Don’t be that guy. Or rather, don’t be that business. You’ve heard of false advertising, but not a lot of people are clear on what it is, and how it can come back around to bite you right in the wallet. First, let’s tackle what the legal definition of false advertising is. The Lanham Act states that false advertising misrepresents goods, services, or other commercial activities by making material misrepresentations about their origin, qualities, nature, or other characteristics. If you knowingly do any of this, you are not only in violation of federal law, you could be getting a tap on the shoulder from the state of Florida and a talk with the Attorney General. Truth in advertising is enforced at the federal level by the FTC, and covers everything from “green” product claims, to gift cards, and funerals.
What Can Happen
If you engage in false advertising, all it takes is one complaint to get the ball rolling. The state or the FTC can have a talk with you, show you what you’ve done wrong, and try to get you to correct it voluntarily. If you don’t comply, then you’re looking at the following possibilities:
- Cease-and-desist letter.
- Lawsuit brought by state or FTC.
- Court injunction to prohibit your ads from appearing.
- Advertisers may be required to run corrections and acknowledge running deceptive ads.
- Citation for unfair competition that is, “immoral, unethical, oppressive, unscrupulous, or substantially injurious to the consumer.”
At the very least, you may lose your business and in the worst case, you could be fined and imprisoned should the deceptive practices rise to the level of fraud. Sounds like fun!
How to Avoid It
You know the old saying about paying to do a job right the first time being less expensive than other options? That applies here.
- Do not make “material misrepresentations of fact” – be painstakingly factual in your claims.
- Get permission from any outside citations you use to sell your product.
- Don’t use the word “free” unless you mean it, and don’t misstate the price.
- Don’t bad mouth your competitors – their person, practices, or product either in print or in person. That’s libel and slander – and nice fuel for a very expensive lawsuit.
Then we need to talk about credit. This is a sensitive subject, as hard credit inquiries show up on credit reports and people are able to find out who makes those inquiries. If you are going to offer credit, you must follow these guidelines or risk the consequences:
- You don’t approve credit for people who do not have good credit ratings.
- You approve credit people with poor or fair credit ratings, but ask for a higher down payment, or charge higher interest, or have a shorter repayment period than for people with good credit.
Credit is governed by the Fair Credit Reporting Act, the Truth in Lending Act, the Fair Debt Collection Practices Act, the Equal Credit Opportunity Act, and the Fair Credit Billing Act. Make sure that you are in compliance with these laws before you offer credit on a basis that could be considered false advertising. Remember, doing the job right the first time means you don’t have to pay to remediate and then do it all over again.