How to Detect Disguised Pharmaceutical Products in the Supplement Industry
How to Detect Disguised Pharmaceutical Products in the Supplement Industry
Don’t let "all-natural" claims fool you. From weight loss pills to herbal teas, many supplements hide dangerous undeclared ingredients. We break down the red flags, the importance of third-party testing, and how to verify what’s actually in your bottle before you take the next dose.
Supplements become "pharma risk" the moment the promise changes. A multivitamin marketed for general wellness sits in a different risk category than one claiming to eliminate chronic pain or replace prescription medication. The distinction matters because the second category triggers FDA enforcement, high chargeback rates, and network compliance violations that create liability for payment processors and acquiring banks.
This guide walks you through the complete framework we use to evaluate supplement merchants and identify disguised pharmaceutical products before they enter your portfolio.
Understanding the Risk Landscape
Supplement underwriting is a marketing problem first, product problem second.
The product itself may be harmless (or at least legal to sell as a supplement). The risk concentrates in how it is marketed. A turmeric capsule sold for "joint health support" is low risk. The same turmeric capsule marketed as "Eliminates arthritis pain in 7 days guaranteed" crosses into drug territory under FDA regulations and creates both regulatory and chargeback liability.
The Three High-Risk Categories
Three product verticals dominate the disguised pharma landscape. Each follows predictable patterns in claims, marketing tactics, and billing structures.
Weight Loss Products
Claims referencing specific timeframes ("lose 30 pounds in 30 days"), guaranteed outcomes ("melt belly fat without exercise"), or comparisons to prescription drugs create regulatory risk. In our experience, FDA treats products making drug-like weight loss claims as unapproved new drugs under its enforcement authority.
In our experience, weight loss supplements show the highest correlation between aggressive ad claims and chargeback rates. Merchants understand that extreme promises drive conversions, but those same promises set customer expectations that cannot be met.
Common claim patterns:
Specific weight loss amounts with timeframes
Before-and-after imagery with dramatic transformations
"Prescription strength" or "pharmaceutical grade" language
Celebrity endorsements implying medical efficacy
"Works without diet or exercise" guarantees
Example: A supplement marketed as "Doctor-formulated prescription-strength fat burner" with Facebook ads showing "Lost 45 lbs in 60 days" before-and-after photos. The website may use compliant language, but the ad funnel is where FDA and customer expectations are set.
Sexual Enhancement Supplements
Products positioned as alternatives to sildenafil (Viagra) or tadalafil (Cialis) frequently contain undeclared pharmaceutical ingredients. FDA public health alerts regularly identify sexual enhancement supplements containing undeclared active pharmaceutical ingredients (APIs) including sildenafil, tadalafil, and their analogs.
These products are marketed with specific performance claims (works within 30 minutes, lasts 48 hours) that mirror prescription ED (erectile dysfunction) medications. The marketing pattern is consistent across merchants.
Common claim patterns:
Comparison to prescription ED medications
Specific timing claims (30-minute onset, 48-hour duration)
"Natural Viagra" or "herbal Cialis" positioning
Testimonials referencing medical conditions
Guaranteed physical outcomes
Example: Product marketed as "Natural male enhancement, works as well as prescription pills" with testimonials stating "I no longer need Viagra". FDA testing of similar products frequently finds undeclared sildenafil or analogs.
Pain Relief and Disease Treatment Claims
Language promising to treat, prevent, or cure specific diseases moves products from supplement territory into drug classification under U.S. law. Terms like "clinically proven", "FDA approved" (when not approved), or condition-specific claims (arthritis, diabetes, cancer) are regulatory triggers.
We see this pattern most frequently with CBD (cannabidiol) products claiming to cure epilepsy, turmeric supplements promising to reverse diabetes, and collagen products guaranteeing arthritis elimination.
Condition-specific language (arthritis, diabetes, hypertension)
"Clinically proven" without substantiation
"Doctor recommended" endorsements
Pharmaceutical terminology applied to supplements
Example: CBD oil marketed with claims "Eliminates seizures in epilepsy patients" or turmeric capsules advertised as "Reverses Type 2 diabetes naturally, stop taking Metformin". Both are explicit disease claims that classify the product as an unapproved drug.
Federal Dietary Supplement Health and Education Act (DSHEA)
The 1994 DSHEA law created the legal category of dietary supplements, distinct from drugs. Supplements can make structure/function claims (affects body structure or function) but cannot make disease claims (treats, prevents, cures, or diagnoses disease).
Permissible structure/function claim: "Supports healthy blood pressure levels already within normal range"
Impermissible disease claim: "Lowers blood pressure" or "Treats hypertension"
Why Drug-Like Claims Trigger FDA Drug Classification
Under U.S. law, a product is regulated as a drug when it is intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease.
FDA determines intended use based on objective evidence, including:
Labeling and on-site claims
Advertising and promotional materials
Testimonials and endorsements
Sales funnels and landing pages
As a result, supplements marketed with drug-like claims can be treated as unapproved new drugs, even if sold as dietary supplements. Ingredients alone do not determine classification. Marketing does.
All supplements must include the FDA disclaimer: "These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease."
