Government Regulation of Advertising

Advertising regulation has played a significant role in shaping the history and cultural influence of advertising. One of the earliest federal laws addressing advertising, the Pure Food and Drug Act of 1906, was enacted in response to public outcry over the false claims made by patent medicines. This law required the placement of informational labels on these products. It did not, however, address the questionable aspects of the advertisements, so it did not truly delve into the issue of false advertising.

The Formation of the FTC

Founded in 1914, the Federal Trade Commission (FTC) was established to regulate false advertising claims. Although federal laws concerning these practices required plaintiffs to prove that the advertisements caused actual harm, state laws passed during the early 1920s allowed the prosecution of misleading advertisements regardless of the damage done.

The National Association of Attorneys General has helped states remain an essential part of advertising regulation. In 1995, 13 states passed laws that required sweepstakes companies to provide full disclosure of the rules and details of contests (O’Guinn et al., 2009).

During the Great Depression, New Deal legislation threatened to outlaw any misleading advertising, a result of the burgeoning consumer movement and the public outcry against advertising that had emerged during the period (Time, 1941). The reformers did not fully achieve their goals, but they left a lasting mark on advertising history. The 1938 Wheeler-Lea Amendment expanded the FTC’s role to protect consumers from deceptive advertising. Until this point, the FTC only needed to address false advertising complaints from competitors. With this legislation, the agency also became an essential resource for the consumer movement.

Truth in Advertising

In 1971, the FTC initiated the Advertising Substantiation Program, which requires advertisers to provide evidence to support the claims made in their advertisements. Under this program, the FTC gained the power to issue cease-and-desist orders to advertisers regarding specific ads in question and to order corrective advertising. Under this provision, the FTC can force a company to issue an advertisement acknowledging and correcting an earlier misleading ad. Regulations under this program stipulate that experts featured in advertisements must be qualified professionals in their field, and celebrities must use the products they endorse.

In 1992, the FTC introduced guidelines that defined terms such as “biodegradable” and “recyclable.” The growth of the environmental movement in the early 1990s led to an upsurge in ecological claims by manufacturers and advertisers. For example, Mobil Oil advertised the “biodegradable” benefits of its Hefty trash bags. While technically accurate, a 500- to 1,000-year decomposition cycle does not meet most people’s definitions of the term (Lapidos, 2007). The FTC guidelines mandated that such claims are false by law (Schneider, 1992).

In 2006, the FTC brought Sunny Health Nutrition to court for advertising height-enhancing pills called HeightMax, as it had found that the company had hired an actor to appear as an expert in its ads, and that the pills did not live up to their claims. Sunny Health Nutrition had to pay $375,000 to consumers for misrepresenting its product (Consumer Affairs, 2006).

The rise of digital platforms, social media, and influencer marketing has significantly impacted the landscape of advertising ethics and regulation. Social media sites, for instance, utilize user profile information and online behavior to generate targeted advertisements. If a person expresses interest in a particular artist or joins an online group associated with them, they might see announcements advertising new music releases or local performances. While this personalization can be beneficial, it also raises significant privacy concerns. The collection and use of such data for targeting purposes became an important public debate, particularly after incidents like the Cambridge Analytica scandal in 2018. Furthermore, the Children’s Online Privacy Act of 1998 (COPPA) prohibits companies from obtaining the personal information of children who access websites or other online resources without parental consent. However, concerns persist, as exemplified by cases where platforms, like a beer manufacturer’s virtual city, might inadvertently expose underage users to mature content if age-verification requirements are easily circumvented.

Regulators have had to adapt their guidelines to address these new advertising frontiers. The FTC has increasingly turned its attention to online advertising practices. For example, in 2009, the FTC took action against Sears after complaints that the company offered consumers money to download software that tracked their Internet browsing without sufficient disclosure of the sensitive information being collected. More recently, the FTC’s Endorsement Guides, updated in 2023, now explicitly require social media influencers and content creators to clearly and conspicuously disclose any “material connection” they have with a brand they are endorsing. This includes financial relationships, free products, or any other benefit that might influence their opinion. The goal is to ensure transparency and prevent consumers from being misled by seemingly organic endorsements that are paid promotions. Complaints about consumer tracking by major tech companies, such as Meta and Alphabet, continue to fuel calls for new and more comprehensive regulation of Internet advertising.

Beyond influencer marketing, the digital realm has also witnessed an increase in deceptive practices, including fake online reviews and testimonials. With the advent of generative artificial intelligence (AI) tools, it has become easier and cheaper to produce large numbers of realistic but inauthentic reviews, further polluting the online marketplace. In response, the FTC issued a final rule in August 2024 specifically prohibiting the sale or purchase of fake or AI-generated consumer reviews and testimonials, allowing the agency to seek civil penalties against violators. This rule also addresses issues such as review suppression and the misuse of fake social media indicators (e.g., purchasing followers or views generated by bots).

Furthermore, advertisers face increasing scrutiny regarding “greenwashing” (making unsubstantiated or misleading claims about environmental benefits) and “woke washing” (appropriating social or political causes for marketing without genuine commitment). Regulatory bodies and consumer advocacy groups are advocating for clearer standards and more vigorous enforcement to combat these deceptive practices, requiring brands to provide robust evidence to support their environmental and social claims.

Free online services, such as email providers like Gmail, continue to rely on advertising for revenue. While Google, for example, states it does not sell personal information or use content from private services for ad personalization, it still leverages user activity to deliver relevant ads. The ongoing challenge for the industry is to strike a delicate balance between providing accessible services, offering personalized advertising, and upholding consumer privacy and truthfulness in an increasingly complex and data-driven advertising ecosystem.

Regulation of the Internet

The FTC has also turned its attention to online advertising. The Children’s Online Privacy Act of 1998 prohibited companies from obtaining the personal information of children who access websites or other online resources. Because of the youth orientation of the Internet, newer advertising techniques have drawn increasing criticism. Alcohol companies in particular have come under scrutiny. Beer manufacturer Heineken’s online presence includes a virtual city where users can own an apartment and utilize services such as email. This practice mirrors that of children’s advertising, in which companies often create virtual worlds to immerse children in their products. However, children can easily falsify the age-verification requirements to participate in this type of environment, which can lead to young children’s exposure to more mature content (Gardner, 2010).

Consumer and privacy advocates concerned over privacy intrusions by advertisers have also called for Internet ad regulation. In 2009, the FTC acted on complaints against Sears, resulting in an injunction against the company for failing to provide sufficient disclosure. Sears offered $10 to consumers to download a program that tracked their Internet browsing. The FTC came down on Sears because the downloaded software tracked sensitive information that the company did not fully disclose to the consumer. Similar consumer complaints against Meta and Alphabet for their consumer tracking have, to date, not resulted in FTC actions; however, the growing outcry makes new regulation of Internet advertising likely (Shields, 2010).