FTC Discusses Growing Concerns over Digital Advertising to Youth

The Federal Trade Commission’s truth-in-advertising laws require that advertisements be truthful, not misleading, and, when appropriate, backed by scientific evidence. FTC looks at an advertisement in context, considering its words, phrases, and pictures, to determine what it would convey to a “reasonable consumer.”[1]

But what happens when an advertisement’s target audience is a child? FTC pays “particular attention” to advertising to children because of their greater vulnerability to deception and evaluates these advertisements from a child’s point of view.[2] But changes in media trends have raised growing concerns for advertising directed at children. As a result, on October 19, 2022, FTC held a virtual forum, “Protecting Kids from Stealth Advertising in Digital Media,”to “explore how best to protect children from a growing array of marketing practices that make it difficult or impossible for children to distinguish ads from entertainment in digital media.” In this article, we first discuss the general landscape for regulations that govern advertising to youth, followed by insights gleaned from the recent FTC meeting.

The Landscape: Regulations Governing Advertising to Youth

Advertising directed to children raises special issues as children may have greater difficulty evaluating advertising claims and understanding the information provided. Due to these concerns, various agencies, governing bodies, and rules apply to advertising to children:

Children’s Online Privacy Protection Act (COPPA)[3] (16 CFR Part 312)[4]

COPPA imposes certain requirements on operators of websites or online services directed to children under 13 years of age, and on operators of other websites or online services that have actual knowledge that they are collecting personal information online from a child under 13 years of age. The Act prohibits unfair or deceptive acts or practices in connection with the collection, use, and/or disclosure of personal information from and about children on the internet.

Generally, COPPA requires operators of websites to: (1) provide notice of what information it collects from children, how it uses such information, and its disclosure practices for such information; (2) obtain verifiable parental consent prior to any collection, use, and/or disclosure of personal information from children; (3) provide a reasonable means for a parent to review the personal information collected from a child and to refuse to permit its further use or maintenance; (4) not condition a child's participation in a game, the offering of a prize, or another activity on the child disclosing more personal information than is reasonably necessary to participate in such activity; and (5) establish and maintain reasonable procedures to protect the confidentiality, security, and integrity of personal information collected from children.

Children's Advertising Review Unit (CARU)[5]

CARU is a division of the nonprofit organization BBB National Programs that publishes self-regulatory guides on advertising to children. CARU is a Safe Harbor Program under COPPA that helps companies comply with laws and guidelines that protect children under age 13 from deceptive or inappropriate advertising.[6]

CARU’s guidelines apply to national advertising primarily directed to children under 13 years old in any medium. To ensure advertisements to children would not mislead “an ordinary Child,” the guidelines recommend depicting only realistic uses of the product, incorporating clear and conspicuous disclosures when needed, and designing the advertisements so that they are easily identifiable as advertising.[7]

CARU monitors and reviews advertising, websites, and online services directed to children, initiates and receives complaints, and determines whether such practices violate its standards. If the advertiser does not voluntarily comply, CARU will refer the matter to FTC or another appropriate government agency.[8]

Notably, CARU’s guidelines were most recently updated in January 2022 to more clearly address online advertising practices. Those updates incorporated the COPPA standard for determining whether advertisements are directed to children under 13 – intended to provide advertisers with a uniform measure they can use.

Children’s Food and Beverage Advertising Initiative (CFBAI)[9]

CFBAI is a voluntary program administered by the Better Business Bureau in which participants pledge to comply with Core Principles related to the advertising of food and beverages to children, either by refraining from such advertising or by ensuring the advertised products meet Uniform Nutrition Criteria.[10] Twenty food, beverage, and restaurant companies—including McDonalds’s USA, The Coca-Cola Company, Unilever USA, and Kellogg Company—participate in the program.[11]

Participants commit: (1) That all advertising primarily directed to children under age 13 in covered media will be for foods that meet CFBAI’s Category-Specific Uniform Nutrition Criteria; or (2) That they will not engage in child-directed advertising in covered media or through other media. The Uniform Nutrition Criteria set limits on calories, saturated fat, added sugars, and sodium, and set minimum requirements for encouraged food groups and nutrients.[12]

CFBAI monitors participants’ compliance and enforces its standards by expelling companies that refuse to comply and by reporting these expulsions to the public.[13]

Children’s Confection Advertising Initiative (CCAI)[14]

CCAI is a voluntary program modeled after the CFBAI targeted toward small-to-medium sized confectionary companies.[15]Participants agree not to directly advertise to children under 12 years old or in elementary schools.[16]

Federal Communications Commission (FCC)

The FCC enforces the Children’s Television Act of 1990[17] by limiting the amount of time broadcasters, cable operators, and satellite providers may devote to advertisements displayed during children’s programming.[18] It issued a policy statement in 1974 that requires a clear separation between programming and advertising on children’s programs.[19]

Entertainment Software Rating Board (ESRB)

ESRB’s Advertising Review Council implements and enforces advertising guidelines in the videogame industry.[20] It prohibits companies from targeting advertising for videogames rated “Teen,” “Mature,” or “Adults Only” to children for whom the games are not appropriate.[21]

Key Takeaways from the “Protecting Kids from Stealth Advertising in Digital Media” Forum

FTC is clearly concerned with the growing digital advertising landscape and, in particular, interactive media. There also remains an ever-growing concern over privacy risks in this space. FTC Chair Lina M. Khan provided opening remarks and noted that, historically, parents had a good grasp on what their children were seeing, but today’s children are “digital natives,” and “every child is an audience of one.”