FDA does not pre-approve dietary supplements. Manufacturers can launch products without FDA review. However, FDA has enforcement authority when:
Products make drug claims
Products contain unapproved drug ingredients
Products are adulterated or misbranded
Manufacturing facilities violate Good Manufacturing Practice (GMP) regulations
FDA enforcement actions include:
Warning letters (public)
Seizures
Injunctions
Criminal prosecution (rare, for egregious cases)
FTC Truth in Advertising Authority
The Federal Trade Commission (FTC) regulates supplement advertising under Section 5 of the FTC Act (prohibits unfair or deceptive practices). FTC requires:
Substantiation for all claims
Clear disclosure of material terms
Honest testimonials
FTC enforcement focuses on advertising across all channels (TV, print, online, social media).
What We Evaluate: The Complete Assessment Framework
Risk assessment for supplement merchants requires evaluating multiple data points across the entire customer acquisition and transaction lifecycle. Website review alone is insufficient.
Practical Risk Scoring (0–100)
We use a standardized scoring model to normalize underwriting decisions.
Claims Aggressiveness (0–40)
Structure or function only: 0–10
Implied disease or pain language: 10–25
Explicit disease or drug comparison claims: 25–40
Billing Transparency (0–25)
Clear opt-in subscription: 0–8
Disclosed but friction to cancel: 8–18
Hidden continuity or negative option: 18–25
Ad Funnel Integrity (0–20)
Ads match site language: 0–7
Moderate claim drift: 7–14
Major ad-to-site discrepancy: 14–20
External Signals (0–15)
Low complaints, no enforcement: 0–5
Mixed complaints or resolution: 5–10
High complaint volume or enforcement: 10–15
Decision Bands
0–30: Approve
31–55: Conditional
56+: Decline
Claim Language Mapping
We extract and categorize every health claim across the merchant's marketing funnel. This includes ads, landing pages, product pages, checkout flow, post-purchase emails, and affiliate materials.
Claim Categories
Claim type
Definition
Risk level
Example
Structure/Function
Describes effect on body structure or function without disease reference
Low
“Supports joint health”
Implied Disease
Suggests treatment without explicit disease name
Medium
“Reduces pain and inflammation”
Disease Treatment
Explicit claim to treat, prevent, cure, or diagnose disease
High
“Cures arthritis”
Drug Comparison
Positions product as alternative to prescription medication
High
“Natural alternative to statins”
Outcome Guarantee
Promises specific results with timelines
High
“Lose 30 lbs in 30 days guaranteed”
What to Request
All active advertising creatives
Facebook, Instagram, TikTok ad copy and images
Google Ads text and display ads
Native advertising content (Taboola, Outbrain)
Affiliate marketing materials
Email marketing templates
Landing page URLs
All pages that ads direct to (often different from main website)
Capture full page content including pop-ups and exit overlays
Product page content
Headlines, descriptions, bullet points
Testimonials and reviews
Before-and-after imagery
Video sales letters (VSLs)
Long-form video marketing content
Transcripts if available
Verification Process
Use public ad libraries to verify what merchant is actually running:
Compare disclosed ads to actual live ads. Discrepancies indicate the merchant knows certain claims are problematic.
Red Flags
Website uses compliant language but ads contain disease claims
Before-and-after images with specific weight loss numbers or timeframes
Video testimonials referencing medical conditions or prescription medications
Comparison charts positioning product against pharmaceutical drugs
"As seen on" badges claiming endorsement by medical shows or publications
Subscription and Billing Structure Analysis
Hidden continuity models are common in high-risk supplement verticals. These billing patterns correlate with high chargeback rates (15-25% in our operational observations) independent of product quality or efficacy.
Billing Red Flags
Pattern
How it works
Chargeback risk
What to check
Free trial conversion
Customer pays shipping ($4.95), converts to $89.95/month subscription
High (20–30%)
Terms disclosure location, font size, opt-in vs. opt-out
Search Reddit, Twitter, Trustpilot for merchant/product name. Look for patterns:
Difficulty canceling subscriptions
Unexpected charges
Product not matching advertising
Customer service unresponsive
Volume of complaints matters. A few negative reviews are normal. Hundreds of complaints about billing indicate systemic issues.
What to Request
Regulatory correspondence file
All FDA or FTC correspondence in last 5 years
Any cease and desist letters
State AG inquiries
How violations were remediated
BBB complaint response documentation
How complaints are handled
Resolution procedures
Customer satisfaction targets
Red Flags
FDA warning letter in last 3 years, especially for drug claims
FTC consent order or settlement
State AG consumer protection case
BBB F rating with 100+ complaints
Pattern of "unauthorized charge" or "can't cancel" complaints
Merchant claims no regulatory history but search finds multiple actions
The Ad Funnel Gap: Where Risk Concentrates
The most significant underwriting gap we observe is evaluating the merchant's website in isolation while ignoring paid advertising and the complete customer acquisition funnel.
A merchant may maintain a compliant website to pass payment processor review, while running Facebook ads with exaggerated disease claims, before-and-after photos, and guaranteed outcomes. This disconnect creates liability.
Why the Ad Funnel Matters
Customer expectations are set in ads, not on the website
When a customer sees a Facebook ad promising "Lose 30 lbs in 30 days guaranteed" and purchases the product, they expect that outcome. When it doesn't happen, they dispute the charge. The merchant's compliant website disclaimer is irrelevant because the customer never saw it until after purchase.
In our experience tracking supplement portfolios, merchants with aggressive ad claims generate 2-3x higher chargeback ratios than merchants with conservative advertising, even when selling identical products. The ad creative is the single strongest predictor of chargeback rate.
