What is the FTC?
The FTC (Federal Trade Commission) is the United States highest form of business regulation. The primary focus of the FTC is to protect consumers first and foremost, as well as maintain competition and try to prevent monopolies. The FTC focuses on both large corporations as well as small businesses.
How does it regulate businesses?
When focusing on small businesses, the FTC heavily relies on determining if an advertisement is deceptive. Something is deceptive if it is something that can specifically mislead a consumer that is acting reasonably. Another large factor is if the deceptive claims are material, meaning it is important to a consumer’s decision to buy or use a product.
An ad is proven to be deceptive by the FTC in multiple ways. They first consider the advertisement in all its context, and how said advertisement would be interpreted by a consumer. The FTC also looks at express claims, which is claims made directly in the ad, such as that a product can help cure something. An implied claim is one that is made indirectly or alluded to, such as saying a product can aid in the healing of what is causing the pain. Both express and implied claims must have proof before running the advertisement.
When the FTC is looking into claims, there are certain things that a business must provide in defense of their ads. One of these is having a reasonable basis for a claim that is objective evidence. If an ad claims something such as “2 out of 3 doctors confirm this”, then there must be evidence of that to back it up. If the claim is nonspecific, the FTC generally will look towards experts to support the claim. One thing that cannot be used as a basis is customer support for the product and their approval of its uses.
While the FTC is the top form of regulation that must be adhered to, there are other regulatory forces that must be adhered to with small businesses. This includes closely following state statutes as well as local ones that may affect your business or that of your competitors. The Better Business Bureau is often very reliable and resourceful in terms of local business disputes. The FTC often makes attempts to fight any fraudulent claims that try to prey on entrepreneurs.