The US Federal Trade Commission (FTC) implemented a new rule on October 21, following its finalization in August. This new FTC rule prohibits fake online reviews. It applies to AI-generated content and reviews that inaccurately portray the user’s experience with a product.

Additionally, it bans companies from purchasing fake reviews, including those sourced from company employees, and from distributing known false reviews. This measure aims to prevent consumers from being deceived by fraudulent online reviews.

Key Takeaways

• FTC Bans Fake Reviews, Including AI-Generated Content: The new rule makes it illegal for companies to buy, sell, or distribute fake reviews, including those created with AI or misrepresenting user experience.
• Civil Penalties for Non-Compliance: The FTC can impose fines of up to $51,744 per violation, targeting companies that engage in fraudulent reviews, endorsements, or deceptive social media metrics.
• Disclosure Requirement for Insider Reviews: Reviews by employees or insiders, including family members influenced by management, must disclose any connections to the business.
• Restrictions on Social Media Manipulation: The rule prohibits businesses from inflating their online reputation by buying fake followers or views to mislead consumers about their popularity.

New FTC Rule Targets Fake Online Reviews with Fines and Stricter Enforcement

A new federal regulation prohibiting fake online reviews has been implemented. The FTC established the rule in August, making selling or buying online reviews illegal. This regulation took effect on Monday, empowering the agency to impose civil penalties on those who intentionally break this rule.

Lina Khan, FTC Chair, remarked that fake reviews lead to consumers wasting money and time, disrupting the market, and unfairly diverting customers from businesses that compete fairly. Khan emphasized that this regulation aims to shield consumers from deceit, warn businesses against dishonest practices, and support a market based on fairness and integrity.

The regulation specifically outlaws reviews and endorsements that are falsely attributed to nonexistent individuals or created by artificial intelligence, as well as those from people who have not used the business or service/product or who misrepresent their experience.

The rule also prohibits businesses from generating or trading reviews or endorsements. Firms that deliberately acquire fake reviews, source them from company insiders, or distribute fraudulent reviews will face penalties.

Additionally, the regulation prevents companies from repressing reviews using baseless legal threats, physical intimidation, or coercive tactics to silence a negative consumer review. Companies are also prohibited from falsely asserting that their website displays all or most customer feedback if they have selectively hidden or deleted reviews due to poor ratings or critical remarks.

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The regulation will apply to reviews created in the future. Approximately 95% of consumers consult online reviews before purchasing, and the same proportion reads product reviews before deciding to buy an item. While it remains to be seen how the FTC will implement enforcement, the agency might focus on a few prominent cases to establish a precedent. It has the authority to impose fines of up to $51,744 for each violation.

The rule’s timing is crucial as the rise of artificial intelligence poses an increased risk of exacerbating the issue. Generative AI technologies can rapidly produce a large volume of fake reviews. This situation underscores the value of using reputable review platforms that feature reviews by human experts who have directly interacted with the products and possess in-depth knowledge.

Beyond just reviews, the FTC’s restrictions extend to companies that artificially enhance their social media visibility by purchasing bot followers or fake views. This applies specifically when businesses intentionally buy fake online engagements to represent their popularity falsely.

The final rule was announced after a series of preparatory steps, including an advance notice of proposed rulemaking in November 2022 and a notice of proposed rulemaking in June 2023. Additionally, the FTC conducted an informal hearing on the proposed rule in February 2024.

Closely Understanding the FTC’s New Rules on Fake Reviews and More

This new rule banning fake online reviews, which received a unanimous 5-0 vote, will become effective 60 days after its announcement in the Federal Register. The FTC’s goal is to address fake consumer reviews, testimonials, and altered social media metrics through various specific prohibitions.

• Fake Reviews and Testimonials: It is now illegal for businesses to create or sell fake consumer reviews or testimonials, whether AI-generated or falsely attributed. Additionally, companies cannot purchase or distribute reviews if they knew or should have known that they were false or misrepresented real consumer experiences. Misleading endorsements by celebrities are also prohibited.
• Insider Reviews without Disclosure: Reviews by company insiders, such as officers or managers, must explicitly disclose any significant connections to the business. The rule also limits employees from posting reviews solicited by company leaders unless the relationship is openly acknowledged. This includes reviews by relatives of employees if influenced by management.
• Compensated Reviews with Conditional Sentiment: Businesses can no longer offer incentives or compensation to consumers for reviews that express a specific positive or negative sentiment. This applies to direct and implied agreements and remains applicable even if the incentive is disclosed.
• Suppression of Negative Reviews: The rule prohibits companies from suppressing or removing negative reviews through intimidation, unfounded legal threats, or misleading consumers about the completeness of reviews on their platforms. Any selective display of reviews must be transparent and fairly reflect both positive and negative feedback.
• Misrepresented Independence of Review Platforms: Companies are forbidden from falsely representing company-controlled websites as independent review platforms, as this could mislead consumers regarding the authenticity of the reviews.
• Manipulated Social Media Influence: The buying or selling of fake social media metrics, such as followers or views, is also prohibited. These metrics must not be artificially generated to falsely inflate a business’s popularity for commercial gain.

Conclusion

The FTC’s new rule represents a significant step toward online reviews and social media metrics transparency. By targeting fake reviews, undisclosed insider endorsements, and manipulated social media engagements, the regulation aims to foster a fairer marketplace where consumers can make informed decisions.

Businesses are now held to stricter standards, with substantial penalties for those who engage in deceptive practices. As these changes take effect, the focus will be on compliance and enforcement to establish a trustworthy consumer environment and honest business competition.