Regulatory enforcement follows the ads
FDA and FTC enforcement actions cite advertising as evidence of drug claims. They scrape Facebook ads, capture landing pages, and document the full customer journey. Payment processors are expected to do the same.
Card networks assess the complete payment flow
Visa and Mastercard compliance programs evaluate how products are marketed, not just how they appear on merchant websites. Compliance teams review ad creatives, monitor social media, and track customer complaints. If they find problematic advertising, the merchant and payment processor face fines or termination.
Real-World Example
Merchant: Weight loss supplement company
Website: Compliant language ("supports healthy weight management"), FDA disclaimer visible, no disease claims
Facebook Ads: Before-and-after photos showing "Lost 45 lbs in 60 days, no diet, no exercise", testimonials claiming diabetes reversal
Landing Page: Separate from main website, long-form sales letter with income claims, celebrity endorsements, countdown timer "offer expires in 15 minutes"
Outcome: 18% chargeback ratio within 90 days, FDA warning letter for unapproved drug claims, Mastercard violation for misleading advertising
The website passed initial underwriting review. The ad funnel is where the violations and chargebacks originated.
What to Capture During Underwriting
Complete Marketing Funnel Audit
Active ad creatives across all platforms
Facebook Ad Library: Search merchant business name
Google Ads Transparency Center: Search advertiser name or domain
If merchant uses affiliates, request all approved marketing materials
Affiliates often push boundaries, merchant is liable
Check actual affiliate sites (Google product name + "review")
Auditable Capture Checklist
Minimum evidence package:
Screenshots of all active ad creatives
Saved landing pages including pop-ups
Claim-to-source mapping log
Full checkout flow screenshots
Confirmation and cancellation emails
When ads are more aggressive than the website, treat ad claims as the controlling risk signal. Ads set customer expectations and establish intended use.
Verification Process
Use ad library tools to independently verify what merchant is running
Compare disclosed materials to actual live campaigns
Search Google for "[product name] reviews" to find affiliate sites
Use Wayback Machine to check if landing pages change over time (testing claims)
Document everything with screenshots and saved pages (evidence)
Red Flags
Merchant provides compliant website but refuses to share ad creatives
Discrepancy between disclosed ads and actual live campaigns
Ads redirect to landing pages not listed in underwriting documentation
Video content makes claims not present in written materials
Affiliate sites use disease claims or fake news advertorials
Merchants with 50+ BBB complaints and <50% resolution rate: High chargeback risk
Merchants with <10 complaints or >80% resolution rate: Low chargeback risk
This is a lagging indicator but confirms patterns.
4. Supply Chain Transparency (Fourth)
Manufacturing disclosure and quality controls correlate with product quality complaints and FDA enforcement risk.
Measurement approach:
Can merchant name manufacturing facility? (Yes/No)
GMP certification available? (Yes/No)
Certificates of Analysis for finished products? (Yes/No)
Known fulfillment origin? (Yes/No)
Correlation observed:
Merchants answering "No" to 2+ questions: Elevated FDA risk, potential product quality chargebacks
Merchants answering "Yes" to all: Lower regulatory risk
This signal is less predictive of immediate chargeback risk but indicates long-term regulatory exposure.
5. Prior Regulatory Action (Lagging but Definitive)
FDA warning letters, FTC actions, or state AG cases are lagging indicators but definitively confirm risk patterns.
Measurement approach:
Search FDA warning letter database
Search FTC cases
Search state AG actions
Document findings
Impact:
Any FDA warning letter in last 3 years for drug claims: High risk
FTC consent order for deceptive marketing: High risk
State AG consumer protection case: Medium-high risk
This is confirmatory. Absence of action does not mean low risk (many merchants operate below enforcement threshold).
Ecosystem Mapping: The Full Picture
Supplement merchants frequently operate multiple brands, domains, or funnels to test different marketing approaches or segment products. Understanding the full ecosystem is necessary for complete risk assessment.
Why Ecosystem Matters
Risk exposure extends beyond the applicant entity
If the same principals operate five supplement brands and one receives an FDA warning letter, all five share similar risk profiles. If one brand has a 20% chargeback rate due to aggressive marketing, other brands may follow the same playbook.
Domain networks signal intent
Merchants running multiple similar domains often do so to:
Test different marketing claims without risking primary brand
Segment high-risk products from low-risk products
Evade enforcement by shifting to new domains after violations
Run affiliate offers that would not pass review under main brand
What to Map
Related Domains and Brands
WHOIS records
Look up domain registration for applicant website
Identify registrant name, email, phone
Search for other domains registered to same contact details
Google search
Search principal names, phone numbers, addresses
Identify other businesses or brands
Look for related product lines
Facebook Ad Library
Search business name, disclaimers in ads often list other brands
"Paid for by [Company Name]" shows parent entity
Trademark searches
USPTO trademark database for brand names
Identify other marks owned by same entity
Email domain patterns
Customer service email domain may differ from sales domain
Contact addresses on checkout pages vs. main site
What to Request
Complete list of all domains operated
Current and historical
Include domains used for landing pages, email, fulfillment
List of all brands or product lines
Under same parent company
Under related entities (same ownership)
Affiliate relationships
Do they have affiliates selling their products?
Do they act as affiliates for other products?
