A Business Checklist for Direct Marketers

Advertisements: Product Offers and Claims

You must truthfully advertise merchandise, and, when advertising products or services, you also must have a reasonable basis for all objective claims, especially when they concern the safety or performance of a product. This means you must have competent and reliable evidence to support your claims at the time the claims are made. The type of evidence you will need may depend on the type of product, the kind of claim made, and what experts in the field believe is necessary. if the advertising specifies a particular level of support for a claim (for example. "tests prove..."), you must have at least that level of support.

The FTC Act prohibits unfair or deceptive advertising. To help you comply with the Act, the FTC has issued rules and guides about truthful advertising of products offered for sale by mail or telephone. For example, under the rules and guides, you must:

Truthfully represent the experience or opinions of endorsers if you advertising uses them. Consumer endorsements must reflect the typical experiences that customers can expect from the product unless the advertising clearly and prominently says otherwise. Expert endorsements must be based on appropriate tests or evaluations done by persons with expertise in the field.
Not exaggerate environmental benefits of your products or packaging. If you advertise environmental benefits of products or packaging, the claims should be specific and must be substantiated.

Be aware that a claim can be literally true and still be misleading. For example, a claim may be misleading because pertinent information is omitted or because the claim implies something that is not true. Therefore, you should carefully review your advertising copy before it is published because you are responsible if any advertising claim you make is unfair or deceptive.

Mail and Telephone Orders

Essentially, to comply with the Mail or Telephone Order Merchandise Rule ("MTOR"), you must have a reasonable basis for stating or implying that you can ship within a certain time when you advertise mail or telephone order merchandise. If you make no shipment statement, you must have a reasonable basis for believing that you can ship within 30 days. if, after taking a customer's order, you learn you cannot ship within the time you stated or within 30 days, you must seek the customer's consent to the delayed shipment.

For definite delays of 30 days or less, you may treat the customer's silence as agreement to the delay. For longer or indefinite delays, and second and subsequent delays, you must get the customer's consent express agreement. If you do not obtain the customer's consent, you must promptly refund all the money the customer paid you without being asked.

Telemarketing Sales

If your business uses either inbound or outbound interstate telephone calls to sell goods or services, you must comply with the new Telemarketing Sales Rule. The Rule requires, among other things, that certain disclosures be made before a customer pays for the goods or services. The Rule also prohibits material misrepresentations, calls to consumers before 8:00 a.m. or after 9:00 p.m., and calls to consumers who have previously asked that they not be called again.

Before a customer pays for goods and services, you must disclose, orally or in writing, certain information that is likely to affect the customer's decision to purchase the offered goods or services. Such information includes:

The total costs to purchase, receive, or use the offered goods or services;
The quantity of goods and services;
All material restrictions, limitations, or conditions to purchase, receive, or use the offered goods or services;
Any policy of not making refunds, cancellations, exchanges, or repurchases, if there is one;
All the material terms and conditions of your refund, cancellation, exchange, or repurchase policy, if it is mentioned in the advertising or sales presentation; and
The odds of being able to win the promotion prize if one is offered (or, if the odds can't be calculated in advance, the factors used to calculate the odds), all of the material costs or conditions one must fulfill to receive or redeem the prize, and that no purchase or payment is necessary to win or participate in the prize promotion.

If you make outbound "cold" calls to consumers, you must make following additional oral disclosures promptly:

The identity of the seller;
That the purpose of the call is to sell goods or services;
The nature of the goods or services;
That no purchase or payment is necessary to be able to win a prize or participate in a prize promotion if one is offered (and if asked, you must describe the no purchase/nonpayment method of entry)

The following situations are not covered by the Telemarketing Sales Rule:

Telephone calls placed by customers in response to general media advertising (except calls responding to ads for investment opportunities, credit repair services, recovery room services, or advance fee loans).
Telephone calls placed by customers in response to direct mail advertising that discloses all the material information required by the Rule (except calls responding to ads for investment opportunities, prize promotions, credit repair services, recovery room services, or advance fee loans).
Catalog sales.
Calls initiated by customers that are not made in response to any solicitation.
Sales that are not completed, and payment or authorization of payment is not required, until there is a face-to-face sales presentation.
Calls from one business to another unless office or cleaning supplies are being offered.
Sales of pay-per-call services and sales of franchises, which are covered by other FTC rules.

Credit

If your advertising promotes consumer credit, you must comply with the Truth in Lending Act and the Federal Reserve Board's Regulation X. The law requires advertisers -- not solely creditors -- to comply.

If you advertise closed-end credit by stating the amount of percentage of the down payment, the amount of any payment, the number of payments or period of repayment, or the amount of finance charge, you must disclose:

The amount or percentage of the down payment;
The terms of repayment; and
The annual percentage rate (APR). If the APR may be increased after consummation, you must state that fact.

