FTC Implements Final Rule Banning Fake Reviews and Testimonials
All Fintech
Social Media
August 31, 2024
The Case
The Federal Trade Commission (FTC) has issued a final rule prohibiting businesses from creating, purchasing, or disseminating fake reviews and testimonials.
This rule is designed to combat deceptive advertising practices, such as fabricated consumer testimonials and AI-generated reviews and enable the FTC to pursue civil penalties against violators. The rule will take effect on October 13, 2024, giving businesses a limited window to ensure compliance.
The rule specifically prohibits the following practices:
Creating or disseminating fake or false consumer reviews, testimonials, or celebrity endorsements.
Compensating individuals for positive or negative reviews.
Insider reviews or testimonials from company employees or agents without appropriate disclosure.
Operating company-controlled review platforms that misrepresent as independent sources.
Suppressing negative reviews or misrepresenting the full range of submitted reviews.
Misusing fake social media indicators, such as bot-generated followers or views.
Regulatory Implications
The new rule expands the FTC’s ability to hold businesses accountable for misleading consumers with fake or manipulated reviews.
Before this rule, enforcement was limited, particularly after the Supreme Court's ruling in AMG Capital Management LLC v. FTC, which curtailed the agency's power to seek monetary relief for consumers under the FTC Act. Now, the FTC can pursue civil penalties, creating stronger deterrence against practices that undermine consumer trust in online reviews.
Businesses that fail to follow the rule could face severe penalties, and the FTC has clearly indicated that case-by-case enforcement alone may not be sufficient to address deceptive practices. The rule’s provisions apply to a broad range of deceptive review tactics, including AI-generated content, undisclosed insider reviews, and the suppression of negative feedback.
Practical Guidance for Firms
In light of the FTC’s new rule, businesses should take the following steps:
Audit and Update Review Practices: Conduct an internal review of your company’s marketing practices, especially those involving consumer reviews or testimonials.
Disclose Material Connections: If employees, agents, or individuals with a relationship to your business submit reviews or testimonials, disclose these connections clearly and conspicuously.
Avoid Review Suppression: All customer reviews, both positive and negative, should be displayed fairly on your platforms.
Review Social Media Indicators: Any indicators of social media influence, such as follower or view counts, should be genuine.
Since 2013, InnReg has provided regulatory compliance solutions to businesses, helping them navigate complex legal landscapes.
Our services include advertising and marketing compliance reviews to help companies avoid risks related to false advertising practices and adhere to evolving regulations like the FTC’s new rule.
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