Affiliate networks used
Related entity structure
Corporate family tree
Shared ownership or control
Management overlap
Red Flags
Merchant operates 10+ similar supplement domains
New domain registered <6 months ago (evasion tactic?)
Domains registered with privacy protection hiding owner
One domain received FDA warning letter, new domain launched shortly after
Multiple brands with nearly identical products but different marketing claims (testing boundaries)
Implementation: The Underwriting Workflow
Step 1: Initial Screening (10-15 minutes)
Quick elimination checks:
Search FDA warning letter database for merchant name, brand, principals
Search BBB for merchant rating and complaint count
Check Facebook Ad Library for active campaigns
Google "[product name] scam" or "[product name] complaints"
Elimination criteria:
FDA warning letter for drug claims in last 3 years: DECLINE
BBB F rating with 100+ unresolved complaints: DECLINE
Ads with explicit disease claims or outcome guarantees: DECLINE (or require remediation)
Step 2: Documentation Request (Day 1)
Request complete package:
Product and Marketing Documentation:
All active advertising creatives (all platforms)
Landing page URLs (all pages ads direct to)
Product pages (screenshots or live URLs)
Email marketing templates
Affiliate marketing materials (if applicable)
Terms and conditions, refund/return policy, privacy policy
Manufacturing and Quality:
Manufacturing facility name and address
GMP certification
Certificates of Analysis for each product
Ingredient supplier documentation
FDA establishment registration number
Financial and Operational:
Historical chargeback data (12 months, by reason code)
Customer service procedures
Billing terms and subscription disclosures
Cancellation procedures
Regulatory and Compliance:
Correspondence file (any FDA/FTC/AG contact in last 5 years)
Business licenses and permits
Insurance certificates (product liability, E&O)
Documentation Request Summary
Request the following within 24–48 hours:
Marketing
All active ad creatives
All landing page URLs
Product and advertorial pages
Email marketing sequences
Affiliate materials if applicable
Billing
Subscription disclosure screenshots
Refund and cancellation policy
Checkout and upsell flow screenshots
Confirmation email examples
Manufacturing
Facility name and address
GMP certification and FDA registration
Batch-specific Certificates of Analysis
Ingredient supplier documentation
Operations and Compliance
Chargeback data (12 months, by reason code)
Customer service contact details
Regulatory correspondence from last 5 years
Step 3: Claim Language Audit (1-2 hours)
Extract all health claims from ads, landing pages, product pages
Monitoring: Quarterly ad review, monthly chargeback monitoring
Tier 2: Conditional Approval
Some implied disease claims requiring revision
Adequate but improvable billing transparency
Manufacturing disclosure adequate
Minor complaints but responsive
Reserve: 15-20% rolling
Monitoring: Monthly ad review, bi-weekly chargeback monitoring, required marketing approval for new campaigns
Tier 3: Decline
Explicit disease claims or drug comparisons in ads
Hidden continuity or extremely difficult cancellation
Recent FDA warning letter
High complaint volume (50+ unresolved BBB complaints)
Refusal to provide documentation
Step 8: Post-Approval Monitoring
Monthly:
Chargeback rate review (trigger: >5% rate)
Complaint monitoring (BBB, social media)
Quarterly:
Ad creative review (Facebook Ad Library, Google Transparency)
Landing page re-capture (check for claim changes)
Regulatory database search (new FDA warnings, FTC actions)
Annually:
Full re-underwriting
Updated GMP certificates
Fresh Certificates of Analysis
Updated chargeback data
Re-Review Triggers:
Chargeback rate exceeds 7%
FDA warning letter issued
Spike in external complaints
New ad campaigns with aggressive claims
Merchant launches new product line or brand
What Good Looks Like: Complete Profile
When all elements come together, a low-risk supplement merchant presents:
Documentation Package
Category
Requirement
Marketing
Conservative structure/function claims only
No disease treatment language
No before-and-after imagery with specific outcomes
FDA disclaimer on all marketing materials
Substantiation for all claims (research citations)
Billing
Subscription terms displayed prominently (12pt+ font above checkout)
Opt-in subscription (unchecked by default)
Clear cancellation policy with multiple methods
Working customer service phone line
Confirmation email with subscription details and one-click cancel
Manufacturing
U.S. FDA-registered facility or disclosed contract manufacturer
GMP certification from third party (NSF, UL)
Batch-specific Certificates of Analysis
Ingredient supplier documentation with country of origin
Compliance
No FDA warning letters in last 5 years
No FTC or state AG enforcement actions
BBB rating B+ or better
<10 complaints with >80% resolution rate
Product liability insurance
Operations
Chargeback rate <5%
Clear terms, privacy policy, refund policy
Physical U.S. address
Responsive customer service (call and email)
Ecosystem
Single brand or clear brand portfolio disclosed
Transparent domain ownership
No history of domain hopping after violations
Ballerine's Role
We provide the infrastructure to make this complex underwriting process manageable. Our platform enables automated merchant screening with continuous ad creative monitoring, checkout flow testing, regulatory database tracking, and external complaint aggregation.
Risk teams use Ballerine to capture the full marketing funnel during underwriting, monitor for claim drift post-approval, and automate re-review triggers based on chargeback thresholds or regulatory actions. Our case management workflows allow compliance teams to document findings, track remediation, and maintain audit trails across the merchant lifecycle.
