The Commission renews focus on manipulated reviews, online endorsements and child-targeted advertising
By: Stephanie Ramirez
Whether it’s fake reviews or influencers who hide that they were paid to post, this kind of deception results in people paying more money for bad products and services, and it hurts honest competitors. — Samuel Levine, Director of Bureau of Consumer Protection, FTC
In its continued effort to crack down on false and misleading advertising, the Federal Trade Commission (FTC) is once again seeking public comment on whether to make changes to its Endorsement Guides. This comment period comes just two years after the previous call for public input.
The Endorsement Guides, 16 CFR Part 255, established in 1980 and amended in 2009, provide guidance to businesses and others to ensure that advertising using endorsements or testimonials is truthful. The Guides state, among other things, that advertisers need to be up front with consumers and clearly disclose unexpected material connections between endorsers and a seller of an advertised product. The FTC advises companies to familiarize themselves with FTC guidelines in order to stay in compliance.
Since then, the FTC has issued multiple statements in regard to the proposed changes to the Endorsement Guides. It also published recommendations for online retailers and review platforms to educate them on the agency’s key principles for collecting and publishing customer reviews in ways that do not mislead consumers. The recommendations state that consumers who rely on online reviews of companies, products, and services should be getting a true and accurate picture of what other consumers think. They also advise that if you operate a website or platform that features reviews you should have processes in place to ensure those reviews truly reflect the feedback received from legitimate customers about their real experiences.
In its latest notice released May 2022, The FTC announced that the Commissioners voted 5-0 at an open meeting to submit to the Federal Register the notice detailing all of the proposed changes to the Endorsement Guides.
The Commission’s 2020 request for public comment included the following questions:
- whether the practices addressed by the Guides are prevalent in the marketplace and whether the Guides are effective at addressing those practices;
- whether consumers have benefitted from the Guides and what impact, if any, they have had on the flow of truthful information to consumers; whether changes in technology or the economy require changes to the Guides;
- whether guidance in the FTC’s guidance document “The FTC’s Enforcement Guides: What People Are Asking” should be incorporated into the Guides;
- how well advertisers and endorsers are disclosing unexpected material connections in social media; whether children are capable of understanding disclosures of material connections and how those disclosures might affect children;
- whether incentives like free or discounted products bias consumer reviews even when a favorable review is not required to receive the incentive, and whether or how those incentives should be disclosed;
- whether composite ratings that include reviews based on incentives are misleading even when reviewers disclose incentives in the underlying reviews;
- whether the Guides should address the use of affiliate links by endorsers;
- and what, if any, disclosures advertisers or operators of review sites need to make about the collection and processing of publication of reviews to prevent them from being deceptive or unfair.
In late 2021, the FTC began issuing Notices of Penalty Offenses warning of potential false and misleading practices to more than 1,000 direct selling companies. Companies receiving the notice also received a copy of the recently issued Notice of Penalty Offenses concerning endorsements and testimonials.
The letters specified that the FTC was not singling out recipients or suggesting recipients were violating the law, but rather ensuring that the recipients have actual knowledge that the FTC had previously ruled certain acts or practices to be unfair or deceptive.
The FTC also issued Penalty Offense warnings on the endorsements and testimonials to more than 700 large companies and advertisers, reminding them that they could incur significant civil penalties if they use reviews or other endorsements in ways that were found to be unlawful in prior FTC administrative cases.
The Commission issues complaints when it has “reason to believe” that the law has been or is being violated, and when it appears to the Commission that a proceeding is in the public interest.
In the statement issued by the Commission in May 2022, Director of the FTC’s Bureau of Consumer Protection, Samuel Levine, said, “We’re updating the Guides to crack down on fake reviews and other forms of misleading marketing, and we’re warning marketers on stealth advertising that targets kids.” He also added, “Whether it’s fake reviews or influencers who hide that they were paid to post, this kind of deception results in people paying more money for bad products and services, and it hurts honest competitors.”
