FTC Regulates Influencers - Strategies for Compliance

Influencer marketing is a pivotal strategy that leverages the trust, authenticity, and social reach that influencers have cultivated with their audiences. By collaborating with influencers, brands can tap into niche markets and reach consumers more relatable and engagingly than traditional advertising methods. This form of marketing enhances brand awareness and fosters community and genuine connections with potential customers. Influencers, often seen as relatable figures, can effectively communicate a brand's message while resonating with their followers' values and preferences.

Prevail Marketing believes that influencer marketing should be considered for most company brands, whether your target audience is B2C or B2B. Far too many companies do not appreciate how impactful an influence program can be or how to begin implementing one. For that reason, we have generated "The Almost Definitive Guide to Influencer Marketing," which walks the reader through a detailed discussion of how to find and utilize Influencers.

It is also why we have generated over seven blogs designed to help you start and run an effective program. These blogs can be found here:

• Who Are Influencers?

• The Science Behind Influencer Marketing

• Influencers - How to Measure Performance

• How to Find the Right Influencer

• Influencer Marketing - The Impact of Artificial Intelligence

• How to Become a Paid Influencer in 12 Easy Steps

• Influencer Marketing - Know Your Legal Duty

The reason that influencer marketing is so powerful is that it leverages several of The Laws of Influence, including:

• Law of Social Proof

• Law of Authority

• Law of Liking

• Law of Unity

The power and impact that Influencers can have on their followers have caused the Federal Trade Commission (FTC) to issue new and wide-sweeping rules designed to combat deceptive marketing practices, with a particular focus on fake reviews and misleading endorsements.

If you are an influencer or utilize influencers to help market your product or service, these rules apply to you, and their impact is nothing short of historic. This article is designed to provide a basic understanding of these new regulatory requirements, how they impact the industry, and the ramifications if you fail to comply. This is NOT legal advice but is provided for awareness and with an admonition that if you are using influencers to promote your brand and you are not sure if your program conforms to the new standards, you should contact a regulatory attorney for compliance advice.

Introduction

On August 14, 2024, the FTC released a landmark rule to protect the public from deceptive marketing practices focusing on fake reviews and misleading endorsements. The final rule covers six aspects of contrived and fake marketing, starting with banning fake or false consumer rules, consumer testimonials, and celebrity testimonials. The rule prohibits reviews and testimonials from someone who does not exist, such as AI-generated fake reviews and reviews from people without experience with or misrepresenting products. Businesses are also prohibited from buying such reviews, procuring them, or disseminating them where they know they are fake or false.

The Six Aspects of the Final Rule

The new FTC rules are wide-sweeping and apply to both "social media influencers" and celebrity endorsements. At the heart of the rules is that the endorsements must be real, and the party making them must fully disclose any material connections to the brand they are promoting. These rules apply to both the party making the endorsement and the brand being promoted. Failure to comply will result in severe penalties.

1. Banning Fake or False Consumer Reviews:

This first rule prohibits fake or false consumer reviews. This includes reviews and testimonials from individuals who do not exist, such as those generated by artificial intelligence (AI), and reviews from people who have no genuine experience with the product or service being promoted. This means you must have actually tried the product and achieved the results that you are stating.

This rule is in response to those unscrupulous businesses trying to boost their reputation or discredit competitors by making reviews that are not based on true experience. The rule also prohibits reviews that misrepresent the experience and knowledge of the reviewer. For example, a reviewer claims to be an expert in a field when they are not, or a review states that a product yielded dramatic results when the reviewer did not achieve those results. This aspect of the rule ensures that consumers can trust the authenticity and accuracy of the reviews they read, making informed decisions based on genuine feedback.

2. Prohibiting the Procurement and Dissemination of Fake Reviews:

Businesses are now prohibited from buying, procuring, or disseminating fake reviews, with strict consequences for non-compliance. This means that companies cannot pay for positive reviews or generate false negative reviews about their competitors. Additionally, they are forbidden from using AI or other automated means to create fake reviews, a practice that has become increasingly common with the advancement of technology. The rule also addresses the issue of "astro-turfing," where businesses create fake grassroots support for their products or services. This tactic, often used to create a false sense of popularity or demand, is deceptive and misleads consumers into believing there is a genuine buzz around a product. Now, such practices will be considered a violation of FTC rules.