The result is faster merchant onboarding with systematic coverage of the risk vectors that traditional KYB (Know Your Business) and website review processes miss. Explore our merchant risk monitoring solution or see transaction monitoring capabilities.
Supplements become "pharma risk" the moment the promise changes. A multivitamin marketed for general wellness sits in a different risk category than one claiming to eliminate chronic pain or replace prescription medication. The distinction matters because the second category triggers FDA enforcement, high chargeback rates, and network compliance violations that create liability for payment processors and acquiring banks.
This guide walks you through the complete framework we use to evaluate supplement merchants and identify disguised pharmaceutical products before they enter your portfolio.
Understanding the Risk Landscape
Supplement underwriting is a marketing problem first, product problem second.
The product itself may be harmless (or at least legal to sell as a supplement). The risk concentrates in how it is marketed. A turmeric capsule sold for "joint health support" is low risk. The same turmeric capsule marketed as "Eliminates arthritis pain in 7 days guaranteed" crosses into drug territory under FDA regulations and creates both regulatory and chargeback liability.
The Three High-Risk Categories
Three product verticals dominate the disguised pharma landscape. Each follows predictable patterns in claims, marketing tactics, and billing structures.
Weight Loss Products
Claims referencing specific timeframes ("lose 30 pounds in 30 days"), guaranteed outcomes ("melt belly fat without exercise"), or comparisons to prescription drugs create regulatory risk. In our experience, FDA treats products making drug-like weight loss claims as unapproved new drugs under its enforcement authority.
In our experience, weight loss supplements show the highest correlation between aggressive ad claims and chargeback rates. Merchants understand that extreme promises drive conversions, but those same promises set customer expectations that cannot be met.
Common claim patterns:
Specific weight loss amounts with timeframes
Before-and-after imagery with dramatic transformations
"Prescription strength" or "pharmaceutical grade" language
Celebrity endorsements implying medical efficacy
"Works without diet or exercise" guarantees
Example: A supplement marketed as "Doctor-formulated prescription-strength fat burner" with Facebook ads showing "Lost 45 lbs in 60 days" before-and-after photos. The website may use compliant language, but the ad funnel is where FDA and customer expectations are set.
Sexual Enhancement Supplements
Products positioned as alternatives to sildenafil (Viagra) or tadalafil (Cialis) frequently contain undeclared pharmaceutical ingredients. FDA public health alerts regularly identify sexual enhancement supplements containing undeclared active pharmaceutical ingredients (APIs) including sildenafil, tadalafil, and their analogs.
These products are marketed with specific performance claims (works within 30 minutes, lasts 48 hours) that mirror prescription ED (erectile dysfunction) medications. The marketing pattern is consistent across merchants.
Common claim patterns:
Comparison to prescription ED medications
Specific timing claims (30-minute onset, 48-hour duration)
"Natural Viagra" or "herbal Cialis" positioning
Testimonials referencing medical conditions
Guaranteed physical outcomes
Example: Product marketed as "Natural male enhancement, works as well as prescription pills" with testimonials stating "I no longer need Viagra". FDA testing of similar products frequently finds undeclared sildenafil or analogs.
Pain Relief and Disease Treatment Claims
Language promising to treat, prevent, or cure specific diseases moves products from supplement territory into drug classification under U.S. law. Terms like "clinically proven", "FDA approved" (when not approved), or condition-specific claims (arthritis, diabetes, cancer) are regulatory triggers.
We see this pattern most frequently with CBD (cannabidiol) products claiming to cure epilepsy, turmeric supplements promising to reverse diabetes, and collagen products guaranteeing arthritis elimination.
Condition-specific language (arthritis, diabetes, hypertension)
"Clinically proven" without substantiation
"Doctor recommended" endorsements
Pharmaceutical terminology applied to supplements
Example: CBD oil marketed with claims "Eliminates seizures in epilepsy patients" or turmeric capsules advertised as "Reverses Type 2 diabetes naturally, stop taking Metformin". Both are explicit disease claims that classify the product as an unapproved drug.
Federal Dietary Supplement Health and Education Act (DSHEA)
The 1994 DSHEA law created the legal category of dietary supplements, distinct from drugs. Supplements can make structure/function claims (affects body structure or function) but cannot make disease claims (treats, prevents, cures, or diagnoses disease).
Permissible structure/function claim: "Supports healthy blood pressure levels already within normal range"
Impermissible disease claim: "Lowers blood pressure" or "Treats hypertension"
Why Drug-Like Claims Trigger FDA Drug Classification
Under U.S. law, a product is regulated as a drug when it is intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease.
FDA determines intended use based on objective evidence, including:
Labeling and on-site claims
Advertising and promotional materials
Testimonials and endorsements
Sales funnels and landing pages
As a result, supplements marketed with drug-like claims can be treated as unapproved new drugs, even if sold as dietary supplements. Ingredients alone do not determine classification. Marketing does.
All supplements must include the FDA disclaimer: "These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease."
FDA does not pre-approve dietary supplements. Manufacturers can launch products without FDA review. However, FDA has enforcement authority when:
Products make drug claims
Products contain unapproved drug ingredients
Products are adulterated or misbranded
Manufacturing facilities violate Good Manufacturing Practice (GMP) regulations
FDA enforcement actions include:
Warning letters (public)
Seizures
Injunctions
Criminal prosecution (rare, for egregious cases)
FTC Truth in Advertising Authority
The Federal Trade Commission (FTC) regulates supplement advertising under Section 5 of the FTC Act (prohibits unfair or deceptive practices). FTC requires:
Substantiation for all claims
Clear disclosure of material terms
Honest testimonials
FTC enforcement focuses on advertising across all channels (TV, print, online, social media).