In addition to the proposed revisions to the Endorsement Guides, FTC.gov has:
- Warned social media platforms that some of their tools for endorsers are inadequate and may open them up to liability;
- Clarified that fake reviews are covered under the Guides and added a new principle that in procuring, suppressing, boosting, organizing, or editing consumer reviews, advertisers should not distort or misrepresent what consumers think of their products. This would cover review suppression like in the FTC’s recent Fashion Nova case;
- Clarified that tags in social media posts are covered under the Guides and modified the definition of “endorsers” to bring virtual influencers—that is, computer-generated fictional characters—under the Guides; and
- Added an example addressing the microtargeting of a discrete group of consumers.
Of particular note is the FTC’s case against Fashion Nova, a California-based online fashion retailer. In a January 2022 release, the FTC stated the case is the first involving a company’s efforts to conceal negative customer reviews. The FTC also alleged Fashion Nova misrepresented that the product reviews on its website reflected the views of all purchasers who submitted reviews when, in fact, it suppressed reviews with ratings lower than four stars out of five. According to the case, Fashion Nova used a third-party online product review management interface to automatically post four- and five-star reviews to its website and hold lower-starred reviews for the company’s approval.
Levine was quoted in the release stating, “Deceptive review practices cheat consumers, undercut honest businesses, and pollute online commerce. Fashion Nova is being held accountable for these practices, and other firms should take note.”
In March, the FTC finalized the order settling allegations that the online fashion retailer blocked negative reviews of its products from being posted to its website. Under the final order, Fashion Nova will pay $4.2 million and is prohibited from suppressing customer reviews of its products.
At the time, the FTC also announced that it is sending letters to 10 companies offering review management services, placing them on notice that avoiding the collection or publication of negative reviews violates the FTC Act.
The FTC believes that, whatever the business model may be, business owners should be transparent about their review-related practices and should pay attention to several basic principles that derive from Section 5 of the FTC Act.
These principles include:
- Don’t ask for reviews only from people you think will leave positive comments.
- If you offer an incentive to consumers for leaving a review, don’t condition it, explicitly or implicitly, on the review being positive. Even without that condition, offering an incentive to write a review may introduce bias or change the weight and credibility that readers give that review.
- Don’t prevent or discourage people from submitting negative reviews.
Donnelly McDowell, a partner at Kelley Drye & Warren LLP, stated that while there’s nothing shocking in the May release, the revisions are another example of the FTC trying to move the needle in terms of standards for advertisers.
“The announcement flew a bit under the radar because the FTC’s press release focuses on fake and manipulated reviews, but the proposed changes to the Endorsement Guides are much broader,” McDowell said.
“Particularly relevant for direct sellers and potentially a preview of what’s to come on earnings claims, the revised Guides would include new examples of potentially deceptive endorsements and testimonials promoting atypical results as well as cautions against reliance on disclosure tools offered by social media platforms, particularly where the tools create disclosures that are unlikely to be seen or understood by a consumer,” he added.
The FTC has also proposed adding a new section highlighting that child-directed advertising is of special concern and that children may react differently than adults to endorsements in advertising or related disclosures. The Commission will host a virtual event on October 19, 2022, on the topic and will bring together researchers, child development and legal experts, consumer advocates, and industry professionals to examine the techniques being used to advertise to children online and what measures should be implemented to protect children from manipulative advertising.
In a separate statement issued in May, FTC Commissioner Rebecca Kelly Slaughter said, “We began the work of bringing some much needed deterrence and clarity to this market with last year’s Notice of Penalty Offenses regarding fake and deceptive endorsements. I’m glad to hear we’ll hold a public event later this year on children’s capacity to understand and distinguish advertising.”
After a time period to review feedback and public comments submitted, the Commission will consider whether to make additional changes to the Guides.
“Though the Guides are advisory only, the FTC publishes them to put those in the marketplace on notice of what is expected to avoid an enforcement action under the FTC Act’s deception sections,” McDowell said.
Commissioner Slaughter concluded in her May statement that online reviews and influencer endorsements are ubiquitous on the internet and they present real and new challenges.
“The new Guides make it clear that we intend to investigate breaches of that trust, whether it’s by brands manipulating reviews, influencers not disclosing material relationships with companies, or by microtargeting aimed at deceiving specific groups of consumers,” advised Slaughter.
Stephanie Ramirez is a Social Selling News Contributor.
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