The Federal Trade Commission (FTC) has taken a decisive step to combat deceptive marketing practices by announcing a final rule that bans fake online reviews and testimonials. The new regulation, set to take effect 60 days after its publication in the Federal Register (likely mid-October 2024), aims to protect consumers from misleading product information and maintain fair competition in the marketplace.
FTC Chair Lina M. Khan stated, “Fake reviews not only waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors.” The rule was approved unanimously by all five FTC commissioners on August 14, 2024, following a process that began in November 2022 and included public hearings in February 2024.
Key provisions of the new rule include:
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Prohibition of fake or AI-generated reviews: Companies are banned from creating, buying, or disseminating reviews written by non-existent individuals or AI systems, or by individuals who misrepresent their experience with the product or service.
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Ban on conditional reviews: Businesses cannot offer compensation or incentives for reviews expressing particular sentiments, whether positive or negative. This applies to both explicitly and implicitly conditional offers.
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Disclosure requirements for insider reviews: Reviews from company officers, managers, employees, or those with material connections to the business must be clearly disclosed. Special requirements apply when soliciting reviews from immediate relatives.
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Prevention of review suppression: Companies are prohibited from using unfounded legal threats, physical threats, intimidation, or false accusations to remove or prevent negative reviews.
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Restrictions on fake social media influence: The rule bans the buying or selling of fake indicators of social media influence, such as bot-generated followers or views, when the buyer knew or should have known they were fake.
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Prohibition of company-controlled review websites: Businesses cannot misrepresent that a website or entity they control provides independent reviews of their products or services.
The FTC’s action comes in response to the growing problem of fake reviews in e-commerce. Amazon reported blocking over 250 million suspected fake reviews in 2023 alone, highlighting the scale of the issue. According to a U.S. PIRG estimate, between 30% and 40% of online reviews are “concocted or are in some way not genuine.”
Violations of the new rule could result in civil penalties of up to $51,744 per infraction, providing the FTC with stronger enforcement tools. This move is part of a broader effort by the agency under the Biden administration to strengthen consumer protections and regulate Big Tech companies.
The rule has garnered support from major online review platforms. Aaron Schur, general counsel for Yelp, commented, “We believe the enforcement of this new rule will improve the review landscape for consumers and help level the playing field for businesses.”
As the digital marketplace continues to evolve, particularly with the rise of AI technologies, this regulation represents a significant step in ensuring the integrity of online consumer information. The FTC’s action reflects growing concerns about the authenticity of online content and its impact on consumer decision-making.
Businesses and marketers will need to adapt their practices to comply with these new regulations, potentially leading to more transparent and reliable online review ecosystems. As the rule takes effect, consumers can expect to see changes in how companies solicit and present product feedback online.
The FTC has stated it will use all available means to combat deceptive advertising in the digital age, signaling ongoing efforts to address emerging challenges in online marketing practices. This rule strengthens the FTC’s toolkit in the wake of the Supreme Court’s decision in AMG Capital Management LLC v. FTC, which had hindered the agency’s ability to seek monetary relief for consumers under the FTC Act.
