What is Misleading Advertising?
What are the three elements of misleading advertising, according to the FTC?
"First, there must be a representation, omission or practice that is likely to mislead the consumer. (Practices that have been found misleading or deceptive in specific cases include false oral or written representations, misleading price claims, sales of hazardous or systematically defective products or services without adequate disclosures, failure to disclose information regarding pyramid sales, use of bait and switch techniques, failure to perform promised services, and failure to meet warranty obligations.)
Second, we examine the practice from the perspective of a consumer acting reasonably in the circumstances. If the representation or practice affects or is directed primarily to a particular group, the Commission examines reasonableness from the perspective of that group.
Third, the representation, omission, or practice must be a "material" one. The basic question is whether the act or practice is likely to affect the consumer's conduct or decision with regard to a product or service. If so, the practice is material, and consumer injury is likely, because consumers are likely to have chosen differently but for the deception. In many instances, materiality, and hence injury, can be presumed from the nature of the practice. In other instances, evidence of materiality may be necessary. (my emphasis)"
Although the FTC confuses or rather conflates two different legal concepts, reliance and proximate cause, their statement about deception is useful for the tip about warranties. Typically, consumers believe that if a business oppportunity has a guarantee or warranty, then this makes the purchase of the business opportunity safer or less risky.
This reasoning confuses the legal meaning of "guarantee" with the psychological connotation of "guarantee". Legally, if A guarantees B's debt's then what is relevant is A's creditworthiness. If A is less creditworthy than B, then A's guarantee is legally pointless. But psychologically, we all believe that a guarantee lessens risk. Fraud criminals know this and pitch pointless guarantees to us, taking advantaging our our natural reaction to believe that guarantees are removing risk.
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