New FTC Crackdown: Penalties Imposed on Businesses Using Fraudulent Customer Testimonials

The Federal Trade Commission has finalized its rule that prohibits companies from creating, buying, and selling fake reviews and testimonials. It also bans them from manipulating, suppressing genuine negative reviews.

This final rule has been in the making since November 2022, when the FTC first announced its plans to crack down on fake review practices . The original proposal was modified multiple times and finalized into six key points. The final rule was unanimously approved, and it will go into effect “60 days after the date it’s published in the Federal Register.” The Federal Register catalog hadn’t been updated with the new FTC rules at the time of this writing.

Generative AI has led to a sudden spike in scams , especially fake reviews. Companies are no longer allowed to use reviews by anyone (including artificial intelligence) who doesn’t have direct experience with the service or product. That includes providing any incentive or reward for the reviewer to gain a favorable review. Businesses aren’t allowed to manipulate ratings or hide genuine negative customer reviews.

The FTC also requires companies to clearly identify any testimonials that come from company insiders and affiliates. Company managers are not allowed to give testimonials at all. Some review websites pose as independent when they’re secretly owned by the company whose products they’re reviewing. Businesses will have to disclose connections like that now.

Inflating social media metrics through bots or fake accounts is another common shady practice, which the new rule prohibits.

“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 FTC Chairperson explained. The courts can fine businesses up to $51,744 for every violation (the violation count will also be decided by the courts).

It remains to be seen how well the rule will be enforced, but at the very least, companies can incur heavy fines when they are caught allowing fake reviews.

Source: FTC , TechCrunch