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Legal Reasons to Make Sure Consumers Understand Your Advertising Disclosures

by kbhilfer on October 5, 2016

We’ve all seen the fine print in advertising, but do we, as consumers, read or understand what these disclosures say? This inquiry was the focus of the FTC’s recent workshop “Putting Disclosures to the Test.” The consensus was that consumers neither read nor understand many disclosures. At the same time, the workshop suggested some best practices for formulating disclosures, even as the FTC considers whether to increase regulation in this area.

The essential question for the FTC workshop was not what to disclosure or how to disclose, but rather how to know if marketing disclosures are effective. Are consumers receiving information from them to help them make informed decisions? FTC Chairwoman Ramirez set the stage for the discussion by referring standards previously enunciated in the FTC’s DotCom Disclosure Guides. She reminded the audience that “needed disclosures should grab a consumer’s attention” or “be difficult to miss.”

The workshop presenters were not brand advocates or industry members. Instead, regulators, researchers, and academics presented compelling evidence that consumers are just not heeding or comprehending disclosures, even if they meet the FTC’s clear and conspicuous standard. In addition, the researchers presented information on how to test disclosures, including evaluation criteria and methodologies. Eye-tracking technology was highly touted to determine what consumers read, but such technology is expensive and does not provide data on comprehension.

So why should marketers care about disclosures? They may prevent advertising from being deemed deceptive. (Currently, litigation is ongoing regarding the sufficiency of  hyperlinks and info hovers to disclose in the FTC’s case against DIRECTV, and the federal court denied summary judgment to the defendants approximately one week after the FTC workshop on disclosures.) They are necessary for obtaining consent to use consumers’ personally identifiable information or to opt-in to certain kinds of marketing programs (e.g. negative option programs, which were recently the subject of FTC regulatory action due to lack of disclosures). In addition, researchers for the RAND Corporation’s Institute for Civil Justice presented evidence suggesting a positive correlation between effective disclosure and consumer satisfaction. In fact, consumers who understand privacy policies have higher response rates and are more likely to set lower privacy settings when interacting with a brand.

At the same time, not all disclosures work as a practical matter to give information, even if seem to be legally sufficient at first glance. Studies presented at the workshop show that shoppers may not look at their phones to see the fine print. So in retail situations, marketers should consider making their disclosures in multiple locations. Another study showed that the app store is the worst location for noticing and understanding privacy policies. App developers should instead consider how to disclose their privacy policies within the apps. Consumers consistently fail to recognize native advertising regardless of disclosures, and marketers and regulators are still trying to figure out how to adapt the fine print to space-constrained content. (Expect to see more regulatory activity in this area in particular as the FTC tries to push industry away from misleading door openers.) In short, marketers need to consider not just what their disclosures should say but how and in what context consumers are interacting with them.

Although the workshop emphasized testing disclosures, it is important to note that testing is not legally mandated. At the same time, one wonders if the FTC would look more favorably on disclosures that have been tested with credible methodologies. A slew of questions were unanswered at the workshop. Would the presence of testing ameliorate damages? Would it even possibly dissuade the FTC from seeking them? If a large, well-endowed corporation does not use testing, will the FTC demand it in a consent decree on a going forward basis? Does it matter if the advertising campaign has a small run and reach versus a national campaign running for months on multiple platforms? What about the subject matter of the campaign? Should advertisers in more vulnerable categories (e.g. health claims, environmental claims, truth in lending, or auto advertising) mandate testing as part of its due diligence and legal vetting of its advertising copy?

While these questions remain unanswered for now, the workshop did yield some clues as to how regulators judge the sufficiency of disclosures. We already know a lot about this from both the DotCom Disclosure Guides and the recent native advertising guidance that came from the FTC. Still, the workshop pointed to some new benchmarks. Most important is to consider not just are disclosures clear and conspicuous but what is the likelihood that consumers will read them, understand them, and make choices based on them. This very well may be a more complex and new way of thinking for marketers and their advertising counsel.

Best Practices:

  • Avoid vague qualifying terms. (This problem is prevalent particularly in privacy policies.)
  • List benefits before risks to gain consumer attention.
  • Put important text first where consumer attention is highest.
  • Tailor disclosures to the audience.
  • Remember disclosures need to be noticeable and also comprehensible.
  • Disclosures should not be in block text.
  • Use large, legible fonts and high contrast colors.
  • Adapt to the overall context to make disclosures stand out.
  • Look for opportunities to repeat disclosures so consumers pay more attention to them.
  • Social media disclosures on mobile platforms must be easy to click through and more concise than printed disclosures.
  • Remember that shoppers can’t take out phones if hands are full. Consider in-store platforms for disclosures in retail locations.
  • Be conscious of how consumers will use the information you disclose to affect their decisions.
  • Pay particular attention to disclosures in native advertising, “up to” claims, and privacy policies.
  • Adver-games aimed at children require special attention.
  • Consider changing your disclosure methodologies over time. Once your audience has been saturated with the same disclosures repeatedly, they may tune them out.
  • If testing your disclosures, work with legal counsel to ensure that your results and methodology have attorney-client privilege.
  • Your methodology of measuring consumer comprehension should be seen as a pre-litigation stage of brand research. Set it up correctly with proper controls.

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