The FTC Cracks Down on Fake Reviews with New Rule

The Federal Trade Commission (FTC) has recently announced a final rule that, among other things, prohibits the fabrication and manipulation of consumer reviews, testimonials, and the misuse of social media indicators in advertising. The rule was passed unanimously by the FTC’s commissioners. According to FTC Chair Lina M. Khan, the rule will “[strengthen] the FTC’s toolkit to fight deceptive advertising” and “protect Americans from getting cheated ... and promote markets that are fair, honest, and competitive.” 

The rise of online shopping has been accompanied by paid-for or computer-generated reviews and testimonials of the purchased goods and services, and these deceptive reviews and endorsements can significantly sway consumers’ purchasing behaviors. Such practices were already considered deceptive prior to the finalization of this rule, and the FTC has historically intervened against “review hijacking” and has promulgated guidelines to ensure honest and transparent AI product advertising. 

The Rule’s Prohibitions and How to Comply

The new rule, codified as 16 CFR Part 465: Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, specifically prohibits:

1. Selling or purchasing fake consumer reviews or testimonials. Examine your current practices related to consumer reviews and testimonials. Ensure that your marketing strategy does not involve the sale or purchase of fake consumer reviews or testimonials.
2. Buying positive or negative consumer reviews. Refrain from purchasing positive reviews for your products or services, and refrain from purchasing negative reviews of a competitor’s products or services.
3. Allowing certain insiders to create consumer reviews or testimonials without clearly disclosing their relationships. If your business involves insiders or affiliates who may create reviews or testimonials, their relationship to your company must be clearly disclosed in their reviews.
4. Creating a company-controlled review website that falsely purports to provide independent reviews. If your business operates or is affiliated with any review websites, you must ensure that these sites do not falsely purport to be independent if they are controlled by your business. The authenticity of the site must be clear to consumers.
5. Engaging in certain review suppression practices. Refrain from engaging in any practices that suppress negative reviews or selectively promote positive ones in a manner that misrepresents the overall consumer sentiment about your products or services.
6. Selling or purchasing fake indicators of social media influence. Do not participate in the sale or purchase of fake social media influence indicators, such as likes, followers, or shares. These indicators must reflect genuine user engagement. 

The rule allows the FTC to enforce penalties for violations without prosecuting individual violations through the Department of Justice and imposes a maximum penalty of $51,744 for each violating review or testimonial, provided that the violating company knew or had constructive knowledge about the prohibited conduct.

 Conclusion

The FTC’s final rule on fake reviews and testimonials represents a significant development in the advertising regulatory landscape. If the high fine per violating review didn’t already underscore businesses’ need to take proactive steps to ensure their marketing practices are compliant, remember that a business’s competitors and/or consumers may file suit for the harm suffered by false advertising, and this rule may support an allegation that an advertisement was false or deceptive or that an act or practice was unfair.

Businesses that depend upon reviews should confirm they have implemented policies requiring transparency and honesty in reviews and testimonials. These policies should be consistent with this rule to avoid any legal and financial repercussions. Implementing these practices will also help businesses build goodwill with their consumers.