The Federal Trade Commission (FTC) is cracking down on fake reviews, testimonials, and misleading indicators of social media influence. Last week, the FTC announced a final rule barring businesses from selling or buying reviews and testimonials. The new rule allows the federal agency to pursue civil penalties against those who knowingly violate the law.
“Fake reviews not only waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors,” says FTC Chair Lina M. Khan. “By strengthening the FTC’s toolkit to fight deceptive advertising, the final rule will protect Americans from getting cheated, put businesses that unlawfully game the system on notice, and promote markets that are fair, honest, and competitive.”
The final rule follows the FTC’s informal hearings earlier this year on its proposed trade regulation rule prohibiting marketers from using fake consumer reviews and testimonials. In response to public comments, FTC clarified and adjusted its previous proposal.
The final rule prohibits:
Fake or False Consumer Reviews, Consumer Testimonials, and Celebrity Testimonials: The final rule addresses reviews and testimonials that misrepresent that they are by someone who does not exist, such as AI-generated fake reviews, or who did not have actual experience with the business or its products or services, or that misrepresent the experience of the person giving it. It prohibits businesses from creating or selling such reviews or testimonials. It also prohibits them from buying such reviews, procuring them from company insiders, or disseminating such testimonials, when the business knew or should have known that the reviews or testimonials were fake or false.
Buying Positive or Negative Reviews: The final rule prohibits businesses from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a particular sentiment, either positive or negative. It clarifies that the conditional nature of the offer of compensation or incentive may be expressly or implicitly conveyed.
Insider Reviews and Consumer Testimonials: The final rule prohibits certain reviews and testimonials written by company insiders that fail to clearly and conspicuously disclose the giver’s material connection to the business. It prohibits such reviews and testimonials given by officers or managers. It also prohibits a business from disseminating such a testimonial that the business should have known was by an officer, manager, employee, or agent. Finally, it imposes requirements when officers or managers solicit consumer reviews from their own immediate relatives or from employees or agents—or when they tell employees or agents to solicit reviews from relatives and such solicitations result in reviews by immediate relatives of the employees or agents.
Company-Controlled Review Websites: The final rule prohibits a business from misrepresenting that a website or entity it controls provides independent reviews or opinions about a category of products or services that includes its own products or services.
Review Suppression: The final 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. The final rule also bars a business from misrepresenting that the reviews on a review portion of its website represent all or most of the reviews submitted when reviews have been suppressed based upon their ratings or negative sentiment.
Misuse of Fake Social Media Indicators: The final rule prohibits anyone from selling or buying fake indicators of social media influence, such as followers or views generated by a bot or hijacked account. This prohibition is limited to situations where the buyer knew or should have known that the indicators were fake and misrepresent the buyer’s influence or importance for a commercial purpose.
As the Commission noted previously, more than case-by-case enforcement with civil penalty authority is needed to deter clearly deceptive review and testimonial practices. In announcing this latest rule, the FTC cited the Supreme Court’s decision in AMG Capital Management LLC v. FTC, which hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act. The FTC had frequently used Section 13(b) to compel monetary payment, collecting $5.29 billion in disgorgement and restitution in 2019 alone. This rule, the FTC says, will enhance deterrence and strengthen its enforcement actions.
The beauty industry is no stranger to the FTC's pressure on businesses that facilitate fake reviews. After it was determined that Sunday Riley had posted fake, employee-generated reviews on the Sephora website from 2015 to 2017, the FTC forced the company to admit wrongdoing publicly and agree never to engage in such practices again.
“The Commission’s investigation confirmed the whistleblower’s claim and found that the scheme to generate fake reviews of Sunday Riley products involved Ms. Riley herself,” FTC commissioners Rohit Chopra and Rebecca Kelly Slaughter said in a statement. “Rather than relying on satisfied customers to generate real buzz about her products, she directed her employees to write glowing reviews and bury negative ones, while offering detailed instructions on how to avoid detection.”
Ratings and reviews are the most crucial factor impacting purchase decisions. According to a consumer research group, 74% of consumers say ratings and reviews are a key way to learn about products they've never purchased and 9 in 10 consumers say they consider reviews when making a purchase decision. Gloss Angeles Confidential, a first-of-its-kind podcast ad program for beauty brands, allows listeners to test new and popular products in exchange for authentic, verifiable reviews on the brand’s website. Beauty brands have been clamoring to join this program, and those who have participated are pleased with the results. “In addition to the invaluable reviews on our site, we were able to learn more about where this beauty lover shops for their haircare, what other haircare brands they use, what drives them to purchase hair products—AKA all marketing gold in terms of consumer insights,” Lindsay Holden, co-founder of Odele, tells BeautyMatter.
The new ruling will underscore the critical importance of obtaining genuine reviews. Brands will continue encouraging their customers to leave honest reviews in accordance with the FTC’s guidelines that foster transparency and increase consumer trust. This crackdown on fake reviews will only enhance the overall value of honest reviews, allowing them to play an increasingly pivotal role in a brand's reputation and success.
Retailers will also share in the responsibility of combatting fake reviews. Amazon says it proactively blocked over 200 million suspected fake reviews from its stores in 2022. In response, Amazon claims it took legal action against over 90 fraudsters who facilitated and solicited fake reviews across China, Europe, and the US. By May 2023, Amazon says it took legal action against another 94 bad actors.
Last year, Tripadvisor, Expedia Group, Booking.com, and Amazon formed a coalition to combat fake reviews. The coalition's goals are to ensure access to trustworthy user reviews, develop standards for hosting them, and share best practices for detecting fake reviews.
“To further maintain the credibility and authenticity of reviews on our platforms, we aim to make it increasingly difficult for fraudulent actors who try to deceive our customers to operate online,” says Becky Foley, Vice President of Trust and Safety at Tripadvisor. “Combating these operators, particularly those attempting to sell fake reviews to companies looking to improve their online reputations, will be an immediate area of focus.”
The FTC’s vote to approve the final rule and accompanying statement of basis and purpose was 5-0. The rule will become effective 60 days after it’s published in the Federal Register.