What We Evaluate: The Complete Assessment Framework
Risk assessment for supplement merchants requires evaluating multiple data points across the entire customer acquisition and transaction lifecycle. Website review alone is insufficient.
Practical Risk Scoring (0–100)
We use a standardized scoring model to normalize underwriting decisions.
Claims Aggressiveness (0–40)
Structure or function only: 0–10
Implied disease or pain language: 10–25
Explicit disease or drug comparison claims: 25–40
Billing Transparency (0–25)
Clear opt-in subscription: 0–8
Disclosed but friction to cancel: 8–18
Hidden continuity or negative option: 18–25
Ad Funnel Integrity (0–20)
Ads match site language: 0–7
Moderate claim drift: 7–14
Major ad-to-site discrepancy: 14–20
External Signals (0–15)
Low complaints, no enforcement: 0–5
Mixed complaints or resolution: 5–10
High complaint volume or enforcement: 10–15
Decision Bands
0–30: Approve
31–55: Conditional
56+: Decline
Claim Language Mapping
We extract and categorize every health claim across the merchant's marketing funnel. This includes ads, landing pages, product pages, checkout flow, post-purchase emails, and affiliate materials.
Claim Categories
Claim type
Definition
Risk level
Example
Structure/Function
Describes effect on body structure or function without disease reference
Low
“Supports joint health”
Implied Disease
Suggests treatment without explicit disease name
Medium
“Reduces pain and inflammation”
Disease Treatment
Explicit claim to treat, prevent, cure, or diagnose disease
High
“Cures arthritis”
Drug Comparison
Positions product as alternative to prescription medication
High
“Natural alternative to statins”
Outcome Guarantee
Promises specific results with timelines
High
“Lose 30 lbs in 30 days guaranteed”
What to Request
All active advertising creatives
Facebook, Instagram, TikTok ad copy and images
Google Ads text and display ads
Native advertising content (Taboola, Outbrain)
Affiliate marketing materials
Email marketing templates
Landing page URLs
All pages that ads direct to (often different from main website)
Capture full page content including pop-ups and exit overlays
Product page content
Headlines, descriptions, bullet points
Testimonials and reviews
Before-and-after imagery
Video sales letters (VSLs)
Long-form video marketing content
Transcripts if available
Verification Process
Use public ad libraries to verify what merchant is actually running:
Compare disclosed ads to actual live ads. Discrepancies indicate the merchant knows certain claims are problematic.
Red Flags
Website uses compliant language but ads contain disease claims
Before-and-after images with specific weight loss numbers or timeframes
Video testimonials referencing medical conditions or prescription medications
Comparison charts positioning product against pharmaceutical drugs
"As seen on" badges claiming endorsement by medical shows or publications
Subscription and Billing Structure Analysis
Hidden continuity models are common in high-risk supplement verticals. These billing patterns correlate with high chargeback rates (15-25% in our operational observations) independent of product quality or efficacy.
Billing Red Flags
Pattern
How it works
Chargeback risk
What to check
Free trial conversion
Customer pays shipping ($4.95), converts to $89.95/month subscription
High (20–30%)
Terms disclosure location, font size, opt-in vs. opt-out
Search Reddit, Twitter, Trustpilot for merchant/product name. Look for patterns:
Difficulty canceling subscriptions
Unexpected charges
Product not matching advertising
Customer service unresponsive
Volume of complaints matters. A few negative reviews are normal. Hundreds of complaints about billing indicate systemic issues.
What to Request
Regulatory correspondence file
All FDA or FTC correspondence in last 5 years
Any cease and desist letters
State AG inquiries
How violations were remediated
BBB complaint response documentation
How complaints are handled
Resolution procedures
Customer satisfaction targets
Red Flags
FDA warning letter in last 3 years, especially for drug claims
FTC consent order or settlement
State AG consumer protection case
BBB F rating with 100+ complaints
Pattern of "unauthorized charge" or "can't cancel" complaints
Merchant claims no regulatory history but search finds multiple actions
The Ad Funnel Gap: Where Risk Concentrates
The most significant underwriting gap we observe is evaluating the merchant's website in isolation while ignoring paid advertising and the complete customer acquisition funnel.
A merchant may maintain a compliant website to pass payment processor review, while running Facebook ads with exaggerated disease claims, before-and-after photos, and guaranteed outcomes. This disconnect creates liability.
Why the Ad Funnel Matters
Customer expectations are set in ads, not on the website
When a customer sees a Facebook ad promising "Lose 30 lbs in 30 days guaranteed" and purchases the product, they expect that outcome. When it doesn't happen, they dispute the charge. The merchant's compliant website disclaimer is irrelevant because the customer never saw it until after purchase.
In our experience tracking supplement portfolios, merchants with aggressive ad claims generate 2-3x higher chargeback ratios than merchants with conservative advertising, even when selling identical products. The ad creative is the single strongest predictor of chargeback rate.
