FTC Finalizes Comprehensive Rule to Combat Fake Reviews and Misleading Testimonials

When it comes to reviews, businesses a strong incentive push for 5 stars. For instance, an increase of one star on a Yelp review can lead to a 5-9% increase in business revenue, according to a Harvard Business School study.

But what if the review is not a true reflection of the company? Some feel it’s easier to buy reviews than to improve the quality of their product or service. Those companies along with others who try to manipulate online ratings and reviews may find themselves in trouble under a comprehensive new rule.

The Federal Trade Commission (FTC) has taken a bold step forward in its mission to protect consumers by finalizing a new rule targeting fake reviews and deceptive testimonials (16 CFR Part 465: Trade Regulation Rule on the Use of Consumer Reviews and Testimonials).

The new rule is directed primarily at (but is not limited to) all forms of commercial online presence and directed at both human- and AI-generated reviews/testimonials. This rule, which prohibits the sale or purchase of fake reviews, marks a significant expansion of the FTC’s enforcement capabilities. The rule also empowers the FTC to seek civil penalties against those who knowingly violate these guidelines. The twin barrels of civil and criminal liability enhance the agency’s ability to deter dishonest practices.

Why This Matters: Fake reviews are more than just a nuisance—they undermine consumer trust, distort market competition, and unfairly disadvantage honest businesses. As FTC Chair Lina M. Khan stated, “Fake reviews not only waste people’s time and money but also pollute the marketplace and divert business away from honest competitors.” The new rule strengthens the FTC’s toolkit to combat deceptive advertising, ensuring that American consumers are better protected from fraud and that markets remain fair, honest, and competitive.

Background on the Rule: The final rule is the culmination of a comprehensive process that began with an advance notice of proposed rulemaking in November 2022, followed by a formal notice of proposed rulemaking in June 2023. The FTC also held an informal hearing in February 2024 to gather input from various stakeholders. In response to public comments, the Commission made several key adjustments to the initial proposal to better address the concerns raised by consumers, businesses, and advocacy groups.

Key Provisions of the Rule:

• Prohibition on Fake or False Reviews and Testimonials:
  • The rule targets reviews and testimonials that are fabricated or misleading, such as those generated by AI or those from individuals who have never used the product or service.
  • The rule prohibits businesses from creating or selling such fake reviews, as well as from purchasing fake reviews or disseminating them when they know, or should have known, that the reviews were false.
• Restrictions on Buying Positive or Negative Reviews:
  • Businesses are now barred from offering compensation or incentives in exchange for reviews that express a particular sentiment, whether positive or negative.
  • Banning compensated reviews is crucial in preventing the manipulation of public opinion through biased reviews that do not reflect genuine consumer experiences.
• Regulations on Insider Reviews:
  • Reviews and testimonials from company insiders, such as officers, managers, or employees, must now clearly disclose their connection to the business.
  • Such insider review and testimonials are prohibited if the business is aware, or should have been aware, of the insider’s affiliation.
• Controls on Company-Controlled Review Websites:
  • The rule prohibits businesses from misrepresenting the independence of review websites that they control.
  • This means that businesses can no longer disguise their products or services as being reviewed by independent third parties when, in fact, they control the review platform.
• Ban on Review Suppression:
  • Businesses can no longer use threats, intimidation, or false public accusations to suppress negative reviews.
  • The rule also prevents companies from misleading consumers by suggesting that all reviews on their website are published, when some may have been selectively removed based on negative sentiment.
• Misuse of Fake Social Media Indicators:
  • The rule addresses the growing issue of fake social media influence peddling by prohibiting the sale or purchase of fake followers, likes, or views.
  • This provision specifically targets situations in which businesses knowingly use these fake indicators to misrepresent their influence or importance for commercial purposes.

Strengthening Enforcement: Before this rule, the FTC’s ability to deter deceptive review practices was limited, especially after the Supreme Court’s decision in AMG Capital Management LLC v. FTC, which restricted the agency’s authority to seek monetary relief under the FTC Act. This new rule, however, provides the FTC with the necessary tools to impose civil penalties, thereby significantly enhancing its enforcement capabilities.

Implementation Timeline: The rule will take effect 60 days after its publication in the Federal Register (which took place on August 22, 2024), giving businesses a brief period to ensure compliance with the new regulations.