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Part Seven Special Topics and Perspectives
Belch: Advertising and
Promotion, Sixth Edition
Exhibit 21-7 The Division
of Advertising Practices
protects consumers from
deceptive and
unsubstantiated advertising
claims
VII. Special Topics and
Perspectives
21. Regulation of
Advertising and Promotion
© The McGraw−Hill
Companies, 2003
level (Exhibit 21-7). The Division of Marketing Practices of the Bureau of Competition
engages in activities that are related to various marketing and warranty practices
such as fraudulent telemarketing schemes, 900-number programs, and disclosures
relating to franchise and business opportunities.
The FTC has had the power to regulate advertising since passage of the Wheeler-
Lea Amendment. However, not until the early 1970s—following criticism of the commission
in a book by “Nader’s Raiders” and a special report by the American Bar
Association citing its lack of action against deceptive promotional practices—did the
FTC become active in regulating advertising. 35 The authority of the FTC was
increased considerably throughout the 1970s. The Magnuson-Moss Act of 1975, an
important piece of legislation, dramatically broadened the FTC’s powers and substantially
increased its budget. The first section of the act dealt with consumers’ rights
regarding product warranties; it allowed the commission to require restitution for
deceptively written warranties where the consumer lost more than $5. The second section,
the FTC Improvements Act, empowered the FTC to establish trade regulation
rules (TRRs), industrywide rules that define unfair practices before they occur.
During the 1970s, the FTC made enforcement of laws regarding false and misleading
advertising a top priority. Several new programs were instituted, budgets were
increased, and the commission became a very powerful regulatory agency. However,
many of these programs, as well as the expanded powers of the FTC to develop regulations
on the basis of “unfairness,” became controversial. At the root of this controversy
is the fundamental issue of what constitutes unfair advertising.
The Concept of Unfairness
Under section 5 of the FTC Act, the Federal Trade Commission has a mandate to act
against unfair or deceptive advertising practices. However, this statute does not define
the terms unfair and deceptive, and the FTC has been criticized for not doing so itself.
While the FTC has taken steps to clarify the meaning of deception, people have been
concerned for years about the vagueness of the term unfair.
Controversy over the FTC’s authority to regulate unfair advertising practices began
in 1978, when the agency relied on this mandate to formulate its controversial “kid
vid” rule restricting advertising to children. 36 This interpretation caused widespread
concern in the business community that the term unfair could be used to encompass
anything FTC commissioners might find objectionable. For example, in a 1980 policy
statement the FTC noted that “the precise concept of consumer unfairness is one
whose precise meaning is not immediately obvious.” Consequently, in 1980 Congress