Insights

Do you use 'mouse type' in your ads? Are the disclosures in your TV ads tiny, scrolling lines that no one can read? Does the announcer in your radio ads spout key information at a pace that sounds like he's been sucking helium? If so, you need to read this.

Recently, the Federal Trade Commission sent warning letters to numerous companies focused on how those companies made "qualifying disclosures" in their advertising. "Qualifying disclosures" are statements in ads that explain the conditions or limitations on your offer. The letters were designed to send a clear message to businesses that market their products and services in any medium - in other words, all businesses: "Clear and conspicuous" disclosures really need to be clear and conspicuous.

The FTC has broad authority to bring enforcement actions against businesses that engage in "unfair or deceptive acts or practices," including deceptive advertising. Under the law, an ad may be deceptive because it makes claims that are false or misleading or because it either omits entirely or doesn't adequately disclose information necessary to prevent the ad from creating a false impression. Generally speaking, all necessary disclosures must be "clear and conspicuous." The agency's jurisdiction extends to all commercial entities, with certain exceptions such as depository institutions, insurance companies, common carriers, and non-profit organizations. FTC actions can result in formal orders prohibiting challenged practices, requiring the disclosure of information, and imposing monetary judgments in the form of consumer redress and/or civil penalties.

Over the past few months, the FTC reviewed over 1,000 magazine and television ads by companies in a wide variety of industries and followed up with warning letters to those whose advertising had disclosures the FTC considered to be inadequate. The letters noted that the FTC has provided guidance over the years on what constitutes a "clear and conspicuous" disclosure and explained why the disclosures in the ads identified by the FTC were not sufficiently clear and conspicuous for consumers to notice and understand them (for example, print that is too small or that contrasts poorly with the background or text that appears in a television ad that is on the screen too briefly). The companies were then asked to report to the FTC the steps they were taking to correct the problem, with a thinly veiled warning that those that did not make adequate corrections could become the targets of FTC investigations and lawsuits. Finally, and most importantly, the letters provided guidance on how to make disclosures clearly and conspicuously. The letters state that disclosures should be presented:

• Close to the claims they relate to, and not hidden or buried in footnotes or blocks of text people are not likely to read;
• In a font that is easy to read and at least as large as other fonts the advertiser uses to convey the claim;
• In a shade that stands out against the background;
• For video disclosures, on the screen long enough to be noticed, read, and understood;
• For oral disclosures, read at a cadence that is easy for consumers to follow; and
• Using words consumers will understand.

Most of these common sense principles have been required over the years by the FTC and other agencies and are flexible enough to allow advertisers to tailor their disclosures to the specific circumstances. The second principle, however, represents something of a departure from the past. The FTC and other government agencies generally have not required disclosures to be as large as the claim, and, for many ads, complying with this rule may be impractical or impossible. Whether the size requirement will be applied strictly remains to be seen, but the FTC clearly is sending a message to advertisers that the sorts of disclosures we often see buried in the fine print are not sufficient. And, it is likely that the Consumer Financial Protection Bureau and state attorneys general will take the same position.

Of course, before you figure out how to make a disclosure that meets these standards, you must decide whether it is necessary in the first place and, if so, whether it must appear in the ad or can be made later in the transactions with consumers. There is potentially an unlimited amount of information that at least some consumers would want to know about the product or the advertiser. But overwhelming the consumer with too much information in an ad is in no one's interest. Of course, some laws, like the Truth in Lending Act, require specific disclosures. Beyond those, the general rule is that only information necessary to dispel a misleading impression the ad would otherwise create must be disclosed.

But, it can be very difficult in many situations to draw the line between information that must be disclosed to cure deception versus information that would be useful to consumers but is not necessary to cure deception. Suppose you offer financing with a 'teaser' rate, which starts at 2% but increases after 60 days to 5%. You want to run a television ad promoting the initial rate. The FTC would tell you that, in the absence of a clear and conspicuous disclosure about the rate increase, the advertisement would be deceptive because consumers would assume that the 2% rate was permanent. Of course, there is a lot of other information that consumers might be interested in that you, in theory, could disclose - your hours of operation, the warranties you offer, how long you have been in business, etc. But, information like this does not relate to or qualify the 2% interest claim, and the ad is not misleading in the absence of that information. This information need not be disclosed in the ad. In fact, cluttering up your ad with a lot of extraneous information may conceal the information you do need to disclose so that it is no longer clear and conspicuous.

Finally, although the warning letters went only to companies that ran print or television ads, the FTC will undoubtedly apply the same disclosure principles to other forms of marketing, including on websites or in other electronic media. The FTC has provided guidance on how to make clear and conspicuous disclosures on the Internet in its .com Disclosures publication, which is available on the FTC's website.

Ultimately, it is the advertiser's responsibility to make those disclosures that are necessary and to do so in a clear and conspicuous way. Unless you have already cleaned up your advertising practices in a way that addresses these concerns, it's time for a thorough legal review with this new guidance in mind.

Joel Winston is a partner in the Washington, D.C., office of Hudson Cook, LLP. Joel can be reached at 202-223-6930 or by email at jwinston@hudco.com.