Regulatory enforcement follows the ads
FDA and FTC enforcement actions cite advertising as evidence of drug claims. They scrape Facebook ads, capture landing pages, and document the full customer journey. Payment processors are expected to do the same.
Card networks assess the complete payment flow
Visa and Mastercard compliance programs evaluate how products are marketed, not just how they appear on merchant websites. Compliance teams review ad creatives, monitor social media, and track customer complaints. If they find problematic advertising, the merchant and payment processor face fines or termination.
Real-World Example
Merchant: Weight loss supplement company
Website: Compliant language ("supports healthy weight management"), FDA disclaimer visible, no disease claims
Facebook Ads: Before-and-after photos showing "Lost 45 lbs in 60 days, no diet, no exercise", testimonials claiming diabetes reversal
Landing Page: Separate from main website, long-form sales letter with income claims, celebrity endorsements, countdown timer "offer expires in 15 minutes"
Outcome: 18% chargeback ratio within 90 days, FDA warning letter for unapproved drug claims, Mastercard violation for misleading advertising
The website passed initial underwriting review. The ad funnel is where the violations and chargebacks originated.
What to Capture During Underwriting
Complete Marketing Funnel Audit
Active ad creatives across all platforms
Facebook Ad Library: Search merchant business name
Google Ads Transparency Center: Search advertiser name or domain
If merchant uses affiliates, request all approved marketing materials
Affiliates often push boundaries, merchant is liable
Check actual affiliate sites (Google product name + "review")
Auditable Capture Checklist
Minimum evidence package:
Screenshots of all active ad creatives
Saved landing pages including pop-ups
Claim-to-source mapping log
Full checkout flow screenshots
Confirmation and cancellation emails
When ads are more aggressive than the website, treat ad claims as the controlling risk signal. Ads set customer expectations and establish intended use.
Verification Process
Use ad library tools to independently verify what merchant is running
Compare disclosed materials to actual live campaigns
Search Google for "[product name] reviews" to find affiliate sites
Use Wayback Machine to check if landing pages change over time (testing claims)
Document everything with screenshots and saved pages (evidence)
Red Flags
Merchant provides compliant website but refuses to share ad creatives
Discrepancy between disclosed ads and actual live campaigns
Ads redirect to landing pages not listed in underwriting documentation
Video content makes claims not present in written materials
Affiliate sites use disease claims or fake news advertorials
Merchants with 50+ BBB complaints and <50% resolution rate: High chargeback risk
Merchants with <10 complaints or >80% resolution rate: Low chargeback risk
This is a lagging indicator but confirms patterns.
4. Supply Chain Transparency (Fourth)
Manufacturing disclosure and quality controls correlate with product quality complaints and FDA enforcement risk.
Measurement approach:
Can merchant name manufacturing facility? (Yes/No)
GMP certification available? (Yes/No)
Certificates of Analysis for finished products? (Yes/No)
Known fulfillment origin? (Yes/No)
Correlation observed:
Merchants answering "No" to 2+ questions: Elevated FDA risk, potential product quality chargebacks
Merchants answering "Yes" to all: Lower regulatory risk
This signal is less predictive of immediate chargeback risk but indicates long-term regulatory exposure.
5. Prior Regulatory Action (Lagging but Definitive)
FDA warning letters, FTC actions, or state AG cases are lagging indicators but definitively confirm risk patterns.
Measurement approach:
Search FDA warning letter database
Search FTC cases
Search state AG actions
Document findings
Impact:
Any FDA warning letter in last 3 years for drug claims: High risk
FTC consent order for deceptive marketing: High risk
State AG consumer protection case: Medium-high risk
This is confirmatory. Absence of action does not mean low risk (many merchants operate below enforcement threshold).
Ecosystem Mapping: The Full Picture
Supplement merchants frequently operate multiple brands, domains, or funnels to test different marketing approaches or segment products. Understanding the full ecosystem is necessary for complete risk assessment.
Why Ecosystem Matters
Risk exposure extends beyond the applicant entity
If the same principals operate five supplement brands and one receives an FDA warning letter, all five share similar risk profiles. If one brand has a 20% chargeback rate due to aggressive marketing, other brands may follow the same playbook.
Domain networks signal intent
Merchants running multiple similar domains often do so to:
Test different marketing claims without risking primary brand
Segment high-risk products from low-risk products
Evade enforcement by shifting to new domains after violations
Run affiliate offers that would not pass review under main brand
What to Map
Related Domains and Brands
WHOIS records
Look up domain registration for applicant website
Identify registrant name, email, phone
Search for other domains registered to same contact details
Google search
Search principal names, phone numbers, addresses
Identify other businesses or brands
Look for related product lines
Facebook Ad Library
Search business name, disclaimers in ads often list other brands
"Paid for by [Company Name]" shows parent entity
Trademark searches
USPTO trademark database for brand names
Identify other marks owned by same entity
Email domain patterns
Customer service email domain may differ from sales domain
Contact addresses on checkout pages vs. main site
What to Request
Complete list of all domains operated
Current and historical
Include domains used for landing pages, email, fulfillment
List of all brands or product lines
Under same parent company
Under related entities (same ownership)
Affiliate relationships
Do they have affiliates selling their products?
Do they act as affiliates for other products?
Affiliate networks used
Related entity structure
Corporate family tree
Shared ownership or control
Management overlap
Red Flags
Merchant operates 10+ similar supplement domains
New domain registered <6 months ago (evasion tactic?)
