News
June 26, 2012

NAD Deals a Double Whammy on Two Consumer

Seller Beware: Consumer Protection Insights for Industry

Although the products at issue -- credit cards and breakfast burritos -- could not be much further apart, recent decisions issued by the National Advertising Division of the Council of Better Business Bureaus (the NAD) involving Discover Financial Services LLC (Discover) and Sonic Corp. (Sonic) both remind advertisers to communicate clearly the important terms and limitations of their consumer promotions. According to the NAD, both Discover and Sonic failed to do so.

In Discover's case, competitor Chase Bank challenged Discover's credit card commercials on the ground that Discover had "obscured critical terms" of its cash-back programs in advertisements claiming "right now, all over the country, Discover card customers are getting 5% Cashback bonus [in selected purchase categories]," and also stating that Discover customers could earn "up to 1% cash back" on ordinary everyday purchases. In fact, the 5% cash-back benefit was a temporary, opt-in promotion and the "up to 1%" cash-back program was only applicable after Discover card holders made $3,000 in qualifying purchases; prior to that threshold, a 0.25% rate applied.

Although Discover argued that its commercials were directed at existing customers who would understand these limitations, NAD sided with Chase, noting that television commercials are generally understood as messages to the public at large. NAD has recommended that Discover more clearly disclose the limitations on the cash-back programs or discontinue the advertising, specifically instructing Discover to modify the commercials to make disclosure of the program's opt-in requirement, limited duration, and qualifying purchase limitation "easy for consumers to notice, read, and understand."

NAD was alerted to the Sonic promotion at issue -- offering a "Free Coffee With Any Breakfast Burrito" -- by a disgruntled consumer who, upon ordering a Junior Breakfast Burrito and requesting his free coffee, was told that his order did not qualify. Instead, only one of Sonic's Premium Burritos would suffice. The consumer, who ultimately went to another store, notified NAD of the claim. In its Sonic decision, NAD stated that advertisers are "responsible for all reasonable interpretations of their clams, not just the messages they intend to convey," and found that Sonic should have clearly and conspicuously disclosed the material limitations on its promotion "in close proximity to the claim." Sonic has since offered the consumer a $50 gift card to regain his goodwill -- what we don't know is whether the consumer also received any free burritos.

The moral of both stories: Disclose the important limitations on your company’s promotional deals. 

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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