Markets Wired

The Federal Trade Commission testified today before the U.S. Senate on its efforts to combat deceptive advertising in the face of rapid changes in health care, technology, and online marketing strategies.

In testimony before the Senate Committee on Commerce, Science, and Transportation’s
Subcommittee on Consumer Protection, Product Safety, and Insurance, David Vladeck, Director of the FTC’s Bureau of Consumer Protection, described the Commission’s recent law enforcement and regulatory efforts addressing deceptive advertising.

“The task of monitoring and pursuing false and deceptive advertising claims has grown larger and more complex over the past few decades,” Vladeck testified. “Significantly, however, the Commission’s resources to tackle deceptive advertising, as well as the other important consumer issues addressed by the agency’s Bureau of Consumer Protection, have not increased enough.”

Vladeck discussed health and safety claims, the use of endorsements and testimonials,
environmental marketing or “green” claims, and advertising that preys on victims of the economic downturn as among the many important advertising issues faced by the FTC. In the
past year alone, the FTC has challenged advertising claims for weight loss, cold prevention, improved concentration, and diabetes and cancer “cures.” In a major law enforcement sweep conducted with the U.S. Food and Drug Administration and the Competition Bureau of Canada, the FTC announced 11 actions against companies and individuals for making false and unsubstantiated claims that a wide range of products could cure or treat cancer.

The testimony also discussed Commission’s efforts to update its Guides Concerning the Use of Endorsements and Testimonials in Advertising. Based on the prevalent – and sometimes deceptive – use of third-party endorsements in advertising, the FTC adopted the Guides in 1980. Although the basic principles of the Guides still hold true, dramatic changes have occurred during the last three decades in how products are marketed – most notably, program-length infomercials, Internet advertising, word-of-mouth or viral marketing, and consumer blogs have all become commonplace. Vladeck testified that it also has become clear that “results not typical” and other disclaimers of typicality commonly used in endorsements and testimonials are not working as intended to prevent consumer deception.

Vladeck told the subcommittee that the proliferation of advertisers proclaiming the “green” attributes of their products has led the FTC to review its Green Guides, the centerpiece of the agency’s environmental marketing program. The Commission’s latest enforcement actions charged three companies with disseminating false and unsubstantiated claims that their
products – disposable plates, wipes, and towels – were “biodegradable.” Two of the cases have settled, and the third is in litigation, Vladeck said.

In response to the rise in financial distress scams, on July 1, 2009, the Commission announced “Operation Short Change,” a joint initiative with 14 states, the Department of Justice, and other agencies that included more than 120 law enforcement actions. As part of this operation, the FTC brought eight new cases against companies that have conned consumers, and took action in seven additional cases earlier this year challenging similar misconduct. The new cases include one against the marketers of “John Beck’s Free & Clear Real Estate System,” a widely publicized get-rich-quick scheme, Vladeck testified. The Commission alleged that these schemes, promoted through misleading infomercials and on the Internet, have duped hundreds of thousands of consumers out of about $300 million.

The Commission vote authorizing the testimony was 4-0.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(Advertising Testimony.wpd)
(FTC File No. P064502)