FTC’s Rule Tackles Online Review Deception: What Does It Mean For Businesses?

The Federal Trade Commission (FTC) unveils a powerful new strategy to combat fake online reviews with significant financial penalties, but challenges remain in holding third-party platforms accountable.

At a Glance

The FTC’s rule against fake online reviews takes effect on October 21, 2024, with fines reaching $51,744 per incident.
Rule enforces against fake reviews, buying followers, and suppressing negative feedback while exempting certain third-party platforms from responsibility.
Compliance costs for businesses could surge up to $871.98 million in 2024.
Big businesses like Amazon and Yelp back the rule, but critics highlight its shortcomings.

FTC’s New Rule and Its Implications

The FTC’s new rule aims to strengthen consumer trust by targeting the proliferation of fake online reviews. Set to take effect on October 21, 2024, the regulation stipulates fines up to $51,744 for each violation. This move comes as the FTC seeks to fortify consumer protections, enhancing transparency in online reviews. The rule calls for the cessation of false consumer reviews, the buying and selling of reviews, and the suppression of negative feedback. Businesses must ensure compliance with these new stipulations.

Under this rule, insider reviews and testimonials now require clear disclosure of any material connections to the business. Despite broad support from major corporations like Yelp and Amazon, concerns have been raised by critics such as Kathryn Dean, who states that although the rule addresses perpetrators of fake reviews, it fails to hold third-party review hosting sites accountable, a critical area still left unaddressed.

FTC announces final rule banning fake reviews and testimonials. The rule will allow agency to strengthen enforcement, seek civil penalties against violators, and deter AI-generated fake reviews: https://t.co/66aG3YDZAj /1

— FTC (@FTC) August 14, 2024

Broad Support and Criticism

Several major companies are aligned with the FTC’s goals. Yelp supports the rule, asserting that it will “improve the review landscape for consumers and help level the playing field for businesses.” Furthermore, Amazon, Yelp, and Google have initiated measures such as legal actions and automated systems to combat fake reviews.

“Fake reviews not only waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors,” said 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.”

Conversely, the FTC’s decision not to address accountability for third-party review platforms has met criticism. Some argue that by excluding platforms, the rule may not fully address systematic issues in the review landscape. Critics advocate for further regulatory oversight to ensure that platforms also bear responsibility for maintaining the integrity of online reviews.

FTC’s rule banning fake online reviews goes into effect https://t.co/83CrKjRTM3

— Live5News (@Live5News) October 22, 2024

Compliance Costs and Business Adjustments

The FTC anticipates that compliance costs associated with the new rule may reach $871.98 million in 2024. This projection underscores the significant adjustments businesses might need to make to adhere to these new standards. Companies are encouraged to implement compliance plans, educate their workforce, and audit promotional materials carefully to avoid potential violations.

According to the Federal Trade Commission, “Clear and conspicuous” disclosures (such as, for example, and without limitation, those pertaining to material relationships between a manager or officer to a brand), must be unavoidable, and easy to notice and understand for ordinary, reasonable consumers.”

As the rule marks a significant shift in regulating consumer reviews, businesses may need to reassess their operations to avoid non-compliance. While the FTC claims the rule clarifies the nature of reviews, further guidance may emerge as complexities surrounding implementation become clearer.