FTC Issues Final Rule Prohibiting Fake Reviews and Testimonials: What Your Company Needs to Know Today
By Alan Lowenthal
The Federal Trade Commission (FTC) has published its final Trade Regulation Rule on the Use of Consumer Reviews and Testimonials on August 14, 2024. It will take effect 60 days after publication in the Federal Register. As of the date of this article, the Rule hasn’t been published yet.
This Rule aims to combat fake reviews and deceptive testimonials that mislead consumers and harm honest businesses.
Key Provisions of the Final Rule
1. Prohibiting fake or deceptive reviews and testimonials
2. Banning the sale, purchase, or distribution of fake reviews
3. Prohibiting incentivizing reviews to express specific sentiments
4. Requiring disclosure of material connections for insider reviews
5. Banning deceptive claims of independent review sites
6. Prohibiting illegal suppression of negative reviews
7. Banning the sale or purchase of fake social media indicators
Key Prohibitions and Requirements
Fake Reviews and Testimonials
The Rule prohibits:
1. Writing, selling, or purchasing fake consumer reviews or testimonials
2. Using AI-generated fake reviews
3. Disseminating reviews from non-existent people or those without actual product experience
4. Misrepresenting reviewers' experiences
Compensation for Reviews
Businesses are barred from providing compensation or incentives for reviews expressing specific sentiments (positive or negative). Also, companies can’t condition incentives on the tone of reviews to be provided.
Insider Reviews and Disclosures
The Rule requires clear and conspicuous disclosure of material relationships for reviews by company insiders, officers, managers, employees, agents, or their immediate relatives. Disclosures must be “clear and conspicuous”, i.e., easily noticeable and understandable by ordinary consumers They must also be visible without requiring additional actions (e.g., clicking links or hovering over an icon).
Deceptive Review Websites
Companies are prohibited from deceptively claiming that company-controlled review websites provide independent reviews or testimonials.
Review Suppression
Companies can’t use unfounded legal threats, physical threats, intimidation, or false accusations to prevent or remove negative review. Also, companies can’t only use certain reviews (e.g., positive ones) while misrepresenting they represent all submitted reviews.
Fake Social Media Indicators
The Rule prohibits selling or purchasing fake indicators of social media influence, such as bot-generated followers, likes, or views.
Enforcement and Penalties
Violations of the Final Rule can result in civil penalties of $51,744 per violation. This gives the FTC significant enforcement power, allowing them to obtain equitable monetary relief for consumers.
Implications for Businesses
Compliance Requirements
In light of the new Rule, we can help companies:
1. Conduct audits of current review and testimonial practices
2. Educate employees and partners about the new rule
3. Design and implement clear policies for soliciting, managing, and disclosing reviews
4. Ensure proper disclosures for insider reviews
5. Review and update review filtering and publication processes
6. Assess any incentive programs for reviews
Key Considerations
Incentivizing reviews: While offering incentives for reviews may be acceptable if sentiment is not influenced, businesses must ensure proper disclosures and avoid incentivizing only positive reviews.
Review by management: Companies should have visibility into how reviews are managed across their organization, including on their website and third-party platforms.
Transparency: Companies should be clear about what the published reviews represent, especially if they are a subset or include incentivized reviews.
Employee education: Companies are responsible for providing guidance to employees on proper review practices and disclosures.
Metrics and tactics: Companies should avoid using deceptive tactics to boost ratings, such as bots or AI-generated reviews.
Scope and Limitations
The Final Rule applies to reviews posted on any website with a portion dedicated to receiving and displaying reviews. This includes both review platforms (e.g., Yelp) and companies' websites with review sections. It does not apply to websites not specifically dedicated to displaying reviews (e.g., Reddit), and non-website use of reviews (e.g., marketing materials), although these may be subject to other consumer-friendly FTC regulations.
Conclusion
The FTC's new rule on fake reviews and testimonials represents a significant step to help promote fair and honest practices in online business. With clear prohibitions, disclosure requirements, and substantial penalties for violations, businesses must carefully review and update their review management practices to ensure compliance. As the Rule takes effect, companies should expect increased enforcement actions and prioritize implementing robust compliance measures to protect both their reputation and financial interests.
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