New FTC Regulations on Advertising that Small Business Owners Should Know About

As an entrepreneur, you’re hustling to get things done! You’re living out your passion and improving people’s lives. You’re also wearing a lot of hats — marketing, managing finances, and improving your service. The LAST thing you want to deal with is a legal investigation or a hefty fine.

As a lawyer for small businesses, I’m here to help you stay legally in the clear so you can feel secure and confident in your business. Part of that means abiding by government regulations. 

Here are some new FTC regulations to be aware of, plus reminders of others you should know about.

First, what is the FTC and what does it do?

FTC stands for “Federal Trade Commission,” a United States government agency. The FTC was created in 1914 to protect consumers and promote fair market competition. It creates and enforces rules to curb unfair competition, unfair business practices, and deception in the market. [1]

As a business owner, staying compliant with FTC rules helps you avoid fines, penalties, and stressful investigations. It’s especially important to abide by these regulations if your business deals with a lot of money and/or is very visible online.

Below are three FTC rules/regulations you should know about:

1. New FTC Rule on Testimonials

As of October 21, 2024, a new FTC rule is cracking down on online reviews and testimonials. It’s called the Trade Regulation Rule on the Use of Consumer Reviews and Testimonials (Final Rule). [1] This rule sets stricter guidelines and enforcement to protect consumers from fake reviews. It’s meant to promote more honest and transparent advertising. [2]

Here are some takeaways from the new rule:

1. DON’T publish fake or false reviews. This includes:

• Reviews generated by AI,

• Reviews by someone with a false identity, and

• Reviews that don’t share the true experience of actual consumers.

2. DON’T purchase reviews or incentivize *specific* reviews. 

• Don’t purchase reviews from a third party. 

• You can still offer something in exchange for honest reviews. However, you can’t limit the incentive to a certain type of message. In essence, you have to be willing to reward a negative review as much as a positive review.

3. DO disclose reviews from business insiders.

• If someone from your business, like an employee, leaves a review, they need to clearly state that they work for your business. For example, a review might say: “As an employee of Jane’s Photography School, I appreciate her work ethic…” 

• As a business manager, you need to make sure employees follow this rule.

4. DO DISCLOSE reviews from immediate relatives. 

• If you ask a parent, spouse, child, or sibling for a review, the review should state your relationship. 

5. DON’T use fake social media indicators. 

• This rule prohibits bot-generated views and likes, or ones from a hijacked account. 

• Don’t knowingly fake influence or popularity on social media for financial gain.

6. DON’T hide negative reviews. 

• The rule says you can’t “suppress” negative reviews to make it look like most or all of your business reviews have been positive (when it hasn’t).

• You can organize reviews, but don’t it difficult for consumers to find or be aware of negative reviews.

• Don’t only display the most positive results (as much as we love those!) 

This is a just a brief summary of some key points. You can find more specifics on this rule here. Overall, be honest and transparent about your reviews. Also, make sure you don’t accidentally use AI-generated reviews or testimonials.

Wondering about how to prevent people from leaving negative reviews of your business? Check out this related blog post: Why Non-Disparagement Clauses Can’t Stop Bad Reviews (and What to Do Instead).

And for a quick run-down on FTC Regulations for influencers, check out this YouTube video: Influencers' Federal Trade Commission (FTC) Regulations Explained 

2. FTC Telemarketing Sales Rule and Recordkeeping

More updates from the Federal Trade Commission! Starting October 15, 2024, sellers and telemarketers are required to store records of telemarking calls. [4] If part of your business involves making calls over the phone to drive sales, be sure to review these specific record-keeping requirements. [5]

Beyond record storage, the Telemarketing Sales Rule encourages transparency and consumer privacy. (You know how we all hate repeated robocalls!) People have a right NOT to be contacted if they don’t want to be. 

You’ll want to pay attention to the telemarketing sales rule if: 

• you call across different states, and

• you make those calls to sell goods or services or collect charitable contributions.

This rule shouldn’t stop you from taking payment over the phone from a consenting client. However, to comply with this rule and for good business practice, we recommend you:

• Get clear permission from your client before charging them.

• Share all of the details of the charge and what it’s for.

• Have a clear, written agreement outlining payment terms and expectations.

• Make sure your clients or customers fully understand what they're paying for.

• Keep records of all payments.

Be sure to review this rule if you engage in telemarketing, and be transparent when taking payment over the phone.

3. FTC Regulations on Advertising in General

The Federal Trade Commission Act isn’t a new law, but it’s worth reviewing. This law prohibits “unfair or deceptive acts or practices in or affecting commerce.” This law allows the government to stop businesses from monopolizing the market. It also relates to advertising, pricing, and promises to consumers.

In terms of advertising, the Federal Trade Commission Act says that advertisements:

• Must be truthful and non-deceptive;

• Must have evidence to support claims about the product or service; and

• Must not be unfair.

An ad is considered deceptive if it’s likely to mislead people and if it’s important to a buying decision. This goes for things that are said directly or indirectly, or facts that are omitted.

For example, a coach should avoid overpromising results, such as how much money someone will make or how much weight they will lose with a program.

The FTC pays closest attention to statements related to health and safety, such as “This product cured my disease.” (Not so much statements that are just opinion, such as “I feel great!”)

Once again, endorsements and testimonials are regulated under this law. “Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser.” [7] If you want to dig into the legal do’s and don’ts of advertising with endorsements, there are helpful examples in the official code.

In general, it’s important to be honest and fair in your advertising and how you interact with your audience. You can get a lot of questions answered about what’s allowed in advertising in this FTC article. [8]

The Legal Paige Take: FTC Regulations on Advertising

Advertising is a crucial part of making your business dreams happen! As you do so, be aware of the laws and regulations put out by the Federal Trade Commission. Some recent developments include:

1. Stricter guidelines and enforcement to prevent fake reviews and testimonials and

2. Recordkeeping requirements for telemarketers

As always, we need to avoid anything “unfair or deceptive” in marketing (and business in general, of course!)

Overall, trust your gut and be transparent in advertising. If you’re not sure about something, why not put it to me in The Legal Paige Community Facebook group? You can connect with thousands of small business owners and get legal questions answered for free.

If you need more specific legal advice or representation, reach out to Griffith Suazo Law. We’re here to support your entrepreneurial journey!

Resources

[1] 16 CFR Part 465: Trade Regulation Rule on the Use of Consumer Reviews and Testimonials (Final Rule)

[2] Federal Trade Commission Announces Final Rule Banning Fake Reviews and Testimonials

[3] FTC Announces Final Rule: Setting the Record Straight on Deceptive Reviews | Insights | Holland & Knight.

[4] Federal Register :: Telemarketing Sales Rule

[5] Mark your calendars, telemarketers and sellers! October 15 is the Telemarketing Sales Rule’s Record Store Day. | Federal Trade Commission 

[6] 15 U.S. Code § 45 - Unfair methods of competition unlawful; prevention by Commission 

[7] eCFR :: 16 CFR Part 255 -- Guides Concerning Use of Endorsements and Testimonials in Advertising 

[8] FTC. Advertising FAQ’s: A Guide for Small Business