FTC presentation on Clear and Conspicuous Disclosure

This is a transcription of an FTC staff presentation given by Lesley Fair, attorney in the FTC's division of consumer and business education. It was given during the FTC's 2007 Negative Option Workshop.

Supporting documents:

• PDF which includes talking points and Advertising Examples
• Video from which the transcription was made.

The remainder of this blog post is a transcription of this presentation.

FTC’s Standard for Clear and Conspicuous Disclosures

Let’s say I want to disclose important information to you. There’s a lot of different ways that I might do that.

For example, I might put in big letters on a high contrast background in a place where I know you’re going to have to look at it…I might try to disclose that information in a clearly worded couplesentences.

Just in case that isn’t clear enough I might use some graphic method to draw your eye to attract your attention aboutwhat I’m trying to say.

I also might use what Professor Hoye and her academic counterparts might call dual modality by both having the text written as well as telling you that mine is a staff presentation that doesn’t reflect the official position of the FTC or the Bureau of Consumer Protection.

So next time you say that the FTC doesn’t know about disclosures we have to do it, too, just to let you know.

The first place when it comes to any sort of FTC consumer protection law…our touchstone…the first place we look is the 1984 FTC policy statement on deception. It is in FTC reports widely available on the web, easily accessible from our website. That’s the first place we look.

It’s a simple, I think relatively plainly worded document. Let me warn you it’s written in the form of a letter. Don’t be concerned, it’s not a bad link. It is written in the form of a letter from the commission to Congress.

But that will give you a great way of looking at how the FTC looks at this issue. My policy – even though I’ve been reading it  now for 20 years at the FTC – I make it an important point every year on my anniversary of FTC service I go back and read it again. And every time I find something new that I hadn’t remembered was I n the FTC deception policy statement.

So that is always going to be the first place that a marketer or advertiser or the attorneys that represent them are going to want to look.

There are a number of interesting statements in the deception statement that I think have a bearing on the question of clear and conspicuous disclosures.

The deception statement says:

“Written disclosures or fine print may be insufficient to correct a misleading representation.”

It also says:

“Accurate information in the text may not remedy a false headline, because reasonable consumers may glance only at the headline.”

It also says that:

“Oral statements, label disclosures, or point-of salematerials will not necessarily correct a
deceptive representation or omission of information.”

So those are the little touchstones that our evaluation of the clear and conspicuous starts from.

The bottom line here from the Federal Trade Commision…uh, this staff p oint of view is if the disclosure of information is necessary to prevent an ad or a promotion from being deceptive the disclosure must be clear and conspicuous.

I hear you now…”How do I make things clear and conspicuous? I have j…what…what statute do I look at? Is there something in the code of federal regulations? I have no idea where to look.”

Um, it is not a one size fits all standard simply because we realize that the experts in clear and conspicuous aren’t attorneys at the Federal Trade Commission. The experts in how to make information clear and conspicuous to consumers are marketers, advertisers, and the attorneys who represent them.

We appreciate you know how to make information clear, clean, understandable, and accessible to consumers which is why you’re not going to find an FTC ruling on a preferred font face, a minimum type size…generally speaking all we want is that it’s clear and conspicuous and advertisers and marketers are free to use their many tools of creativity to figure out the best way to convey that information.

What kind of guidance…I mean there is guidance that the FTC has offered on this clear and conspicuous standard.

About 5 or 6 years ago with the help of many of the people in this room, the FTC and the magnificent National Advertising Division of the Council of Better Business Bureaus had a one day workshop called Disclosure Exposure that did nothing but talk about this issue.

Coming from that event are what the FTC – what we call “The Four Ps”

Four of the factors that the commission staff is going to look at when we determine if a disclosure is clear and conspicuous.
The first – “PROMINENCE: Is it big enough for consumers to notice and read?”

Second “P” – “PRESENTATION: Is wording and format easy for consumers to understand?”

Three – “PLACEMENT: Is it even where consumers are going to look?”

Four – “PROXIMITY: Is it close to the claim it qualifies?”

Let me go through these each very briefly to give you a couple of examples of what we’re talking about.

Prominence – Big enough for consumers to notice and read.

The questions that we will ask ourselves and we hope you will ask yourselves:

“Is the typesize big enough for consumers to read easily?” Bear in mind there are a lot of 28 year old whizbang ad execs out there that may not realize that there are others of us at perhaps a more advanced age that that 4 point type just hasn’t existed for me since about age 38 and so you do have to bear in mind who your target market is…to remember that type size can be very important.

Is there a sharp contrast between the disclosure and the background?

The commission brought a case about 4 years ago that I think I can charitably say dealt with (a Crew letters) on a parchment background…very hard to read. It was not something – because of the contrast – consumers were going to be able to notice and read.

