The Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts just entered into a settlement with Yrefy, a company that provides loan refinancing services, resolving allegations that the company misled consumers through the use of celebrity endorsers and also made other misleading advertising claims. Are part of the settlement, Yrefy agreed to pay a $750,000 administrative fine.
Massachusetts charged Yrefy with using celebrity endorsers in its advertising without disclosing the nature, scope, and amount of compensation that the celebrities had received. It's not clear from the consent order what exactly the company did wrong here, though. As a general matter, there's no need to disclose that a celebrity endorser has been compensated for appearing in things like television and radio commercials, unless consumers will be confused about the fact that they were paid to appear. As the FTC explains in its Guides Concerning the Use of Endorsements and Testimonials in Advertising, a disclosure is only required when the relationship "is not reasonably expected by the audience." (Massachusetts law requires deception as well.) Since consumers generally understand that celebrities are paid to appear in advertising, when celebrities endorse a product in something that is obviously advertising, no disclosure is generally required. We think about this issue differently when a celebrity posts in social media, however, since, depending on the context, consumers may not understand whether the celebrity is posting independently or was paid to post by the brand.
Massachusetts also charged the company with engaging in false advertising, based on the statements that the celebrities made. For example, the celebrities said, "yes, it's true – there is no attack on your principal if you ever need your money back." The state said that this statement was false, however, since customers are, in fact, charged for early withdrawals. There's an important point being made here. When you engage a celebrity to speak on your behalf, you're generally responsible for the claims that the celebrity makes. That means that when your celebrity endorsers make advertising claims, you've got to ensure that they've got all of the qualifying information that would be needed if you were making the claim yourself.
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