Truth-in-Advertising: Who Makes the Rules?

It is a common misunderstanding among a subset of companies that are considering whether to bring a case before BBB National Programs’ National Advertising Division. They share an unfounded belief that the National Advertising Division creates or establishes standards for the U.S. advertising industry.

The National Advertising Division does not make the rules. Our role is to serve as one arm of the U.S. system of independent advertising self-regulation and to hold companies to established standards for claim substantiation. We monitor the marketplace and accept challenges from companies to review advertising for truth and accuracy, determine whether it is misleading, and recommend any needed modifications. In our cases, we apply existing substantiation standards and, where no such standards exist, the precedent set by our cases helps fill the gaps.

Substantiation standards may be set by laws, guidance documents, or industry organizations. This post outlines how the National Advertising Division, or NAD, looks to those different sources for guidance when reviewing advertising claims. 

Created by an Act of Congress, the Federal Trade Commission (FTC) is the primary source for guidance on the “rules” of advertising substantiation. Section 5(a) of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce,” is the cornerstone of consumer protection law. The FTC has used Section 5 to address unfair and deceptive acts or practices on a case-by-case basis to establish a robust body of precedent. 

In addition, NAD attorneys will look to FTC-issued policy statements and business education materials for guidance, as they state policy objectives and synthesize principles established through consent agreements or adjudication.

The Food and Drug Administration (FDA) is also a resource that NAD will look to for regulatory requirements covering certain product and claim categories, such as efficacy claims for over-the-counter drugs. In a case about Claritin-D that was later appealed to NAD’s appellate body, the National Advertising Review Board (NARB), NAD considered the FDA’s regulations regarding claims for over-the-counter allergy medications when determining whether Bayer HealthCare, the maker of Claritin-D, provided a reasonable basis for claims about the featured products’ efficacy.

Other agencies whose laws and regulations NAD frequently consults include the Environmental Protection Agency (EPA), which enforces regulations that span many environmental products and how consumer products containing certain chemicals may be described, such as disinfectants and pesticides, and the Consumer Financial Protection Bureau (CFPB), the government agency charged with making sure banks, lenders, and other financial service companies treat consumers fairly.

Guidance Documents

Federal agency regulatory policy statements and guidance documents are another source of direction for NAD attorneys as we approach our case decisions. FTC policy statements shed light on FTC objectives it considers in its enforcement of the laws under its jurisdiction. The FTC’s guidance documents are less formal than the laws and policy statements, but they are no less important when assessing false and misleading advertising claims. Although lacking the force of law, regulatory guidance documents are representative of an agency’s thinking on what makes advertising deceptive and on best practices.  

For example, very often NAD dietary supplement cases will reference the FTC’s Dietary Supplements: An Advertising Guide for Industry, which clarifies how long-standing FTC policies and enforcement practices relate to dietary supplement advertising. The guidance document notes that the FTC typically requires claims about the efficacy or safety of dietary supplements to be supported with “competent and reliable scientific evidence,” defined in FTC cases as tests, analyses, research, studies, or other evidence based on the expertise of professionals in the relevant area. This is the same standard the FTC applies to any industry making health-related claims. NAD has adopted an identical standard when it reviews health-related claims.

Similarly, when NAD determined that an advertiser’s use of the term “non-toxic” was potentially misleading, attorneys consulted the FTC’s Statement of Basis and Purpose for the Green Guides. Although the Green Guides address the term “non-toxic,” the relevant text is brief, and the Guides do not provide a definition for the term. The agency’s statements that it believed “unqualified non-toxic claims may convey broad express and implied messages” and that marketers should “qualify non-toxic claims carefully, unless they can substantiate all express and implied messages inherent in an unqualified claim,” helped inform NAD’s decision regarding the appropriate level of substantiation the advertiser needed to provide.

The goal is to provide recommendations that harmonize with legal standards and principles so that it is not difficult for an advertiser to comply. To learn more, listen to our Ad Watcher’s podcast episode that takes a deep dive into how NAD approaches claim review for products that are under the jurisdiction of a federal agency.

Industry Standards

In some cases, NAD looks at standards that were not set by government agencies, but by expert organizations within an industry. While these standards do not carry the same level of credence as a government standard, in some cases they represent the consensus of expert thinking regarding a certain issue and are therefore quite valuable. 

For example, advertisers seeking to substantiate technical claims, such as vacuum cleaner efficacy, product biodegradability, or consumer perception of sensory attributes, often reference industry standard-setting bodies like ASTM International, especially when the standard is commonly used within its industry. 

Filling in the Gaps

Generally, rules and regulations are established to respond to a particular problem or concern that warranted formal action. But when those rules and regulations have yet to be established, especially in disruptive industries where new and innovative products are common, NAD helps advertisers comply with one basic broad and overarching substantiation standard: that advertising must be supported by a reasonable basis.

In a challenge involving claims about odor-controlling trash bags, the advertiser explained that those types of products had not existed in the marketplace for very long and consequently there is no industry standard testing specifically designed for assessing garbage malodor. To support its claims, it provided NAD with sensory testing it had developed as well as a patent application for the technology used in its product. NAD determined that the totality of the evidence provided a reasonable basis to support the advertiser’s non-comparative and general performance claims.

Determining reasonableness when it comes to advertising substantiation is not a one-and-done calculation. It often requires considering multiple factors, such as the type of product, the type of claim, the consumer benefit from a truthful claim, the ease of developing substantiation for the claim, the consequences of a false claim, and the amount of substantiation experts in the relevant field believe is reasonable. 

When it comes to comparative advertising claims, not much formal guidance exists. Most laws and regulations are written to address or guide companies regarding the level of evidence necessary to make a claim about their own products. For example, while an EPA regulation may address whether a product can claim to be a pesticide, it may not address what standard must be met to claim that a product is a “better” or “faster working” than a competitor. NAD decisions fill these gaps and provide guidance on substantiating comparative claims in a variety of industries.

Additionally, NAD regularly opines on certain comparative claim issues that are less frequently addressed in other forums, such as false denigration and puffery. 

While an advertisement may not falsely denigrate a competitor’s product, an advertiser is free to make truthful and accurate advertising claims that may be perceived as denigrating to its competitors. NAD’s reviews and recommendations strive to ensure that advertisers have a reasonable basis for their denigrating claims, demonstrating that they are truthful, accurate, and narrowly drawn. As for puffery, NAD has substantial precedent that can help companies discern between the type of subjective, opinion-based claims for which reasonable consumers will not expect substantiation, and objective representations for which substantiation is required, such as the performance of a product. 

Advertising provides information to consumers, information they use to decide which product to buy. Misleading consumers can weaken their relationship with your business and damage that consumer’s trust in your product. Additionally, it has the potential to bring complaints from consumers and competitors, litigation or even regulatory enforcement.

So, while NAD does not “set the rules,” companies struggling to assess the level of substantiation needed for an advertising claim should review FTC policy statements and applicable guidance, as well as NAD cases. The rewards for undertaking thorough efforts to substantiate your advertising claims outweigh the costs.