Please note the text under section 5 of the FTC Act is not “Is it readable?” The text is, “Is it read and understood and noticed and absorbed by the consumers who are going to be involved in the transaction?”

What matters under the FTC act is consumer’s net impression. That is always the bottom line from an FTC standpoint.

So the question isn’t “What did the advertiser intend to convey. What really matters is “What did the consumer actually understand?”

My little mnenomic – my little way of remembering this,you know. The question isn’t “Is it understandable with a magnifying glass and your attorney present?”

The standard is, “Are consumers in their normal way of looking at something going to be able to get at the end of the day…will they understand what the transaction involves?”

Let me move on to the related area of presentation.
• Is the wording and format easy for consumers to understand?
• Is the reading free of - you should pardon the expression – legal jargon?”
• Does it use the kind of terminology that consumers are actually going to be able to understand?
• Does the format encourage careful reading?

About 10 years ago the FTC considered a case where the font was in a pretty good size type, but it was what I would call “Ye old Englishy style” type in all capitals. And I figure – with the exception of like Geoffrey Chaucer and kids who go to those heavy metal concerts by, you know, Anthrax and the groups who use that kind of type face…I’m not sure who is going to be understanding that sort of format, so we’re going to look – is it something that encourages the consumer – “Hey, look at this. Give this a read. It’s important.”

Also is it free of distraction that might compete for consumer attention. I call this – not an official name – but I call this “the adorable puppy corollary”.

On T.V. ads, speaking to…by myself as a consumer, the more adorable the puppy is on the screen, the more I realize I Just missed important superscript, fine print on the bottom of it.

So we want to make sure that companies are aware to be cognizant  - whether on T.V. , in an online setting, to make sure that there are not other graphics that would be competing with consumer…competiting with the disclosure for consumer’s attention.

Um, the way I always remind myself here is if I say to myself, “gee whiz, this really sounds like I did a darn fine job in law school” that’s usually a sign that it’s not clearly written for consumers…my little mnemonic for remembering it.

The third and fourth of these little statements kind of go along with each other. They’re related to geography.

Placement - Is it even where consumers are even going to look?

And

Proximity – Is it close to the claim it qualifies?

We’re going to be thinking especially – um, you know, the best of all, the gold standard – is going to be where consumer’s can’t miss it. They’re going to have to read it to take part in the transaction.

Is it in close physical proximity to the claim it qualifies?

In let’s say a 4 page magazine insert – a wonderful claim on page 1 that has an important restriction on page 4 – that’s an example where staff might allege is not in close enough physical proximity.

The way I remind it to myself is a sardine can – you want those disclaimers…disclosures to be up close, right next to the kind of claims that it’s modifying.

So, placement, proximity – important considerations.

Let me show a couple cases just to illustrate some of these points. Let me make it clear that these are settled cases…consent orders are not an admission of liability – and I want to make sure that’s, uh, that’s clear.

This particular Ad was a full page newspaper ad…had a great offer…269 bucks for, oh boy, the computer, the printer, the speakers, wow.

Um, here’s the problem.  In the upper left hand of the full newspaper ad – in 4 point type – was this line:

“"BUY.COM,™ BUYCOMP.COM,™ BUYSOFT.COM,™ BUYBOOKS.COM,™
BUYVIDEOS.COM,™ BUYGAMES.COM,™ BUYMUSIC.COM,™ and
BUYSURPLUS.COM™ are trademarks or servicemarks of BUY.COM Inc. Prices subject to change. Quantities limited. Requires Compuserve activation. See site for details. Buy.com reserves the right to cancel this offer at any time. ©1999"

There was the important statement: “requires compuserve activation”.

But even that the FTC alleged did not adequately explain to consumers that by buying this product – for signing up, getting this offer – they would have to sign up for 3 years of internet for one internet service provider. And If at any time in that three year period they canceled, they would have to pay substantial amount of money back.

So, this $269 offer in fact actually costs consumers well over $1,000.

So the issue for us is going to make sure that consumers know before going into the transaction what this is really going to cost them. It’s an important consideration.

Here’s another example. Some computers include a mouse pad. For  $1299 this one includes internet for a year (and a mouse pad).

In 9 lines of 4 point type was the statement “Rural access $3.95/hour”.

Bear in mind this was for a “free” internet service.

The FTC’s allegation in the complaint in this case is that even assuming $10/hour – I’m sorry, uh, 10 hours a week – a relatively low amount of internet usage in a lot of families…even at 10 hours a week, that free service was going to cost consumers $158/month.

And on top of it all, “rural” wasn’t just “Old McDonald Had a Farm”…”rural” happened to include a lot of the suburban areas in major metropolitan districts.

