Judicial Gavel and Scales of Justice and Law for FTC Ruling on Subscription and Recurring Revenue Companies

FTC Fights Fake Reviews and Testimonials

The regulatory agency put more than 700 companies on notice that they could incur civil penalties of up to $43,792 per violation.

The Federal Trade Commission is fighting back against companies that use false endorsements and fake reviews and testimonials to sell their products and services. The federal agency said they will not tolerate misleading endorsements and reviews used to deceive consumers, and they will hold offending companies responsible with every tool at their disposal. To that end, the FTC sent Notice of Penalty Offenses to more than 700 companies, warning that they could be fined up to $43,792 in civil penalties per violation for posting false or misleading endorsements in online reviews and on social media.

“The rise of social media has blurred the line between authentic content and advertising, leading to an explosion in deceptive endorsements across the marketplace. Fake online reviews and other deceptive endorsements often tout products throughout the online world. Consequently, the FTC is now using its Penalty Offense Authority to remind advertisers of the law and deter them from breaking it,” said the FTC in an October 13, 2021 news release.

FTC fights back on fake reviews and testimonials

Samuel Levine, director of the FTC’s bureau of consumer protection, commented on the agency’s more aggressive stance.

“Fake reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses. Advertisers will pay a price if they engage in these deceptive practices,” said Levine.

Companies put on notice

The list of companies receiving the letters covers virtually ever area of business, including companies with a subscription or membership component like Adobe, Alphabet, Amazon, Apple, CarGurus, Comcast, Costco, Credit Karma, DirecTV, DISH Network, Electronic Arts, Epic Games, Facebook, Fitbit, Freshly, Google, GoPro, Grubhub, Hulu, iHeartMedia, Intuit, LifeLock, LinkedIn, Lyft, Microsoft, Netflix, Panera, Ring, SiriusXM, TripAdvisor, Walmart, Walt Disney Co., Warner Media, and others. The FTC published the complete 17-page list at FTC.gov.

Letter recipients not accused of any wrongdoing

The FTC clarified that the companies listed represent a variety of large companies, top advertisers, leading retailers, top consumer product companies, and major advertising agencies. The FTC also said that the presence of a company on the list does not mean the company has engaged in deceptive or unfair conduct.

“FTC staff is not singling out your company or suggesting that you have engaged in deceptive or unfair conduct. We are widely distributing similar letters and the notice to large companies, top advertisers, leading retailers, top consumer product companies, and major advertising agencies,” said the FTC in their letter.

The letter also asked companies to send the Notice of Penalty Offense to each company’s subsidiaries that sells or markets their products or services to U.S. consumers.

Unfair and deceptive trade practices defined

In the FTC’s letter, sent to companies via FedEx, the FTC identified the following actions as being unfair or deceptive trade practices by advertisers:

  • Falsely claiming an endorsement by a third party
  • Misrepresenting that an endorser is an actual user, a current user, or a recent user
  • Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the reviews represented
  • Misrepresenting that an endorsement represents the experience, views or opinions of users or purported users
  • Using an endorsement to make deceptive performance claims
  • Failing to disclose an unexpected material connection with an endorser
  • Misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience

FTC resources to support compliance

To assist companies, brands and advertisers in understanding their responsibilities including truth in advertising regulations, the FTC has put together a host of resources, including Endorsement Guides, FAQs and other informational articles separated by topic (Advertising and Marketing; Endorsements, Influencers and Reviews; Online Advertising and Marketing; Credit and Finance; and FinTech). The guides include practical information about disclosing material connections between advertisers and endorsers and how established consumer protection principles apply in social media and influencer marketing.

Image: Bigstock Photos

Amazon’s battle with fake reviews

Amazon is a company that is notorious for fake reviews, and it has recently come under fire. According to NASDAQ.com, the retail giant banned over 600 Chinese brands across 3,000 seller accounts due to review fraud. Amazon banned incentivized reviews in 2016, but marketers have found ways around it. Sellers would market something as a VIP testing program, or an extended warranty, in order to get a review. In June, Amazon admitted that they blocked 200 million fake reviews before a customer ever saw them.

UK’s CMA investigates Amazon and Google for potentially fake reviews

The FTC isn’t the only regulatory authority with serious concerns about fake reviews. In June, the United Kingdom’s Competition and Markets Authority (CMA) opened an official investigation into potential fake reviews on Amazon and Google. The CMA is investigating whether Amazon and Google have broken any consumer laws by not taking sufficient actions to protect shoppers from false or misleading reviews. Such reviews can have a significant impact on how a business is featured online and how a consumer perceives the products of individual businesses.

“Our worry is that millions of online shoppers could be misled by reading fake reviews and then spending their money based on those recommendations. Equally, it’s simply not fair if some businesses can fake 5-star reviews to give their products or services the most prominence, while law-abiding businesses lose out,” said Andrea Coscelli, the CMA’s Chief Executive, in a June 25, 2021 news release.

Insider Take

With advertising and reviews available on virtually every platform, compliance with the FTC’s truth in advertising regulations becomes more challenging. However, the guidelines are clear. If it isn’t real, you can’t use it. You also can’t incentivize influencers or endorsers without disclosing the relationship.

What is less clear is how companies who serve millions of customers can effectively monitor reviews and testimonials and weed out the bad actors. Brands and advertisers can put processes and procedures in place to identify fake reviews, block offenders from using their platforms, and review and update their standards when seeking reviews, but no method will be foolproof. The key to success will be to develop internal controls and to have their compliance officers audit their effectiveness and make adjustments if fake reviews and testimonials slip through the cracks. It won’t be easy, but it’s the law. Not recognizing or respecting that fact could be costly.

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