Avoid Unlawful Advertising: Seven Rules for Your Business

Advertising laws are designed to protect consumers from making purchases based on false or misleading information. Advertisers who fail to follow the rules face considerable financial consequences. Be sure to take special care when advertising your products, services, or company.

Who Decides What Is Unlawful Advertising?

The federal government and states regulate advertising. On the federal side, the Federal Trade Commission (FTC) is the main agency that enforces unlawful advertising laws through proposed regulations. These advertising laws—often called "truth-in-advertising laws"—apply to businesses and cover all industries, including alcohol, tobacco, and nutritional supplements.

States also set rules and can take enforcement action, usually through their attorney general's office, a consumer protection agency, and the local district (or prosecuting) attorney.

Companies that make false advertising claims can face lawsuits from more than just government watchdogs—competitors and consumers can also bring private lawsuits.

How the FTC Enforces Unlawful Advertising Laws

The FTC mostly relies on consumers and competitors to report unlawful advertising. It typically follows a series of steps when enforcing false advertising claims. When its investigation finds that an ad is deceptive, the FTC sends a warning letter to the advertiser. If the warning doesn't work, the FTC can issue a cease-and-desist order (which is a stronger demand to stop the false advertising). Finally, if the advertiser violates the order, the FTC can go to court and ask for an injunction (a judge's order to stop the advertising) against the company.

The FTC can also fine companies of up to and around $50,000 per day for violating advertising laws. The daily fine increases every year for inflation. For example, the daily fine per violation increased from $50,120 in 2023 to $51,744 in 2024.

How States Enforce Unlawful Advertising Laws

State and local officials can also usually get court orders to stop unlawful advertising, and they can bring civil suits to compensate consumers. Consumers also have the right to sue advertisers under state consumer protection laws, in which they can seek refunds and other compensation. Lawsuits brought by a large group of consumers (called a class action) are particularly potent, because the combined damages of the class members are likely to be very high, prompting the target companies to take these suits very seriously.

What Is False, Misleading, or Unfair Advertising?

Put simply, the law requires you to tell the truth about your products and services. Making a deceptive, unfounded, or misleading claim in your advertising is not just unethical, it's a crime.

All advertisements must be:

• truthful
• not misleading, and
• backed by scientific evidence (when applicable).

You can't claim or imply that your product or service does something it doesn't, exaggerate the way your product performs, fudge on what it contains or the materials used to make it, claim it's appropriate to use in a situation for which it is not designed, or make false or misleading comparisons or claims about your competitors.

The terms "false," "misleading", or "unfair advertising" distinguish different instances of unlawful advertising, but they each refer to advertising that's false in some way.

False or Deceptive Advertising

"False advertising" is a patently untrue claim. It's unlawful to say that customers who wear your sneakers will lose weight, or that eating your yogurt can cure disease unless you can show credible scientific evidence to prove your assertions.

You also can't omit information vital to the features or benefits of a product or service. Advertising a vacuum cleaner at a deep discount and failing to say that it is not new, but refurbished, would be misleading customers by omission.

Misleading Advertising

Advertising doesn't have to be an outright lie to be unlawful. It's also unlawful to mislead customers by implying your product does something it won't.

For example, advertising that ingredients in yogurt contain enzymes that prevent certain diseases would be misleading because it implies that the yogurt prevents diseases, even though the ad doesn't expressly make that claim.

Unfair Advertising

"Unfair advertising" refers to ads or practices that might cause unavoidable injury to consumers. Sometimes, injury or the risk of harm is an inevitable part of the product or service. However, the injury can't outweigh the benefit the product or service has to the consumer.

Advertising pharmaceutical drugs is a good example. These drugs typically have negative side effects—an injury to the consumer. So pharmaceutical companies routinely disclose the potential side effects to fairly convey the health risks of using their products.

In addition, when advertising makes a false or misleading claim about a competitor, it's considered unfair advertising.

Rules to Follow for Lawful Advertising

Where you advertise—in print, on the Internet, TV, radio, and even in your store—doesn't matter. Importantly, it also doesn't matter whether you intended to deceive. In practice, these requirements boil down to seven rules:

1. Keep claims accurate. Your advertising should tell readers or viewers exactly what they're purchasing. For example, you can use the terms "organic," "certified organic," or "100% organic" only if the product has been certified organic by the U.S. Department of Agriculture (USDA), and all of the ingredients in the product are also certified by the USDA. Or, you can't say your shampoo is made of 100% natural ingredients if it contains some synthetic ingredients unless the amount of synthetic content is nominal.

2. Back up claims with evidence. If you're advertising the benefits of a product, you must be able to support your claims with valid research or studies from a respected, independent third party. Common situations when you'd need to back up your claims are for health care or wellness products for weight loss, improving memory, and reducing wrinkles.

For example, you can advertise that a facial cream will reduce the appearance of wrinkles. But you can't say that the cream will get rid of wrinkles unless you can back up your claim with research or clinical trials conducted by a reputable organization, such as a university, hospital, or research lab.

Your product must also be the sole reason that the results you claim were achieved. Let's say you've put your weight loss supplement through the expense of clinical trials, and the tests showed that subjects lost weight on your product. If the test subjects also followed a restricted diet and an exercise program, your advertising will have to clearly state that exercise and diet played a role in the results.

