FTC 101: Marketing Compliance and Truth-in-Advertising Rules

With a scorecard of industry-specific regulators, state bodies, and federal agencies regulating marketing, it’s easy to lose track of the players you need to know, what they care about, and what is being scrutinized. And with digital and social media continuously playing a growing role in business, marketing compliance professionals must always keep their fingers on the pulse of the regulatory world.

This article is the first in our series on “Who Regulates Marketing Across Industries.” Focusing on a different regulator in each post, we aim to help you better understand and navigate today’s rapidly-changing regulatory maze. In this blog, we look at one of the biggest regulators, the Federal Trade Commission (FTC), America’s main watchdog for consumer protection and truth-in-advertising, which operates according to a straightforward mandate: Advertisements must be truthful, not misleading, and backed by evidence. 

When Hidden Reviews Cost $4.2 Million

In January 2022, online fashion retailer Fashion Nova agreed to pay $4.2 million to settle FTC allegations that it fundamentally misled consumers about its products. The company had systematically suppressed negative customer reviews, allowing only positive ones to appear on its website.

Beyond the financial penalty, Fashion Nova was required to post all previously suppressed reviews, was permanently prohibited from misrepresenting customer reviews or endorsements, and was instructed to display all future reviews (positive and negative) on its website.

Fashion Nova’s case illustrates why it’s important to understand FTC’s marketing compliance demands. What could be viewed as a strategic marketing decision–showcasing only positive feedback–resulted in millions of dollars in penalties and, perhaps more significantly, lasting damage to the company’s reputation.

What is the Federal Trade Commission?

The Federal Trade Commission is the federal agency responsible for protecting consumers from deceptive and unfair business practices. Established in 1914 under the Federal Trade Commission Act, the FTC was originally created to prevent anticompetitive business practices. Over the decades, its mission has expanded significantly.

What the FTC Does

Today, the FTC enforces truth-in-advertising standards across virtually all industries–from consumer goods and financial services to pharmaceuticals and insurance. Unlike industry-specific regulators like the Securities Exchange Commission (SEC) for financial disclosures or the Food and Drug Administration (FDA) for drug claims, the FTC has broad authority over marketing practices regardless of the sector.

What the FTC Regulates

The FTC looks at how companies communicate with their consumers. This includes advertising, marketing claims, endorsements, disclosures, and representations made about products or services. In addition to traditional advertising channels, the FTC’s reach extends to digital marketing, social media, and influencer partnerships.

As mentioned, the agency’s mandate operates under a simple principle: Advertisements must be truthful, not misleading, and backed by evidence. 

Four Key Enforcement Areas 

The FTC focuses on four areas to identify and enforce marketing compliance violations: 

Deception‍

According to the FTC’s policy statement on deception, an advertisement is deceptive if it contains a representation or omission that is likely to mislead consumers acting reasonably under the circumstances, and that representation is material to consumers’ decisions. In other words, if your marketing would likely mislead a reasonable person about something important, that’s deception. This includes both outright false claims and misleading implications. Even literally true statements can be deceptive if they create a false impression overall.

“Enrolling” consumers: Amazon agreed to a $2.5 billion settlement with the FTC for duping millions of consumers into enrolling in its Prime program without their consent, and making it difficult for them to cancel their subscriptions.

Substantiation

Every advertising claim must be backed by evidence and have a reasonable basis at the time it is made. The level of proof required, however, depends on the type of claim. Health and safety claims, for example, typically require competent and reliable scientific evidence, which often translates to clinical trials or peer-reviewed studies. Performance claims need testing that reflects actual consumer conditions. The use of language such as “tests prove” or “studies show” triggers even higher standards.

“Healthy” properties: Yogurt maker Dannon paid $21 million to settle FTC charges that it made unsubstantiated claims about its products’ health benefits, including immunity-boosting and digestive health properties, which weren’t backed by adequate scientific evidence.

Full Disclosures

When a disclosure is required to qualify a claim or provide important information, it must be “clear and conspicuous.” The FTC is very specific about what this means: Full disclosures must be placed close to the claims they qualify, in language that consumers understand, and in a prominent spot where consumers will actually notice and process them. Think of it as meeting the 4Ps: prominence, presentation, placement, and proximity.

“Free” tax filing: In 2023, TurboTax maker Intuit paid $141 million to settle FTC allegations that the company advertised “free” tax filing services, while hiding the fact that most customers didn’t qualify for the free version. The disclosures about limitations were inadequate and not prominent enough.

Endorsements and Reviews

The FTC’s Endorsement Guides address the use of testimonials, influencer marketing, and reviews. The main requirements for testimonial/influencer endorsements are that they must reflect the honest opinions and experiences of the endorser, and that any material connection between endorser and company must be clearly disclosed. This means that consumers need to know, for example, if a company is paying influencers, providing free products, or maintaining a relationship that might affect the endorsement’s credibility. As for reviews, companies are not allowed to distort or misrepresent what consumers think of their products or services, meaning that the FTC views them as a form of endorsement.

“Suppressed” reviews: Similar to the abovementioned Fashion Nova case, online shoe retailer Hey Dude agreed to pay $1.95 million to settle FTC charges. According to the regulator’s allegations, the company misled consumers by suppressing negative reviews, including more than 80 percent of reviews that failed to provide four or more stars out of a possible five. 

What Content Falls Under FTC Scrutiny?

Virtually any content a company uses to reach consumers is subject to FTC oversight. This includes website copy/landing pages, paid search and display ads, social media posts (organic, sponsored), email campaigns, influencer partnerships and sponsored content, customer testimonials/reviews, product packaging/labeling, white papers and case studies, video content and commercials, and even app store descriptions.

The litmus test: If it’s a communication designed to promote a product or service for consumers, the FTC’s advertising rules apply.

Breaking Down an FTC Action

Now that we’ve laid out the ground rules, let’s circle back to the Fashion Nova example. So, why did their marketing lead to an FTC enforcement action?

From late 2015 through November 2019, Fashion Nova used a third-party review management system that automatically posted four- and five-star reviews, but held back anything lower for approval–which never came. Hundreds of thousands of negative reviews simply vanished, creating artificially inflated ratings that deceived shoppers into believing Fashion Nova’s products were universally praised.

This suppression of negative reviews violated multiple FTC principles. First, it was fundamentally deceptive–the website misrepresented the fact that the displayed reviews reflected all customer feedback when, in fact, they showed only positive experiences. Second, the practice manipulated endorsements by presenting a skewed picture of customer satisfaction. Third, the artificially inflated ratings created misleading impressions about product quality and performance.

Fashion Nova’s reviews appeared across its e-commerce website on product pages that consumers relied on to make purchasing decisions. This demonstrates that FTC advertising rules apply wherever products or services are marketed, and that consumer reviews are treated as endorsements subject to the same truth-in-advertising standards as any other marketing claim.

Want to Test Your Review Workflow?

Your marketing compliance process should catch FTC issues before regulators do. Blee helps companies–regulated and unregulated–streamline their marketing review workflows, ensuring that all internal and external materials get the scrutiny they need.

Request a marketing compliance workflow review with Blee to see how we can help you stay ahead of regulatory risk.

And Now For Our Next Act

The FTC is the baseline standard for truth-in-advertising across all industries. Understanding the four key enforcement areas, deception, substantiation, disclosures, and endorsements, is essential for managing marketing compliance.

But the regulatory landscape doesn't stop there. In the next part of our marketing regulation series, we’ll tackle the SEC, and explain what financial services marketers need to know when it comes to compliance.

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