Federal Trade Commission Solicits Consumer Research

Date:
By: 
Jodie Bernstein, Former Director

Last October, I had a wonderful opportunity to address the ACR annual conference and share with your association my views on the direction of the FTC's consumer protection program effort and how your work can influence our efforts. During the presentation, I emphasized how important accurate information about consumer behavior is to our mission, and I extended to the ACR membership a general invitation to assist the FTC by conducting research that would be of help to our policy determinations.

For those readers who didn't attend the conference, some background information about the FTC may be useful. Most of the FTC's consumer protection activities focus on two fundamental questions: First, what claims are consumers receiving from particular business practices? And, second, are those claims deceptive or "unsubstantiated?" But even after the FTC determines that a law violation has occurred, we will still confront the question of whether the FTC's proposed remedy -- which often involves the disclosure of information -- helps the situation, or makes it worse. Often, we're reminded of a story about a zookeeper whose kangaroos kept escaping. Each time the kangaroos escaped, the zookeeper would round them up, and make the fence higher. Sitting outside the zoo one day, gazing up at the zookeeper adding yet more fencing, one of the kangaroos asked the other, "How high do you think he'll build the fence?" "I don't know," replied the other. "Maybe to the sky, if he doesn't start locking the gate at night."

The zookeeper story is an apt analogy to the challenge we face when we try to devise the correct responses to deceptive business practices. No one knows better than the consumer research community that assumptions about how consumers will react in certain situations do not always hold true. If our understanding of how consumers will react to certain information is inaccurate, we face the possibility of devising seemingly strong remedies that in real life don't effectively keep deception "fenced-in." This approach can be doubly troublesome. First, it doesn't deter deception; second, it can impose significant costs. Both hurt consumers.

The Commission's need for accurate information about consumer behavior far exceeds its ability to fund the needed studies. That's why its so important for the FTC to communicate with your association. To the extent that you understand our research needs, you can direct your efforts towards projects that can play an important role in helping develop informed public policy decisions.

Accordingly, the following paragraphs provide examples of current issues we are dealing with where more research would be useful. At the end of each paragraph is the name and phone number of an FTC staff member who is familiar with these issues. If you are considering conducting research in any of these areas, please feel free to call and discuss your ideas: We can update you on current issues, and we always welcome your input. Here are the issues:

