Opinion

Paid product endorsements - new FTC guidelines

The Credit Report
Published: July 25, 2010

Have you ever wondered whether the product endorsements of radio and television personalities were authentic? Did the personality really use the weight loss product offered or own the life insurance policy being touted? As a radio personality myself, I can tell you that the rules on product endorsements have changed.

The Federal Trade Commission (FTC), in an update almost 30 years in the making, has recently enacted more stringent and revised guidelines for endorsement and testimonial advertising. Said guidelines include changes to the rule mandating disclosure of material connections between advertisers and those who endorse their products, goods, benefits and/or services.

Under the revised FTC guidelines, effective Dec. 1, product endorsers are made explicitly liable for their failure to disclose a material connection between themselves and advertisers when making endorsements outside the context of traditional advertisements. Included are such things as on-air banter in the course of a radio or television interview and even posts to social networks, such as Facebook, MySpace, Bebo, Friendster, hi5, Orkut, PerfSpot, Yahoo 360, Zorpia, Netlog, Twitter, LinkedIn, and Naymz.

The disclosure requirement applies to any relationship between an advertiser and on-air personality that may materially impact the credibility of said endorsement. For example, an on-air personality who received a free cosmetic procedure in exchange for discussing a specific doctor or facility while praising the facilities doctors and services is required to disclose that relationship during the endorsement. Similarly, a disclosure is required for an on-air personality acting as a paid spokesperson when they promote a specific entity outside the context of a traditional advertisement.

The revised FTC guidelines also state that when an endorsement represents actual use of a product, the on-air personality must be an actual user at the time the endorsement is given. Said endorsement must reflect the honest opinion, findings, beliefs and/or experience of the on-air personality. This is true even if the endorser is reading from a prepared script. On-air personalities are subject to liability for failure to disclose material connections with advertisers, and for misleading or unsubstantiated claims they make during the course of their endorsements. Advertisers can also be held responsible for false or misleading claims made by on-air personalities, including the failure to disclose the advertiser-endorser relationship.

The Federal Trade Commission also eliminated the "safe harbor" provision for "non-typical" testimonials presented in product advertisements. Under the prior guidelines, advertisements were permitted to contain atypical consumer testimonials, as long as they included disclaimers that "results are not typical." Under the new guidelines, advertisers are required to disclose the generally expected performance of the product in the depicted circumstances, and must possess adequate substantiation for all representations made. In addition, advertisers who promote studies by outside research organizations are required to disclose any funding or payment of expenses.

Also subject to the revised FTC guidelines are bloggers and other individuals who post in the social media their product endorsements for compensation. Online consumers who review and endorse products must disclose any material connection they have with the advertiser, such as cash payments or gifts, including the receipt of free products, goods, benefits and/or services in exchange for said endorsement. However, a positive review or endorsement by a consumer who has purchased the product on their own does not require a disclosure. Online consumers who serve as product endorsers are potentially liable for the omission of any required disclosures. In addition, advertisers who seek an endorsement are potentially liable for misleading representations made by an online endorser, including the failure to disclose a relationship between said endorser and advertiser.

Although the revised FTC guidelines are not binding law and only advisory in nature, they represent administrative interpretations by the Federal Trade Commission. As such, said guidelines may be utilized to determine whether an advertiser and/or endorser has engaged in deceptive trade practices in violation of the FTC Act for which civil action can be taken.

The Federal Trade Commission works to prevent fraudulent, deceptive and/or unfair business practices and provides information to help consumers spot, stop and avoid them. To learn more or to file a complaint, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357).

William E. Lewis Jr. is a credit repair expert with Credit Restoration Consultants and host of "The Credit Report with Bill Lewis" on AM 1470 WWNN, a daily forum for business and financial news, politics, economic trends, and cutting edge issues.