Domains registered with privacy protection hiding owner
One domain received FDA warning letter, new domain launched shortly after
Multiple brands with nearly identical products but different marketing claims (testing boundaries)
Implementation: The Underwriting Workflow
Step 1: Initial Screening (10-15 minutes)
Quick elimination checks:
Search FDA warning letter database for merchant name, brand, principals
Search BBB for merchant rating and complaint count
Check Facebook Ad Library for active campaigns
Google "[product name] scam" or "[product name] complaints"
Elimination criteria:
FDA warning letter for drug claims in last 3 years: DECLINE
BBB F rating with 100+ unresolved complaints: DECLINE
Ads with explicit disease claims or outcome guarantees: DECLINE (or require remediation)
Step 2: Documentation Request (Day 1)
Request complete package:
Product and Marketing Documentation:
All active advertising creatives (all platforms)
Landing page URLs (all pages ads direct to)
Product pages (screenshots or live URLs)
Email marketing templates
Affiliate marketing materials (if applicable)
Terms and conditions, refund/return policy, privacy policy
Manufacturing and Quality:
Manufacturing facility name and address
GMP certification
Certificates of Analysis for each product
Ingredient supplier documentation
FDA establishment registration number
Financial and Operational:
Historical chargeback data (12 months, by reason code)
Customer service procedures
Billing terms and subscription disclosures
Cancellation procedures
Regulatory and Compliance:
Correspondence file (any FDA/FTC/AG contact in last 5 years)
Business licenses and permits
Insurance certificates (product liability, E&O)
Documentation Request Summary
Request the following within 24–48 hours:
Marketing
All active ad creatives
All landing page URLs
Product and advertorial pages
Email marketing sequences
Affiliate materials if applicable
Billing
Subscription disclosure screenshots
Refund and cancellation policy
Checkout and upsell flow screenshots
Confirmation email examples
Manufacturing
Facility name and address
GMP certification and FDA registration
Batch-specific Certificates of Analysis
Ingredient supplier documentation
Operations and Compliance
Chargeback data (12 months, by reason code)
Customer service contact details
Regulatory correspondence from last 5 years
Step 3: Claim Language Audit (1-2 hours)
Extract all health claims from ads, landing pages, product pages
Monitoring: Quarterly ad review, monthly chargeback monitoring
Tier 2: Conditional Approval
Some implied disease claims requiring revision
Adequate but improvable billing transparency
Manufacturing disclosure adequate
Minor complaints but responsive
Reserve: 15-20% rolling
Monitoring: Monthly ad review, bi-weekly chargeback monitoring, required marketing approval for new campaigns
Tier 3: Decline
Explicit disease claims or drug comparisons in ads
Hidden continuity or extremely difficult cancellation
Recent FDA warning letter
High complaint volume (50+ unresolved BBB complaints)
Refusal to provide documentation
Step 8: Post-Approval Monitoring
Monthly:
Chargeback rate review (trigger: >5% rate)
Complaint monitoring (BBB, social media)
Quarterly:
Ad creative review (Facebook Ad Library, Google Transparency)
Landing page re-capture (check for claim changes)
Regulatory database search (new FDA warnings, FTC actions)
Annually:
Full re-underwriting
Updated GMP certificates
Fresh Certificates of Analysis
Updated chargeback data
Re-Review Triggers:
Chargeback rate exceeds 7%
FDA warning letter issued
Spike in external complaints
New ad campaigns with aggressive claims
Merchant launches new product line or brand
What Good Looks Like: Complete Profile
When all elements come together, a low-risk supplement merchant presents:
Documentation Package
Category
Requirement
Marketing
Conservative structure/function claims only
No disease treatment language
No before-and-after imagery with specific outcomes
FDA disclaimer on all marketing materials
Substantiation for all claims (research citations)
Billing
Subscription terms displayed prominently (12pt+ font above checkout)
Opt-in subscription (unchecked by default)
Clear cancellation policy with multiple methods
Working customer service phone line
Confirmation email with subscription details and one-click cancel
Manufacturing
U.S. FDA-registered facility or disclosed contract manufacturer
GMP certification from third party (NSF, UL)
Batch-specific Certificates of Analysis
Ingredient supplier documentation with country of origin
Compliance
No FDA warning letters in last 5 years
No FTC or state AG enforcement actions
BBB rating B+ or better
<10 complaints with >80% resolution rate
Product liability insurance
Operations
Chargeback rate <5%
Clear terms, privacy policy, refund policy
Physical U.S. address
Responsive customer service (call and email)
Ecosystem
Single brand or clear brand portfolio disclosed
Transparent domain ownership
No history of domain hopping after violations
Ballerine's Role
We provide the infrastructure to make this complex underwriting process manageable. Our platform enables automated merchant screening with continuous ad creative monitoring, checkout flow testing, regulatory database tracking, and external complaint aggregation.
Risk teams use Ballerine to capture the full marketing funnel during underwriting, monitor for claim drift post-approval, and automate re-review triggers based on chargeback thresholds or regulatory actions. Our case management workflows allow compliance teams to document findings, track remediation, and maintain audit trails across the merchant lifecycle.
The result is faster merchant onboarding with systematic coverage of the risk vectors that traditional KYB (Know Your Business) and website review processes miss. Explore our merchant risk monitoring solution or see transaction monitoring capabilities.
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