FTC’s New Rule on Consumer Reviews: What Brands Must Know

Introduction

In August 2024, the Federal Trade Commission (FTC) passed 16 CFR Part 465: Consumer Reviews and Testimonials, a landmark regulation targeting deceptive review practices, undisclosed endorsements, and testimonial manipulation. This rule represents a critical step in holding brands accountable for consumer trust in the digital age.

With a bipartisan, unanimous vote, this rule is a response to years of escalating concerns about fake reviews, influencer marketing abuses, and unsubstantiated product claims. As the regulation goes into full effect, brands face penalties of up to $43,792 per violation and enhanced scrutiny from both the FTC and its supporting partner, the National Advertising Division (NAD).

In this comprehensive guide, we’ll break down the FTC’s rule, key enforcement actions, and practical steps businesses must take to remain compliant.

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Background of the FTC’s Consumer Reviews Rule

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Over the last decade, the digital advertising ecosystem has become a minefield of deceptive practices, particularly surrounding consumer reviews and influencer endorsements. The FTC has responded to these practices with numerous enforcement actions, but the lack of a formalized rule left gaps in compliance expectations.

Enter 16 CFR Part 465, a rule designed to address:

• Fake reviews
• Undisclosed material connections between influencers and brands
• Suppression of negative reviews
• Misrepresentation of user-generated content

According to FTC Chair Lina Khan, "This rule empowers consumers with the transparency they deserve and ensures that businesses operate within the boundaries of honesty and fairness."

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Key Cases That Shaped the Rule

1. Fashion Nova: Suppressing Negative Reviews

Fashion Nova’s practices involved holding negative reviews for manual approval while automatically posting positive ones. This suppression created a false impression of overwhelmingly positive customer sentiment. The FTC fined the company and mandated transparency in its review processes.

Key Takeaway: Brands must implement evenly applied moderation policies for reviews.

2. Bountiful Company: Review Hijacking

Bountiful was penalized for transferring positive reviews from one product to another unrelated one. This practice, termed “review hijacking,” misled consumers by inflating the perceived quality of new products.

Key Takeaway: Reviews must only reflect the product or service they describe.

3. Sunday Riley: Employee Reviews Without Disclosure

Sunday Riley directed employees to post fake positive reviews without disclosing their affiliation with the company. The FTC highlighted this as a clear violation of consumer trust.

Key Takeaway: Insider reviews must be disclosed clearly and conspicuously.

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Breakdown of the New Rule

1. Prohibition of Fake Reviews

The rule bans:

• Writing, buying, or disseminating fake reviews.
• Insider reviews from employees, managers, or relatives without disclosure.

This section directly addresses practices like those in the Sunday Riley case and celebrity endorsements that falsely claim product use.

2. Review Suppression

Brands can no longer:

• Selectively remove negative reviews.
• Misrepresent reviews as unbiased samples.

Legitimate moderation, such as removing profanity or irrelevant comments, is permitted if applied evenly.

3. Influencer Marketing and Endorsements

The rule requires:

• Clear and conspicuous disclosures of material connections.
• Visible disclosures in all influencer posts, not hidden in hashtags or captions.

4. Review Hijacking

This section prohibits using reviews from one product to falsely bolster another, addressing cases like Bountiful’s.

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The Role of AI in Deceptive Marketing Practices

Generative AI has made creating fake reviews and testimonials easier than ever. From synthetic influencers to automated review generation, AI exacerbates deceptive practices.

What Brands Can Do:

• Vet third-party vendors for authenticity.
• Use AI responsibly to enhance—not deceive—consumer trust.

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What This Means for Brands

The dual enforcement of the FTC and NAD means brands must adapt quickly:

1. Transparency is non-negotiable.
2. Policies must align with the rule’s requirements.
3. Violations will result in both financial penalties and reputational damage.

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Case Study: Drunk Elephant and the NAD’s Role

In November 2024, the NAD investigated Drunk Elephant for:

1. Failing to disclose paid influencer partnerships.
2. Making unverified safety claims about products for kids.

The case underscores the NAD’s role in enforcing compliance and escalating cases to the FTC when necessary.

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How to Ensure Compliance: Actionable Steps

1. Audit Your Current Practices
   • Review all testimonials, endorsements, and reviews.
   • Identify gaps in disclosure or authenticity.
2. Train Employees and Influencers
   • Provide clear guidelines on disclosure requirements.
   • Monitor influencer content regularly.
3. Implement Robust Moderation Policies
   • Apply review moderation policies consistently.
   • Document all actions for transparency.
4. Use Technology to Monitor Compliance
   • Leverage tools to detect fake reviews or undisclosed endorsements.
   • Regularly audit automated processes.

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FAQs About the FTC Rule

Q: What qualifies as a “material connection” that must be disclosed?A: Any relationship that could affect a consumer’s perception, including payments, free products, or family connections.

Q: How can brands ensure influencer compliance?A: Include disclosure requirements in contracts and provide ongoing training.

Q: Are businesses responsible for third-party vendors?A: Yes, brands must vet vendors to ensure compliance with the rule.

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The Future of Consumer Trust

The FTC’s rule signals a new era of accountability in digital marketing. As enforcement ramps up, businesses that prioritize transparency and authenticity will thrive, while those that ignore compliance risk falling behind.

In the words of FTC Chair Lina Khan: “Consumer trust is not just good ethics—it’s good business.”