Quarter 3, 2024: FTC Scrutinizes Business Reviews/Testimonials
By: Attorney James Rayment
Online business reviews or testimonials, such as through Google reviews or paid compensation for reviews, are common marketing tools for businesses. However, the FTC has grown concerned that the use of fake reviews and testimonials can mislead the public. In addition, recent case law has restricted the FTC’s ability to seek monetary relief for consumers. In response, the FTC issued a new final rule that goes into effect on October 13, 2024, imposing strict civil penalties for certain consumer reviews and testimonials or the way the reviews and testimonials were secured.
Fake/Misleading Reviews: The final rule prohibits businesses from creating or selling reviews or testimonials that give the appearance they are by a real individual but is someone who actually does not exist, such as fake AI-generated reviews, or someone pretending to have had an actual experience with the business or its products or services. Businesses are also prohibited from buying fake reviews, procuring them from company insiders, or disseminating fake testimonials, when the business knew or should have known that the reviews or testimonials were fake or false. The FTC’s rule further prohibits anyone from selling or buying fake indicators of social media influence, such as followers or views generated by a bot or hijacked account.
Compensated Reviews: The final rule also prohibits businesses from providing compensation or other incentives conditioned on the writer expressing either a positive or negative consumer review. The conditional nature of the offer can be implied to violate the rule.
Company Insiders: While fake reviews/testimonials are generally accepted to be deceptive practices, the FTC’s final rule also addresses a broad array of other commonly employed business advertising practices that may on their face not appear to be an improper advertising tactic. For instance, the final rule prohibits certain reviews and testimonials written by company insiders that fail to clearly and conspicuously disclose the reviewer’s material connection to the business, such as reviews and testimonials given by officers or managers. Businesses are prohibited from disseminating testimonials or reviews if the business should have known they were by an insider. The rule also imposes certain requirements when officers or managers solicit consumer reviews from their own immediate relatives or from employees or agents, or when officers or managers tell employees or agents to solicit reviews from relatives.
Groundless Threats: The rule prohibits a business from using unfounded or groundless legal threats, physical threats, intimidation, or certain false public accusations to prevent or remove a negative consumer review. Businesses are also prohibited from misrepresenting that the reviews on a review portion of its website represent all or most of the reviews submitted when other reviews were suppressed based upon their ratings or negative sentiment.
Violating this final rule could subject offenders to civil penalties up to $51,744, but mitigating factors may be considered by the Courts. Note, however, that the rule considers each “fake review” to be a separate violation, thus, penalties for violation of this provision can be quite steep.
If you are concerned that your current business practices may be in violation of the FTC’s new rule, or you are a victim of deceptive trade practices in violation of FTC regulations, contact Attorney James Rayment at [email protected] to discuss your legal rights and remedies.