Federal Trade Commission Chair Lina Khan on Oct. 21 announced that the agency’s ban on phony online reviews was going into effect, with penalties of $51,744 per violations.
On social media platform X, Khan urged followers to report the proscribed practices at reportfraud.ftc.gov. Announcing the rule this August, she said that fake reviews “not only waste people’s time and money, but also pollute the marketplace and divert business away from honest competitors.”
The Public Interest Research Group says studies have found as many as 30 or 40 percent of online reviews are deceptive in some way, while online reviews inform the basis for 90 percent of online shoppers’ decisions.
The FTC, in its final rule, sets the maximum penalty per violation at $51,744 but notes that courts are required to apply factors under the FTC Act in determining penalties.
The final rule, among other things, prohibits false consumer reviews, buying positive or negative reviews, and suppressing negative reviews.
Another rule forbids the buying or selling of followers and views from a bot or hijacked account.
“This prohibition is limited to situations where the purchaser knew or should have known that the representations were false and mislead others about the purchaser’s authority or importance for a commercial purpose,” said FTC.
In August, Yelp—one of the most high-profile online review hosting platforms—celebrated the rule in a statement. “We believe the enforcement of this new rule will improve the review landscape for consumers and help level the playing field for businesses,” said Yelp general counsel Aaron Schur.
While some cheered the new rule, others said it doesn’t do enough, and it exempts third-party review hosting sites such as Yelp from liabilities.
In its final rule, the FTC warned that its decision not to emphasize review hosting platforms “should not be taken to signal that third-party platforms do not bear significant responsibility for combatting fake reviews.”
Amazon said earlier this month that it “invests significant resources to proactively stop fake reviews before being seen by a customer.” It said, “[i]n 2023, Amazon pursued legal action against more than 150 bad actors attempting to engage in review abuse across the U.S., China and Europe.”
Yelp said last year that its automated recommendation software “helps surface the most helpful and reliable content to consumers.”
Google similarly said this year that its “reviews undergo rigorous scrutiny by our moderation systems before they’re published” and that its evolving machine learning algorithms led to it blocking or removing “over 170 million policy-violating reviews from 2023.” It’s not obvious how much other businesses will have to change their practice to become compliant with the new rule from FTC. Holland and Knight, one of the country’s largest law firms by revenue, said in August that the FTC rule meant “[b]usinesses must now develop and enforce stringent policies for handling consumer reviews, while also ensuring that third-party advertising and marketing partners are well-trained and monitored under the new FTC regulations.”. The FTC, meanwhile, estimated the cost of compliance to be minimal but stated that if businesses engaged in a more complicated attempt at ensuring compliance, the costs in the United States could reach $871.98 million for 2024.
