A ban on fake online reviews and other deceptive online marketing practices issued by the Federal Trade Commission (FTC) on 14 August is going into effect today.

The regulation, approved unanimously by all five FTC commissioners, is considered the most decisive action taken by the agency to date to combat false advertising and unethical practices in the ecommerce landscape.

The FTC started to work on these new rules in November 2022 and held an informal hearing in February 2024 to take notice of the comments and observations of industry leaders and experts.

Apart from regulating the proliferation of fake online reviews, the agency is also aiming to prohibit the use of influencer marketing, generative AI, and other digital marketing tactics to persuade consumers to make online purchasing decisions by making false or exaggerated claims.

FTC Chair Lina M. Khan emphasized the regulation’s critical importance, stating: “Fake reviews not only waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors.”

No Paid Reviews, No Fake Followers From Now On

The new rule imposes a ban on reviews attributed to non-existent individuals, whether they are generated by artificial intelligence or human writers who have not had first-hand experience with the products or services they are endorsing.

The prohibition extends to the creation, purchase, or sale of fake reviews and testimonials, a practice that has been deemed illegal for a long time as it distorts how products and services are rated on online marketplaces and misleads consumers (but hasn’t been enforced).

Moving forward, marketplaces and vendors must provide clear disclosures about the connection that the reviewer has with the business, focusing on revealing potential conflicts of interest if managers, corporate officers, or even their immediate relatives are somehow involved or behind the testimonial or review.

Also read: 65+ Influencer Marketing Statistics Updated for October 2024

Meanwhile, when it comes to social media, the FTC is banning the practice of buying followers, inflating likes, creating fake engagement, and generating views through the use of AI-powered bots.

These restrictions specifically target situations where social media accounts knowingly misrepresent their influence for commercial purposes by artificially boosting their stats – i.. number of followers, likes, and views.

The rule also addresses review suppression, prohibiting businesses from using unfounded legal threats, physical threats, intimidation, or false public accusations to prevent or remove negative consumer reviews.

FTC Will Impose Hefty Penalties of $51,744 Per Infraction

The FTC is aiming to enforce these rules by imposing penalties of up to $51,744 per infraction on users, marketplaces, and vendors who fail to comply with these new provisions.

The new rule streamlines enforcement by allowing the FTC to handle cases internally rather than requiring prosecution through the Department of Justice, which results in a faster response to violations and consistent enforcement.

As a result, enforcement actions could now result in huge costs for businesses and may be more effective at deterring individuals and organizations from engaging in this kind of practice to boost their online influence or increase sales.

This shift was implemented to address the limitations imposed by the Supreme Court’s decision in the AMG Capital Management LLC v. FTC case after it hindered the agency’s ability to seek monetary relief for consumers under the FTC Act.

White House Holds Creator Conference to Address Industry Concerns

Major review platforms like Yelp have expressed support for the new regulation. Aaron Schur, Yelp’s general counsel, noted that while their internal policies already prohibit many of these practices, the new rule will improve online reviews for consumers as it will increase their credibility while leveling the playing field for businesses.

The regulation transforms previously self-regulated industry practices into matters of federal oversight and is now subjecting companies to stricter government scrutiny. This shift comes at a crucial time as advertisers have been turning to automated chatbots such as ChatGPT to generate user reviews for products sold online.

The ban addresses growing concerns about the authenticity of online content, particularly in light of the advancements made in AI technologies that have made fake reviews increasingly sophisticated and difficult to detect.

The regulation’s timing coincides with the White House’s first “Creator Economy Conference” where Biden administration officials welcomed 100 online influencers and digital content professionals to address industry concerns.

Chairwoman Khan highlighted that the new 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.”

Ecommerce Platforms May Need to Make Significant Adjustments to Comply

The implementation and enforcement of this landmark regulation by the FTC marks a turning point in digital marketing oversight and could reshape how businesses manage their online reputation.

The rule establishes new standards for transparency in digital commerce, requiring businesses to engage in honest representation practices involving review collections and correcting unethical behavior when it comes to handling negative feedback.

These changes are anticipated to foster more authentic online reviews, enhance consumer trust in digital marketplaces, and promote fair competition among businesses. The regulation’s success will likely influence future regulatory approaches to deal with other challenges that still plague online marketplaces, particularly as new technologies continue to evolve.

For ecommerce platforms, the rule demands significant adjustments to their review management systems and increased vigilance to monitor user-generated content.

As businesses adapt to these new requirements and enforcement mechanisms take effect, the digital marketplace could undergo a substantial transformation following the FTC’s implementation of these new rules, possibly toward greater authenticity and transparency in consumer feedback and organic and genuine online influence.