Uncle Sam cracks down on faked reviews and bad influencers

America's consumer fraud watchdog is revising its rules for online reviews and testimonials in advertising, raising the possibility of greater legal risk for those deceptively endorsing – or disparaging – products or services online in exchange for payment.

The proposed rules from the FTC target fake reviews and, if approved, will allow fines of up to $50,120 per fake review, for each time seen by a customer. They do not cover political advertisements; that's a whole other free speech debate.

By fake reviews, the federal regulator means posts written by the makers of the products themselves, or their stooges, without disclosing that fact. Netizens reading those reviews may think the posts are genuine views by independent customers, and be possibly duped into buying something they may have otherwise avoided. The FTC sees that as effectively misleading advertising, hence the threat of fines.

"Companies that use deceptive endorsements and reviews inflict an injurious double whammy," the FTC said in a statement. "They harm consumers with misleading tactics that subvert their choices at check-out. And they take business away from honest competitors that work hard to comply with the law."

According to a study [PDF] cited by the FTC, "being exposed to both inflated star ratings and fake text reviews … translates into a welfare loss of around $0.12 per $1 that consumers spend on the platform."

The watchdog's proposed testimonial rule [PDF] goes on to say that self-reported platform data puts the portion of fake reviews at about 4 percent, although a third-party survey from Fakespot in 2021 found "nearly 37.6 percent of reviews on Walmart.com were unreliable, with the figure at 27.6 percent for Amazon.com."

The online commerce industry, unable or unwilling to tackle manipulative endorsements on its own, asked for this. Two years ago, Amazon was blaming social media companies for failing to police fake review schemes. Two weeks ago, Amazon called for greater involvement from regulators.

"[W]e cannot win this fight alone," the company said. "Only through partnerships with like-minded stakeholders across the private and public sector can we truly stop fake review brokers, address the problem at the source, and help ensure that reviews are trustworthy across the industry."

The FTC has answered the call with revised Endorsement Guides, a proposed new Rule on the Use of Consumer Reviews and Testimonials, and FAQs for marketers.

The suggested rules prohibit:

• Selling or obtaining fake consumer reviews and testimonials.
• Review hijacking, which is repurposing a legit review or rating.
• Buying positive or negative reviews.
• Undisclosed insider reviews – no more "it's great!" from chief marketing officers.
• Company-controlled review websites.
• Illegal review suppression – threatening reviewers or hiding "fly-in-soup" stories.
• Selling fake social media indicators – likes, stars, follower counts, and so on.

The FTC acknowledges that it isn't going to be monitoring all social media and blogger for potential infractions. The agency intends to focus on advertisers and their agencies, but allows that "action against an individual endorser might be appropriate in certain circumstances – for example, if the endorser hasn’t made required disclosures despite warnings."

Nonetheless, bloggers, influencers, and other members of the online commentariat should familiarize themselves with the refreshed rules because the FTC's interpretation of what's required is extensive.

For example, those posting sponsored videos or images may need to include a disclosure statement directly – not on the embedding webpage or some other part of the interface - in order to fulfill the clear and conspicuous requirement.

Also, people outside the US (maybe a UK resident creating sponsored YouTube videos seen in the US) are expected to comply. Though Guantanamo Bay or extradition are not on the table (under the current administration) for failing to disclose sponsorship, the FTC could try to impose a fine or other civil remedy – assuming the agency has nothing better to do.

Various strategies for gaming the rules may come to mind – asking only satisfied customers to submit reviews, hiding disclosures behind links, or a single generic disclosure on a main page. But the FTC has disallowed these and other workarounds in its guidelines.

"Our proposed rule on fake reviews shows that we’re using all available means to attack deceptive advertising in the digital age," said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a statement. "The rule would trigger civil penalties for violators and should help level the playing field for honest companies." ®