NAD Claims Decision Holds Lessons for All Industries | Kelley Drye & Warren LLP
This week, NAD announced a ruling affecting various claims made by Accredited Debt Relief and its marketing agency. While portions of the decision will likely only be of interest to companies operating in the debt-regulation space, the decision also contains some important lessons for companies operating outside of this space. We will focus on these in this post.
Claims about expected results
Accredited Debt Relief advertised that its customers could “halve their monthly payments.” Although the company had evidence that some customers – less than a third – had achieved these results, NAD took the position that consumers seeing the claim would assume it was “representative of typical consumer experience.” Accordingly, NAD thought consumers might be misled by the claim and advised the company to focus on more typical results.
NAD also noted that there was a “detailed and lengthy” disclosure about the program and its material limitations at the bottom of the webpages containing the contested claims. NAD, citing FTC guidelines, wrote that material terms “must be communicated clearly and conspicuously in the four corners of the advertisement in which this claim appears.” Simply putting the information “somewhere” for people to find is not enough.
One of the “detailed and lengthy” disclosures NAD mentioned is around 300 words. Does NAD really expect all of this information to be included in the ad copy? Probably not. In its decision, NAD highlighted certain conditions – including the typical length of the program, fees and some exclusions – that appeared to be most relevant. Advertisers face the difficult task of figuring out which terms matter most, including those in the text of the ad, and providing the rest in a disclosure.
“Up to” Claims
Similarly, NAD contradicted claims that consumers could “reduce overall debt by up to 50%.” The evidence you need to support an “up to” claim can vary greatly depending on the context of the claim. While in some cases – such as “save up to 50% on sweaters during our Black Friday sale” – it may be sufficient to show that at least 10% of the sweaters are discounted at the 50% tier, in other cases this is the Case The burden of justification may be higher.
In the example I invented, consumers can presumably know how much they’re going to save before they make a purchase. In this case, however, NAD found that consumers won’t know if they’ll be able to achieve a 50 percent reduction in overall debt until they sign up and agree to pay significant fees. In the context of “a highly consequential claim of potential long-term savings,” NAD appears to expect advertisers to use a number that reflects what “all or nearly all individual consumers will save.”
NAD’s decision also focused on a website that allegedly offers “reviews of the leading debt consolidation companies” based on various objective factors. Accredited Debt Relief takes first place with the badge “#1 Top Rated – We Recommend”. Consumers who are impressed by this achievement might be a little less impressed when they read the footnote at the bottom of the site, which states, among other things, that the site is “owned by the same company that owns Accredited.”
NAD determined that consumers could reasonably expect the site to be independent. “Any disclosure that the site is paid for advertising content contradicts the message of independence and impartiality otherwise conveyed by a rating or ranking site. Disclosures cannot contradict the claims they qualify. A disclosure that the review site is owned by the advertiser, even if clear and prominent, cannot cure the misleading assumption that the site is independent.”
This is the second case NAD has opened in the debt settlement arena this year. (You can read our first post here.) If you work in this space, you should definitely take a closer look at both decisions, as NAD seems to be focused on this area. But don’t ignore these cases just because you work in a different industry. As our posts have shown, the decisions contain valuable lessons that apply to many industries.