3. Banning the Practice of Buying Positive or Negative Reviews:

One of the most significant changes in the final rule is the prohibition of buying positive or negative reviews. Businesses are no longer allowed to provide any form of compensation or incentive in exchange for a review expressing a particular sentiment, whether positive or negative. This rule targets the practice of incentivizing reviews, ensuring that consumers can trust the authenticity and impartiality of the feedback they read.

While the FTC does not provide specific examples, this rule will likely substantially impact online influencers and their partnerships with brands. Influencers are now required to disclose any material connection they have with a brand, and they cannot be incentivized to provide a positive review or endorsement as a condition of that partnership. This aspect of the rule promotes honesty and transparency in influencer marketing, an industry often criticized for its lack of authenticity.

4. Insider Reviews and Disclosure of Material Connections:

This rule is MAJOR for influencers because it forces them to disclose their relationship to the brand they are promoting. Prior to this rule, many influencers, if they disclosed they had a relationship with a brand, would try to minimize the extent of the relationship. You would often find an influencer using a generic hashtag in a post or advertisement (e.g., #sponsoredad or #paidpromotion). Now, this relationship needs to be clearly disclosed.

The FTC's new rules also address insider reviews, which are written by individuals with a close connection to the business, such as employees, owners, or managers. These reviews must now include a clear and conspicuous disclosure of the reviewer's relationship with the company. Consumers have a right to know when a review is coming from someone with a vested interest in the business's success, as it may impact the credibility and impartiality of the feedback.

Officers and managers are also restricted from soliciting reviews from employees or relatives, ensuring that reviews come from genuine, independent sources. This aspect of the rule promotes transparency and helps consumers understand the context and potential biases behind the reviews they read.

5. Prohibition on Operating Fake Review or Opinion Sites:

Businesses are now prohibited from creating and operating fake reviews or opinion sites that pose as independent sources of feedback. This tactic, often used by tech companies and other businesses, involves setting up websites that appear to be impartial review platforms but are actually owned and controlled by the business. These sites often feature biased or misleading reviews that favor the company's products or services over competitors.

The rule ensures that consumers can trust the sources of the reviews they read and prevents businesses from manipulating public opinion by creating fake review platforms. It promotes fair competition and ensures that consumers can access genuine, independent reviews from various sources.

6. Social Media Influence and Fake Indicators:

The final rule also addresses the issue of social media influence and the practice of buying fake indicators of popularity, such as followers or views. Under the rule, anyone, including individuals and businesses, is prohibited from selling or buying fake engagement metrics generated by bots or hijacked accounts.

This rule targets the entire industry surrounding the sale and purchase of fake followers and views, which has long been used to manipulate public perception and create an illusion of influence.

Influencers and celebrities who have used such services to present themselves as more popular than they actually are will now need to rethink their strategies. The rule promotes authenticity and ensures that consumers can trust the influence and reach of the individuals they follow and admire online.

Enforcement, Compliance, and Penalties

The FTC has a range of tools to enforce the new rules and ensure compliance. This includes issuing warnings and cease-and-desist letters, imposing fines, and seeking injunctions against businesses or individuals who violate the regulations. The agency may seek civil penalties of up to $43,792 per violation. This means that an ongoing (daily) violation can create some large sweeping penalties that can quickly cripple a brand.

The cost to a brand's or influencer's reputation can also be tremendous should they be on the wrong side of any FTC enforcement action. I suspect that most brands would permanently shy away from ANY influencer who had been sanctioned.

However, that may not be the end of the financial risks, as the FTC may also bring legal action against those who engage in deceptive practices, seeking restitution for consumers and penalties for non-compliance.

Conclusion

The FTC's new rules regarding influencers and reviews represent a significant step forward in the fight against deceptive and fake marketing practices. With these regulations in place, consumers can have greater confidence in the reviews they read, knowing they are genuine and impartial.

Brands and influencers are now held to a higher standard of transparency and accountability, ensuring fair competition and protecting consumers from manipulation. For additional information about these new FTC rules, we recommend you discuss them with a qualified regulatory attorney. You may also consult the following guidance documents that the FTC published for brands and influencers:

• FTC's Endorsement Guides: A comprehensive guide from the FTC that outlines the regulations for endorsements and testimonials, including the new rules regarding reviews and social media influence.

• FTC's Business Center: A dedicated section on the FTC's website that provides resources and guidance for businesses, including information on marketing and advertising laws, data security, and consumer protection.

• Influencer Marketing Guide: Published by the FTC, this guide is designed to educate influencers and brands about their responsibilities in sponsored partnerships, including disclosure requirements and compliance with the Endorsement Guides.