Let me show you one last ad. Um, this was:

Free computer. Free eMachines computer.

Right there in 15 lines of text was this statement:

“Subject to credit approval and 1-, 2-and 3-year membership with Prodigy Internet Service. See store for details. To receive instant savings at check out, customer must make any single or multiproduct purchase in our store in an amount equal to or exceeding the amount of instant savings between 10/3/99 and 12/31/99, enroll in store in a 1-year, 2-year, or 3-year fixedterm “Prodigy Internet/Office Depot Membership” between 10/3/99 and 12/31/99 with a valid, major credit.”

But wait, there’s more…

“… card, accept terms of Prodigy Internet membership, and comply with terms on Prodigy Internet/Office Depot Membership Program. Terms & Conditions available at store. Instant savings of $400 for a 3-year contract, $250 for a 2-year contract and $100 for a 1-year contract. Available only as a credit against purchases on the visit at which membership is approved. No cash payments will be made to customer. Debit cards and Office Depot charge cards not accepted for membership but may be used for purchases of Office Depot merchandise. Payment of”

…and more…

“… $19.95 per month is required for the length of your commitment. New Prodigy Internet customers only. Phone charges and premium feature fees not included with Internet service. Cancellation fee equal to instant savings amount plus a penalty fee of $50 if canceled prior to the end of the contract. See Terms & Conditions in store for additional conditions and restrictions. Your credit worthiness will be established for
eligibility. Available in store only. No phone, Internet or special orders.”

In that 15 lines consumers – again…that’s where the information was that this was going to require a very…a much greater outlay of money to sign up for an internet service provider.

What was not disclosed at all was that the free computer didn’t include a monitor.

So these are examples where the FTC would say between placement, proximity, um, you know, the prominence…all of those things…didn’t work.
Let me finish with special considerations for online advertisers since that’s the topic of this panel.

I think one of the best sources of information is the FTC’s DotCom Disclosures issued by the Bureau of Consumer Protection  a few years ago. Copies are available online as well as in the back when you go outside on the literature tables. I think this is plain language, pretty clear guidance, that for those who say, “where can I look?” it’s a good source.

Here are a couple of considerations when it comes to prominence…

• …size matters. Certainly you’re going to want to pay attention to how big that information is.
• Color can help.
• Graphics can help, because remember the test isn’t “is it readable?”, but “is it read?”

Now here are the issues that I think we’re all struggline with:

• Companies are going to have to be cognizant of screen size.
• The wide variety in operating systems.
• Different browsers.
• Different default settings.

We have yet to start thinkikng about how you make a clear and conspicuous disclosure on your telephone which also gives you internet access. We’re struggling with this. We appreciate companies are struggling with this. I think this is a complicated issue for all of us to try to wrestle with in the future.

Presentation. Use text to prompt consumers. Ask consumers questions to require them to answer. Consider sound if that might be appropriate online.

As has been talked about before…avoid the infamous prechecked box that assumes that companies know what consumers want.

What about hyperlinks? The answer is going to be “it depends”. Certainly companies are going to want to place hyperlinks  prominently and they’re going to have to label them to signal that they’re important.

Companies don’t want to be coy with this. “More info”; “Legal”; “Disclosure”; are not phrases likely to get consumers to read.

There’s an easy way to find out if they’re working, too. Companies have the opportunity to find out how many people are clicking through. It’s an important statistic. You’ve got very useful information here.

For the final area – placement and proximity – certainly the same concern about hyperlinks…be careful to place the disclosure close to the triggering claim.

There’s always going to be a concern…”does more clicks…do more clicks mean less comprehension?”  Um, maybe yes, maybe no. But it’s certainly something for companies to be aware of and think about.

If necessary, take steps to encourage scrolling. The last thing we would want is for there to be a disclosure at the bottom of the page that consumers don’t know they need to scroll down to read.

So where to go for more guidance?

• Certainly DotCom Disclosures I’ve mentioned.
• The FTC Deception Statement.
• FTC case law including settlements.

An awful lot of information – even though those settlements may be applicable only to the company in question…it would be a mistake to say, “ah, that’s my competitor, that’s not me…I don’t need to pay attention to it.”

Those, um,  standards. Those, um, settlements give standards that the FTC thought was necessary to prevent deception in those cases. It’s useful to read them for your clients.

Finally, or second, next…policy statements for other industries.

It’s easy to say, “well, gee whiz, the FTC has statements about disclosures in long distance advertising. That’s not what I sell. I don’t need to worry about it. That would be a mistake. It’s very, very useful to look at that information even if it’s not your industry, and finally, there’s lots of plain language business guidance at FTC.gov. We encourage you to take a look at it.

Thank you.