FTC Releases New Online Product Endorsement Guidelines

The Federal Trade Commission has updated its guidelines for businesses concerning online product endorsements, so it can be sure consumers can understand more easily when anyone, including celebrities, influencers or everyday consumers, is being paid to promote or review their products.

This means marketers and influencers will be required to take steps beyond adding hashtags such as "#ad" to their posts or making people click a "more" button to read the full text of a post before they understand they're looking at a paid spot, The Wall Street Journal reported Tuesday.

For years, the FTC has accepted disclosure methods as being sufficient, but new guidelines make it clear that marketers must go into more detail about their posts.

The commission has not updated its guidelines on endorsements since 2009. New technology, such as the introduction of "personalities" generated through artificial intelligence, and lawsuits that have been filed led to the new rules, notes The Journal.

Experts said the new guidelines could lead to further high-profile cases being filed, such as the lawsuits against retailer Lord & Taylor and the tea company Teami.

In the case of Lord & Taylor, the company settled with the FTC in 2016 after it was accused of failing to disclose that it paid for a series of posts by fashion influencers, as well as a magazine article to promote a new clothing line.

The FTC sued Teami in 2020 after allegations that the company had made false claims about product health benefits, along with failing to disclose its relationships with celebrities like rapper Cardi B. Teami settled and the FTC awarded $930,000 to the company's customers.

The FTC earlier this year raised the maximum civil penalty on each violation it enforces from $46,517 to $50,120, with related judgments applying to each post deemed offending.

The updated guidelines add further details to disclosure rules, including that hashtags like #sponsored or #ad do not qualify as disclosures if they aren't clearly visible, meaning that TikTok creators can't only include the disclosures in the text of a post going with their video, but in the videos themselves.

Virtual influencers that are powered by AI programs will be held to the same disclosure standards, according to the new FTC rules. The responsibility for those disclosures will fall on the brands sponsoring the posts.

Ryan Stern, chief executive of influencer marketing firm Collectively, said that the top question from marketers is the assumption that ad disclosures did not have to be included on posts featuring celebrity endorsers, as consumers were more likely to assume a celebrity is being paid to mention a product.

The FTC's rule says disclosures are required if there is a chance that part of a spot's intended audience doesn't understand that an endorser was compensated to push the product.

The commission is still determining how to move forward on disclosures of items marketed to children, according to a spokeswoman.

In the current update, the FTC said that standard disclosure rules won't work for spots aimed at children, as they are not likely to understand the disclaimers.

The new guidelines also focus on product reviews and require companies to clearly disclose if they're providing an incentive for users, on sites such as Amazon, to give positive reviews or to stop using such reviews to determine ratings.

The commission has also proposed a new rule, but not as part of the guidelines, that will ban companies from suppressing negative reviews or posting reviews from people who have not used the product, or in some cases, fake reviews from people who don't exist.