  1. Disclosures, disclosures and more disclosures. Advertisers use disclosures to provide additional information; the government mandates them in an effort to correct deception. At the same time, academic literature and FTC case law consistently point out the very limited communication value of many of the disclosures actually used in advertising. Research on several disclosure-related issues would help us better understand what kinds of disclosures are most effective at protecting consumers.
    1. Critical disclosures of health or safety information. When FDA authorizes over-the-counter sales of drugs previously available only by prescription, the FTC becomes responsible for the ensuring that the new OTC drug's advertising is not deceptive or unfair. When a health or safety claim must be conveyed, (e.g., "see your doctor before taking this OTC drug,") how can advertising best accomplish this? What is the maximum amount of information such a message can include before its effectiveness diminishes? How well do clear and conspicuous disclosures correlate with appropriate actions by consumers? FTC contact: Sue Cohn (202) 326-3053.
    2. Traditional automobile sales and leasing disclosures. Disclosures are included in these ads to facilitate comparison shopping. Yet, you are all familiar with auto sales or leasing ads where the disclosures are hard to understand even if you tape them and then replay them using the pause button. This is an area of current controversy, with the Federal Reserve Board actively considering changes in its regulation. There are many questions to answer. What are the outside limits on how much information a disclosure can effectively convey in television advertising? Where disclosures convey more than a consumer can understand, what is the effect -- do the disclosures alert the consumer to the fact that there is something more they need to know, or does the consumer just ignore the fine print? FTC contact: Carole Reynolds (202) 326-3230.
    3. Alternative leasing disclosures. Congress recently enacted legislation allowing radio ads for consumer leases to disclose basic information, accompanied by a referral to an 800-number or other source where more detailed information is available. We'd be interested in data on the effectiveness of this new, alternative approach to long disclosures. Do consumers respond to this opportunity? How does it affect their awareness of material information? How do the effectiveness of traditional and alternative disclosure mechanisms compare at conveying material information to consumers who participate in lease transactions? FTC contact: Carole Reynolds (202) 326-3230.
    4. Disclosures in food health advertising. The FTC is committed to following a program of food advertising enforcement that is consistent with FDA's food labelling regulations, keeping in mind differences between labelling and advertising, and between the statutory mandates of the two agencies. A number of researchers have already responded to a prior request for research on subjects pertinent to this commitment, and those studies have been a valuable aid to our harmonization efforts. Additional topics warrant study. For example, if an ad claims that a dairy product containing saturated fat reduces osteoporosis, does that claim imply to consumers that consuming the dairy product will reduce the risk of osteoporosis without increasing the risk of another health related condition? If it does convey a general "good for you" claim, what kind of disclosure best conveys the presence and significance of the risk-increasing nutrient -- a numerical disclosure of the percent of daily value of fat contained in each serving, a concise verbalization, or some other disclosure format? FTC contact: Anne Maher (202) 326-2987.
  2. How will the advent of the Internet affect consumers? We are witnessing an explosion in the use of computers to communicate, shop, and buy. On-line services and the Internet contain substantial advertising, but much of it is in a format that differs from traditional media advertising. Moreover, the on-line environment offers significant ability to disclose additional information. This new environment provides great promise for consumers and significant challenges for consumer protection agencies. How do consumers interpret Internet ads? Do they regard them as more or less credible than more traditional media advertising? How are consumers using this new, information-rich marketing environment to make purchases and what problems are they encountering? Are there special opportunities to provide better consumer protection through consumer education in this environment? Answers to these questions will improve the Commission's ability to protect consumers who use this important medium. FTC contacts: Lucy Morris (202) 326-3295; Marianne Watts (202) 326-3074.
  3. How is the FTC's new Telemarketing Rule working? Changes in media are sometimes accompanied by new venues for fraud, as was demonstrated in the last decade with the advent of that free rider on the telemarketing system, telemarketing fraud. The Commission adopted a Telemarketing Sales Rule, effective December 31, 1995, that provides consumers with important protections against high tech highwaymen. It requires a telemarketer, before it commences a sales pitch, to tell the consumers that the call is a sales call, the name of the seller, and what is being sold. If the call is for a prize promotion, the telemarketer must tell the consumer that no purchase or payment is necessary to enter or win. The Rule prohibits telemarketers from misrepresenting any information about their goods or services, about the earnings potential, profitability, or liquidity of an investment, or the nature of a prize. The Commission is interested in follow-up research on the Rule's effectiveness. Are telemarketers complying with the Rule's disclosure requirements? Are these requirements reducing consumer injury? How much is it costing legitimate telemarketers to comply with the new Rule? FTC contact: Judy Nixon (202) 326-3173.
  4. Just what is "Made In USA?" This spring we'll be holding a workshop in Washington to consider the Commission's policy regarding "Made In USA" claims. The purpose of the workshop is to evaluate the Commission's historical approach to these claims in light of our increasingly global economy. We need to be sure that our policies protect consumers and enhance competition. This may be an area where consumer expectations are evolving rapidly, and their expectations may depend upon what product is being advertised. Thus, we would be interested in research that evaluates questions such as the following: How do consumers interpret the "Made In USA" claim when made in connection with products of varying complexity, for example, a piece of furniture, a kitchen blender, or a personal computer? If a plastic product is manufactured in the U.S., do consumers care that the raw materials are imported, or in what form? To what extent do consumers recognize that many complex products assembled in the U.S. may contain some imported parts? How can product labels convey such information? FTC contacts: Elaine Kolish (202) 326-3042; Beth Grossman (202) 326-3019.
  5. Corrective advertising and other information remedies: When are they warranted and what works best? The Commission is interested in improving the ways that it addresses past deception. Our orders against deceptive advertisers require that they cease disseminating false claims, and some require a monetary remedy. In addition, we are authorized to order corrective advertising in some cases, especially where false advertising played a substantial role in creating or reinforcing in the public's mind a false belief about a product, and the belief is expected to linger on after the false advertising ceases. In assessing the usefulness of this remedy, the Commission could benefit, first, from guidance on how to determine whether advertising creates a lingering misperception. Second, we are interested in research evaluating what kinds of corrective message are most effective -- what kind of language (disclaiming past claims or clarifying specific facts), what format (embedded or free standing), and in what media (direct mailings, product label disclosures, disclosures in subsequent advertisements). FTC contact: Joel Winston (202) 326-3153.
  6. What is the effect of alcohol advertising on consumer use? Our enforcement policies generally assume that advertising influences purchase and use decisions for an advertised product. Certainly, when consumers call in to order a product featured on an infomercial while the show is still running, we can be confident that the advertisement influenced the decision to buy. Yet, it is sometimes suggested that some products are in a different category -- that consumer decisions are made without reference to advertising, or that such advertising influences brand selection only. The question of the effect of advertising on consumption in a mature market is a very difficult one. While a great deal of work has been done in this area, more would be helpful. FTC contact: Janet Evans (202) 326-2125.
  7. What do tar and nicotine claims mean? Cigarette ads and packages may contain representations regarding the product's tar or nicotine yield, either in the form of numerical rating or descriptive terms such as "low tar" and "ultra light." The Commission staff is considering whether to recommend that the method used to determine cigarette tar and nicotine ratings be revised, and also whether certain marketing terms used by the cigarette industry may be misleading. Questions for research include: What do the tar and nicotine ratings convey to consumers when featured on cigarette packages or in cigarette ads? What is the meaning conveyed to consumers by the terms, "ultra light," and "low tar," when contained in a cigarette ad? FTC contact: Shira Modell (202) 326-3116.
  8. Getting the word out. Consumer education may be the most important task for consumer protection, and it is vital that we do a better job here. The consumer who has been educated about prevalent scams, what to look for in a lease transaction, and how to interpret a health claim, is substantially less likely to be injured. Consumer education efforts are costly, however, and it is essential that our efforts are effective. What are the best ways for consumer protection law enforcement agencies to use consumer education to advance their mission? What media and what kinds of messages are most likely to reach consumers in a manner that will protect them from future injury? Taking the example of telemarketing fraud, what kind of consumer education would be most effective? FTC contacts: Carolyn Shanoff (202) 326-3270; Toby Levin (202) 326-3156.
  9. Are we missing something? The consumer protection issues we address -- food health issues, telemarketing prize scams and credit fairness -- tend to cut broadly across income levels. Moveover, we make a special effort to target practices that particularly injure the vulnerable, such as fraudulent investment operators who make it their business to feed on the life savings of the elderly. Nonetheless, we would welcome research that evaluated whether there are special consumer protection problems among low-income consumers that the FTC could effectively address under its deception or unfairness jurisdiction. FTC contact: Lee Peeler (202) 326-3090.

These are just a few of the many issues the FTC is working on currently. Again, I encourage you to call the FTC contact person in a given area if you have an interest in conducting research in that area. I believe that it is important for us to have a close working relationship with those in your field, and I hope this article will inspire many ACR members to consider conducting research pertinent to the FTC. Your research can assist our agency as we attempt to establish sensible policies to guide commercial practices while protecting American consumers.

(1) The views reflected in this article are those of Ms. Bernstein and do not necessarily reflect the opinion of the Federal Trade Commission or any Commissioner.