3. Be fair to competitors. When you compare your product or service to a competitor's, compare all the features and benefits, not just those that compare favorably. For example, let's say your cleaning service, Rosie Sunshine, charges fees based on a sliding scale for the size of the home, and your competitor charges a flat fee. You can't say Rosie Sunshine is less expensive than your competitor if the lesser charges apply only to homes of a certain size.

4. Make sure advertised products are available. When you advertise an item on sale, you'll need to have sufficient inventory of the item or clearly state in your ad that supplies are limited. Grocers in some states must issue rain checks allowing consumers to purchase an item at the advertised price at a later date if supply runs out during the sale period. If you're selling a close-out item you'll never carry again, your advertising should say that supply is limited.

5. Be truthful about pricing. Don't advertise a discounted price unless you've previously sold the item at the full price. Don't offer an item that's not in stock at a lower price and then try to sell a different, more expensive item to the shopper. (This tactic is commonly called "bait and switch.")

In addition, your sale price must be for a limited period. You can sell an item at an "everyday low price" all the time, but you can't call it a sale price if there's no end in sight for when the item will again be sold at the higher price.

6. Be upfront about testimonials and endorsements. Get permission before using testimonials, endorsements, or published reviews in your advertising and marketing. If your local newspaper published a glowing review of your restaurant, for example, get permission to use it before putting it on your website or including it in your ad. (For more, see our article on the rules for using customer testimonials.)

If you offer customers incentives (such as entry into a prize drawing for submitting a review) or have a relationship with the person giving the review, testimonial, or endorsement, you must disclose this fact to consumers. To stay on the right side of FTC rules, use plain, straightforward language and place disclosures close to the review or testimonial where consumers can't miss them. For instance, you can include wording such as, "This review was part of a promotion" directly underneath a customer's review of your product.

7. Use the term "free" only when it truly is. When you advertise something as "free," it must be truly free of any conditions. If you offer a gift or a second item free with a purchase, you can't mark up the price to include the cost of that gift or second item. When you offer a buy-one-get-one-free promotion, clearly state the terms, such as the second item must be of equal or lesser value than the first.

Some Industries Have Special Advertising Rules

The FTC revises regulations to adapt to emerging industries and new products. For example, the agency issued a guide to the use of environmental claims when terms like "green" and "eco-friendly" came into use. The FTC places additional restrictions on advertising for certain industries (such as alcohol and tobacco) and for certain markets, such as ads aimed at children.

Certain products and services fall under the jurisdiction of government agencies that often operate in combination with the FTC and state laws. Some examples include:

• The Food and Drug Administration (FDA) has oversight authority for how manufacturers label prescription drugs.
• The Federal Communications Commission (FCC) regulates and enforces deceptive advertising for products such as wireless phone services.
• The Financial Industry Regulatory Authority (FINRA) regulates and enforces advertising by broker-dealers.
• The U.S. Department of Transportation (DOT) regulates and enforces airline industry advertising.
• The U.S. Department of Agriculture (USDA) regulates the labeling of organic products through its National Organic Program
• The Alcohol and Tobacco Tax and Trade Bureau (TTB) sets regulations for advertising and labeling wine and spirits.

Social Media Marketing: When Your Ad Doesn't Look Like an Ad

Social media advertising must follow the same rules and regulations that apply to any other ads. But because social media also involves styles of advertising unique to the medium, additional guidelines apply.

One of these new advertising styles is called "native advertising." This type of advertising looks similar to informational content written by journalists or other neutral, third parties. But in reality, the advertiser pays for the content to be featured.

Some examples of native advertising include:

• A software company produces a YouTube video featuring an interviewer and a company executive, who answers questions about the product as if being interviewed on a news show.
• A fashion manufacturer pays an e-magazine to run an article about fashion trends, featuring only the manufacturer's products.
• A cosmetics manufacturer pays a social media influencer to demonstrate and endorse its new makeup online.
• A real estate company buys ad space in a local newspaper to publish a how-to article about home buying that also points out the company's experience and success.

Advertisers that use native advertising must disclose that they paid for or contributed to the content to avoid misleading consumers into thinking the content reflects the opinion of an objective, third party. The FTC published a set of guidelines for these types of ads, including requirements for writing and placing the disclosures.

Watch Out for Changes and Additions to Advertising Rules

It's a good idea to keep an eye out for changes and new regulations because the FTC and state legislatures periodically add laws and guidelines for emerging industries and trends.

For example, while cryptocurrencies like Bitcoin have historically been unregulated, more than half the states in the country are now considering or enacting regulations for the industry.

Other additions and revisions in recent years include regulations for organic products, including the percentage of organic ingredients a product must contain to label foods "organic" or "100% organic." The FTC also regularly updates guidelines for advertising to children.

If you have any questions specific to your company's marketing, talk to a business attorney who has experience with federal and state advertising laws. A lawyer can advise you on when to use disclosures and what to include in the content of your ads. If you've received a letter from the FTC over false, misleading, or unfair advertising, it's a good idea to reach out to a lawyer as soon as possible.