Khan stated research has shown that older children are exposed to approximately 1,000 advertisements a day. And media directed to children blurs the line between advertising and entertainment. “What particularly concerns FTC is that kids often can’t tell the difference between ads and organic content” and they “may provide personal information without understanding the privacy risks.” For these reasons, FTC is considering revising 16 CFR Part 312, the rule that implemented the Children’s Online Privacy Protection Act (COPPA). The rule was last revised in 2013, and much has changed since then. FTC is also seeking comments on making surveillance more broadly.

Mamie Kresses, the Vice President of the Children's Advertising Review Unit (CARU), gave the first presentation, titled “Children’s Advertising Show and Tell.” Kresses focused on COPPA and how critical the Act is because advertising to children and privacy issues are inextricably linked. A concern for businesses is that there may be gray areas in determining what is child-directed, and therefore, whether COPPA even applies.

Based on CARU’s recent observations of advertising to children, they are particularly concerned with highly immersive and interactive spaces where children are targeted with advertisements. Here, CARU often see issues with “blurring,” where it’s unclear what is entertainment content vs. advertising. Kresses was quick to point out that CARU recognizes that not every appearance of a brand or product in content is necessarily an endorsement of that brand—this will hinge instead on whether endorsements are made for particular products and how the products appear in the content.

Kresses also noted CARU’s concern with manipulative tactics in interactive spaces—e.g., making advertisements or purchases look like they are actually part of a game. Similarly, CARU is concerned with “emotional manipulation”—e.g., “telling children they have to buy food for pets in a game and if they don’t, the pet will die or be taken away” or that they need to buy more tokens if they want to keep up with their friends playing the game.

The FTC virtual event also featured three panel discussions. The first, “Children’s Cognitive Abilities – What do they know and when?” discussed children’s cognitive abilities at different ages and developmental stages to recognize and understand advertising content and to distinguish it from other content. This set the stage for why these issues are of such concern to FTC.

The second panel, “The Current Advertising Landscape and its Impact on Kids” discussed the impact on children of the current advertising landscape, including any harms stemming from children’s inability to distinguish advertising from other content. Panelists also discussed factors at different ages and developmental stages that could mitigate potential harms.

Girard Kelly, Senior Counsel & Director of the Privacy Program at Common Sense Media, spoke about the broad categories of “blurred” advertising, including memes, inspirational articles, helpful articles, recommendations or notifications, and virtual media like the metaverse. According to Kelly, 75% of children under 13 own their own tablet and more than 50% of children ages 10 to 11 own some sort of device. Common Sense’s research shows on average, 8-12 year olds use 5.5 hours of screen media a day and 13-18 year olds use 8.5 hours of screen media a day.

Common Sense analyzed privacy policies and practice of hundreds of apps and services used by kids and teens and found that children were exposed to advertising and tracking practices with apps they use every day that provides more data for personalized and blurred advertising.

Sheila Millar, a partner at Keller and Heckman LLP, noted that CARU defined advertising “to essentially exclude content-based, character-based, branded-based entertainment.” With regard to COPPA, she emphasized the law regulates advertising to children under 13, showing there is general agreement that the ability to perceive and defend against advertising changes with age. “We should be aware that there are permitted uses of data that can allow for very minimal types of personal engagement with your visitors that is deemed helpful to the user and important for the business.”

The panel discussed Section 5 (n) of the FTC Act, which limits FTC’s enforcement powers over unfair business practices, and also the FTC Improvements Act, which was adopted in 1980. The Improvements Act imposes specific prescription on the ability of FTC to engage in rule-making under its unfairness authority.

There was debate about whether blurred advertising could be deemed unfair under FTC’s unfairness test: “An act or practice is unfair if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by them and not outweighed by countervailing benefits to consumers or competition.”

James Cooper, Professor of Law and Director of the Program on Economics & Privacy at the Antonin Scalia Law School at George Mason University, emphasized that blurred advertisements are commercial speech, which are afforded legal protections, and that the Supreme Court has found that “kids have the same First Amendment rights that grownups do.” As an example, he discussed the 2011 case Mahanoy Area School District v. B. L., where the Court ruled the school district did not have sufficient cause to restrict a high schooler’s First Amendment rights off-campus when that student used Snapchat to curse the school’s cheerleading squad.

The panel also discussed that consumers have to see advertisements in order to monetize free content, and that free content is beneficial for all, and particularly those with lower socioeconomic status. Cooper noted there was evidence that when you “turn off the spigot of advertising that you reduce content.”

The final panel, “Looking Forward and Considering Solutions,” discussed the current legal regime, its challenges, and potential ways to protect children from any harmful effects related to digital marketing and advertising. It included panelists from YouTube, Fluent Research, Truth in Advertising, Encode Justice, and the Interactive Advertising Bureau.

Genevieve Lakier, a law professor at the University of Chicago, also participated in this panel. Lakier stated that historically the primary focus of laws regulating advertising and commercial speech “has been to ensure that consumers have adequate information to make good choices when purchasing goods or participating in commercial transactions. And obviously that includes children as well as adults.” That includes requiring disclosure that the speech itself is an advertisement. Regulators can also use time, place, and manner requirements about where commercial speech or advertising can occur and there are such requirements designed specifically for children including in federal legislation like the Children’s Television Act.

Lakier stated that mandated disclosure of commercial content is “probably” consistent with the First Amendment, as long as it is not so burdensome that it prevents the speaker from communicating the message effectively. Sneha Revanur, the Founder & President of Encode Justice, advocated for disclosures that communicate clearly who is paying for the advertisement, are written in a way that is easy to understand, and can clearly be seen.

FTC Associate Director of the Division of Advertising Practices Serena Viswanathan gave closing remarks.

The public will have until November 18, 2022, to submit comments on the topics discussed. To submit comments and to review comments already submitted, please visit https://www.regulations.gov/docket/FTC-2022-0054/document.