FTC to combat fake reviews and testimonials

The Federal Trade Commission (FTC) this week finalized a new rule aimed at combating fake reviews, undisclosed paid testimonials, and other deceptive practices involving consumer feedback. Announced on August 14, 2024, the rule will take effect 60 days after publication in the Federal Register and allows the agency to seek civil penalties against violators.

The rule prohibits several practices that the FTC deems unfair or deceptive, including:

• Creating, selling, purchasing, or distributing fake consumer reviews or testimonials
• Buying positive or negative consumer reviews
• Using insider reviews or testimonials without proper disclosures
• Misrepresenting that a company-controlled website provides independent reviews
• Suppressing negative reviews through threats or intimidation
• Misusing fake social media metrics to inflate perceived influence

According to FTC Chair Lina M. Khan, "Fake reviews not only waste people's time and money, but also pollute the marketplace and divert business away from honest competitors. By strengthening the FTC's toolkit to fight deceptive advertising, the final rule will protect Americans from getting cheated, put businesses that unlawfully game the system on notice, and promote markets that are fair, honest, and competitive."

The rule comes after a lengthy process that included an advance notice of proposed rulemaking in November 2022, a notice of proposed rulemaking in June 2023, and an informal hearing in February 2024. The FTC made several modifications to the proposed rule in response to public comments, including clarifying definitions and narrowing the scope of some provisions.

A key driver for the new rule is the FTC's reduced ability to obtain monetary relief for consumers following the 2021 Supreme Court decision in AMG Capital Management v. FTC. The rule will allow the FTC to seek civil penalties and consumer redress more efficiently when businesses engage in the prohibited practices.

The FTC estimates that the rule will provide significant benefits to consumers and honest businesses. Using conservative estimates, the agency projects the rule could save consumers between $6.64 billion and $17.52 billion annually through better-informed purchasing decisions. The FTC also anticipates the rule will improve competition by leveling the playing field for businesses that do not engage in review manipulation.

Compliance costs for businesses are expected to be relatively minimal. The FTC estimates that if all affected small businesses conduct one hour of compliance review, it would result in a total cost of about $861 million. However, the agency believes actual costs will likely be significantly lower, as many businesses are already compliant with existing laws against deceptive practices.

Some industry groups expressed concerns about potential unintended consequences or overly broad application of the rule. In response, the FTC made several clarifications, including specifying that the rule does not apply to merely hosting consumer reviews and adding knowledge requirements for some provisions.

The new rule represents a significant step in the FTC's efforts to combat deception in the digital marketplace. As online reviews and social media increasingly influence consumer decisions, the agency aims to ensure that feedback mechanisms provide reliable information rather than misleading marketing.

Businesses will need to carefully review their practices around consumer reviews and testimonials to ensure compliance with the new rule. The FTC has indicated it will provide guidance to help companies understand their obligations.

Key facts about the FTC's new rule on consumer reviews and testimonials

Announced on August 14, 2024

Takes effect 60 days after publication in the Federal Register

Prohibits fake reviews, undisclosed paid testimonials, and other deceptive practices

Allows FTC to seek civil penalties for violations

Estimated to save consumers $6.64-$17.52 billion annually

Compliance costs for businesses expected to be minimal

Aims to improve competition by leveling the playing field for honest businesses

Made several clarifications in response to public comments