In mid-September, the FTC hosted a workshop over consumer disclosures. The workshop, “Putting Disclosures to the Test,” was “aimed at encouraging and improving the evaluation and testing of consumer disclosures by industry, academics, and the FTC,” the FTC said in a May 2016 press release announcing the workshop. The FTC has said that “[e]ffective disclosures are critical in helping consumers make informed decisions in the marketplace,” but that simply putting out disclosures that comply with FTC guidelines might not be enough.
Workshop Examined Testing and Evaluation of Consumer Disclosures
The focus of the consumer disclosures workshop was “to examine the testing and evaluation of disclosures that companies make to consumers about advertising claims, privacy practices, and other information.” As explained by the FTC, there are at least three areas where consumer disclosures “play a key role,” including:
- disclosures in advertising designed to prevent ads from being deceptive;
- privacy-related disclosures, including privacy policies and other mechanisms to inform consumers that they are being tracked; [and]
- disclosures in specific industries designed to prevent deceptive claims, including jewelry, environmental claims, and fuel economy advertisements.
The FTC’s Longstanding “Commitment” to “Effectiveness of Consumer Disclosure”
The FTC has said:
The FTC has a long commitment to understanding and testing the effectiveness of consumer disclosure, and is especially interested in learning about the costs and benefits of disclosure testing methods in the digital age. A number of factors impact the effectiveness of disclosures, including whether they contain the most essential information and consumers notice them, direct their attention towards them, comprehend them, and are able to use that information in their decision making. Some testing methods are more appropriate than others for evaluating these factors.
Opening Remarks from Edith Ramirez
The workshop itself began with opening remarks from FTC Chairwoman Edith Ramirez. The, there were two individual presentations on how consumers cognitively process disclosures when they encounter them and the procedures and methods of evaluating overall disclosure effectiveness, respectively. The remaining portions of the workshop involved several panel discussions regarding everything from studies evaluating “when and where people are noticing, reading, or paying attention to disclosures,” consumers’ “comprehension” and understanding of the information set forth in the disclosures, studies evaluating “the impact of disclosures on consumers’ decision making behavior,” case studies, and the future of consumer disclosures.
FTC’s Focus on Consumer Disclosures is as Old as the Agency Itself
In her opening remarks, Ms. Ramirez said that consumer disclosures “is a topic the FTC has been thinking about and studying practically from the moment the agency opened its doors more than a hundred years ago.” She also explained that the FTC views the word “disclosure” broadly, and that “when [the FTC] think[s] about disclosures [as part of its consumer protection work], [the FTC] generally focus[es] on the disclosure of information that affects consumer welfare.” According to Ms. Ramirez:
In some cases, disclosures are necessary to limit or qualify other advertising or marketing statements in order to prevent deception. Other disclosures are required to inform consumers of the risks or dangers from using certain products. Still others make consumers aware of choices they may have. For instance, some of the disclosures required by FTC rules include energy consumption labels on appliances, fuel labels at the gas pump, and price lists for funeral services. These help inform consumers when they are choosing between different products or services.
As it relates to the FTC’s privacy work, Ms. Ramirez told the workshop that the FTC “encourage[s] companies to disclose their data practices so that consumers can make choices that allow them to exercise greater control over the way their personal information is used.”
The “Clear and Conspicuous” Standard
Ms. Ramirez also noted:
It’s clear that disclosures play an important role in protecting consumers. That’s why the FTC requires that necessary disclosures be “clear and conspicuous.” We want consumers to see or hear the disclosure, to understand it, and to use the information conveyed to make informed decisions. But we recognize that accomplishing all three of these objectives can sometimes be challenging.
FTC’s Guidance Over Consumer Disclosures
In an attempt to protect consumers, Ms. Ramirez says the FTC has issued guidance for companies regarding the use of proper consumer disclosures. Ms. Ramirez said the FTC’s guidance includes the “Dot Com Disclosures” which the FTC issued in the early 2000s. The Dot Com Disclosures “explain[ed] what ‘clear and conspicuous’ means in the context of online advertising and sales, explaining how the ‘4Ps’ at the core of our ‘clear and conspicuous’ standard – prominence, presentation, placement, and proximity – apply to the online world.” The FTC “updated that guidance in 2013 to address technological developments like the use of smartphones, tablets, and apps.”
Also in 2013, the FTC issued a staff report offering guidance as it related to “just-in-time” disclosures, which disclosures required companies to “obtain affirmative express consent before allowing apps to access sensitive content such as geolocation information.” Ms. Ramirez says other guidance from the FTC has included the FTC’s “Endorsement Guides,” as well as its “detailed guidance … on disclosures in ‘native ads.’”
“Importance of Testing the Effectiveness of Disclosures”
Ms. Ramirez concluded her opening remarks with a discussion regarding “the importance of testing the effectiveness of disclosures,” which she said was the main focus of the instant workshop. “Our focus in this workshop is not on what must be disclosed to consumers, or even on the most effective methods of disclosing information to consumers. Rather, we will focus on how to evaluate whether disclosures are effective.”
What Does an Effective Disclosure Look Like to the FTC?
So, what exactly makes a disclosure effective in the eyes of the FTC, and what should advertisers be doing to test/evaluate the effectiveness of their disclosures? The following is a list of key takeaways from the workshop that may provide useful:
- Advertisers should adhere to the FTC’s guidance to make sure that their disclosures are “clear and conspicuous,” including that the disclosures should be brief, easy to read, in a high contrast font, placed where a consumer will see it, and convey the most significant information first;
- Multiple or redundant disclosures should be made wherever possible;
- Disclosures should be adapted by advertisers depending on the context in which the disclosures appear;
- When testing and/or evaluating the effectiveness of a disclosure, advertisers must test a particular methodology and make whatever changes are necessary to ensure that the advertisers is getting accurate results;
- Asking consumers if they have read your disclosures may not be the best way to determine if a consumer actually read the disclosures;
- Vague terms like “Brand Voice,” or “Partner” do not properly convey to consumers that what they are seeing is an advertisement, while terms like “Paid Ad,” “Paid Content,” or “Sponsored” do; and
- Advertisers should look at the totality of their advertising, not just the disclosures themselves, when testing and/or evaluating the effectiveness of a particular disclosure.
No Formal Guidance Issued
While it remains to be seen whether the FTC’s consumer disclosures workshop signals the beginning of a new era of guidance, it is clear that the FTC sees evaluation and testing of consumer disclosures a critical step in the disclosures process. Even still, the FTC did not go so far as to require companies to test and/or evaluate their consumer disclosures prior to disseminating them. Likewise, the FTC did not recommend that companies use any one of the particular methodologies for testing/evaluating discussed during the workshop when, or if, the companies did decide to test their consumer disclosures. However, given the FTC’s interest in disclosures, along with the FTC’s requirement that advertisers must substantiate their claims, advertisers should definitely consider testing or evaluating their disclosures before those disclosures are made public.
For more information on the workshop, including the materials disseminated during workshop, as well as video of the presentations and panel discussions, please visit the FTC’s website for more information.
Photo Cred.: medscape.com