comply with the law, you could face enforcement actions or civil

lawsuits. For advertisers under the FTCs jurisdiction, that could mean:

● orders to cease and desist, with fines up to $11,000 per violation should they occur.

● injunctions by federal district courts. Violations of some Commission rules also could

result in civil penalties of up to $11,000 per violation. Violations of court orders could

result in civil or criminal contempt proceedings.

● in some instances, refunds to consumers for actual damages in civil lawsuits.
FOR MORE INFORMATION

T

he FTC publishes a series of publications to help businesses understand compliance

requirements no matter where they advertise. Many are available at www.ftc.gov. For print

copies, contact: Consumer Response Center, Federal Trade Commission, Washington, DC

20580; toll-free: 1-877-FTC-HELP (382-4357); TDD: 202-326-2502.

YOUR OPPORTUNITY TO COMMENT

T

he 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 agencys

responsiveness to small business. To comment on FTC actions, call toll-free 1-888-734-3247.

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Rules of the Road

September 2000

FEDERAL TRADE COMMISSION

FOR THE CONSUMER

TOLL-FREE 1-877-FTC-HELP

WWW.FTC.GOV