Additionally, if your closed-end credit ad states the finance charge as a rate, that rate must be stated as an APR and it must be correctly calculated. If you include the APR in the ad, you may also state a simple annual rate or a periodic rate applicable to an unpaid balance, but not more conspicuously than the APR.

If your advertisement promotes open-end credit by making any reference to the periodic rate or the APR, the method used to compute the finance charge, when the finance charge begins to accrue, the method of determining the balance on which the finance charge may be imposed, to the amount of any charge other than the finance charge that may be imposed, you must disclose:

Any minimum fixed, transaction, activity or similar charge;
Any periodic rate that may be applied, expressed as an APR; and
Any membership or participation fee.

If your advertisement promotes a home equity line of credit (A special type of open-end credit), you must comply with the above requirements for open-end credit, as well as numerous other disclosure rules. Consult Regulation Z and the implementing regulation for the Truth in Lending.

Wool and Textile Products

The Textile and Wool Acts require that you clearly and conspicuously disclose in each advertisement for a wool or textile product that the article is made in the U.S.A., imported, or both. A general statement in you advertisements that all products are made in the U.S.A. or are imported is not adequate.

Whenever your ad copy makes any disclosure or implication about fiber content, generic names (assigned by the FTC) must appear in order of predominance by weight. It is not necessary to include the percentage of each fiber, but fibers present in amounts of less than 5% must be listed as "other fiber(s)."

900-Numbers

All providers of pay-per-call services must comply with the FTC 900-Number Rule. All advertisements for pay-per-call services must disclose the cost of the call. Additional advertising disclosures are required for services that:

Promote sweepstakes or games of chance;
Provide information about a federal program (but are not sponsored by a federal agency); and
Target individuals under 18 years of age.

Note that ads for 900-number services cannot be directed to children under 12 years of age, unless the service is a bona fide education service, as defined by the Rule.

In addition to the ad disclosures, the 900-Number Rule requires you to give an introductory message (a preamble) that gives the name of your 900-number company and the call's cost. The preamble also must give the caller the opportunity to hang up without charge.

Warranties and Guarantees

Warranties

The FTC's Rule on Pre-Sale Availability of Written Warranty Terms requires that written warranties on consumer products costing more than $15 be available to consumers before they buy. If you solicit orders for warranted consumer products through the mail or by telephone, your catalog or other advertisement must include either the warranty or a statement telling consumers how to get a copy.

Guarantees

Under the FTC Act, you must honor "satisfaction" and "money-back" guarantees. FTC cases have held that it is unfair or deceptive for a merchant to fail to honor an unqualified satisfaction or money-back guarantee promptly and fully, including the return of the purchase price, shipping, handling, or other fees. The FTC also has held that it violates the FTC Acct to advertise a satisfaction or money-back guarantee without disclosing, clearly and conspicuously, any material limitations or conditions, such as requiring the customer to supply proof of purchase, returning the unused portion of a product, or restricting the offer to a specific time period.

Negative Option Plans

In any promotional materials, the FTC's Negative Option Rule requires you to clearly and conspicuously give the following information:

How many selections the customer must buy;
How and when the customer can cancel the membership;
How to notify you if the customer does not want the selection;
When to return the "negative option" form to cancel shipment of a selection;
When a customer can get credit for the return of a selection;
How postage and handling costs are charged; and
How often a customer can expect to receive announcements and forms.

If your promotion provides this information and you conduct the negative option plan as represented, consumers enrolled in the plan are obligated either to return the negative option form within 10 days after receiving it or (if they don't return the form in time) pay for the merchandise after receiving it.

Merchandise on Approval Sales

Under the FTC Act, you must obtain the customer's express agreement to order merchandise on approval. Merchants sometimes confuse "sales on approval" with "negative option plans." Unlike negative option sales, merchandise-on-approval sales permit the prospective customer to return merchandise, usually after a "no obligation" or "free trial" period, even though it is exactly as represented in the merchant's advertising. These sales do not require the customer to pay for the order until the merchandise is received and approved.

Although you do not have to make the disclosures required by the negative option rule when offering merchandise on approval, you must obtain the customer's prior express agreement to receive the merchandise. Otherwise, the merchandise may be treated as unordered merchandise. The consumer has a legal right keep unordered merchandise as a free gift.

Example 1: You plan to sell tapes on approval. Under your plan, before sending each selection. you will send the customer promotional materials announcing the selection and a postage paid cancellation form for the customer to return if the selection is not wanted. If the customer does not return the form, you plan to treat it as an order to ship the selection on approval.

In order to do this without violating the FTC Act, you must explain both the "on approval" sales method and the cancellation device in detail when soliciting the customer's initial order. You also must obtain the customer's prior express agreement that you may treat his or her failure to return the cancellation device as a request to send each selection.

Example 2: You plan to sell a continuity" series of 24 books on a related topic. Under the plan, a new book will be sent on approval to the customer each month.

In order to do this without violating the unordered merchandise law, you must explain the series in detail when soliciting the customer's order and obtain the customer's prior express agreement to receive all books in the series on approval.