Fake Reviews & the FTC Response: Hope for the Consumer

Dr. Frank Kardasz (Ed.D.) Editor Ava Gozo

The prevalence of fake reviews in online marketplaces is a significant issue, affecting consumers and businesses. Fabricated reviews distort consumer perceptions, leading to poor purchasing decisions and undermining trust in online platforms. Research indicates that around 30% of online reviews are fake, with platforms like Amazon experiencing even higher rates, where about 43% of reviews on top products are fabricated. The financial impact is substantial, with fake reviews estimated to cost U.S. businesses nearly $152 billion annually. Fake reviews are a form of fraud. In response, the Federal Trade Commission (FTC) introduced rules to combat fake reviews and deceptive marketing practices, aiming to protect consumers and ensure fair competition.

The Problem of Fake Reviews

Fake reviews are not isolated incidents but rather a sophisticated attempt to manipulate consumer behavior and market competition. They can lead consumers to choose lower-quality products, as demonstrated in studies where fake positive reviews influenced consumer choices towards inferior products. The trust in online reviews is crucial for consumer decision-making, with 93% of consumers stating that online reviews impact their purchasing decisions. The manipulation of reviews, whether through creating fake positive reviews or suppressing negative ones, undermines the credibility of online review systems and can damage the reputation of honest businesses.

FTC's Response to Fake Reviews

In light of the problem, the FTC introduced a rule aimed at eliminating these deceptive practices. The rule focuses on several key areas:

• Prohibition of Fake Reviews and Testimonials: The rule bans the creation, sale, and purchase of fake consumer reviews and testimonials, including those generated by AI or other deceptive means.
• Incentivized Reviews: Businesses are forbidden from offering compensation or incentives for reviews that express a specific sentiment, whether positive or negative. This includes both explicit and implicit offers of incentives.
• Insider Reviews: The rule prohibits company insiders, such as employees or managers, from writing reviews without clear disclosure of their connection to the business. It also restricts businesses from disseminating such reviews if they knew or should have known about the insider connection.
• Misleading Review Websites: Companies are barred from misrepresenting that a website they control provides independent reviews, ensuring transparency and honesty in how reviews are presented to consumers.
• Review Suppression: The rule outlaws the use of legal threats or intimidation to suppress negative reviews. Businesses cannot misrepresent the completeness of reviews displayed on their platforms.
• Social Media Influence Manipulation: The FTC prohibits the sale or purchase of fake social media indicators, such as followers or likes, when these are used to misrepresent influence for commercial purposes.

Penalties for Non-Compliance

The FTC has established penalties for businesses that fail to comply with the new rule:

• Monetary Fines: The FTC can seek civil penalties of up to $52,000 per violation for businesses found in violation of the rule. This penalty applies to each instance of a prohibited action, such as creating, selling, or buying fake reviews and testimonials.
• Scope of Violations: The penalties apply to various deceptive practices, including the use of AI-generated fake reviews, insider reviews without proper disclosure, and the buying or selling of fake social media indicators like followers or likes.
• Court Discretion: While the maximum penalty is set at $52,000 per violation, courts have the discretion to impose lower penalties depending on the circumstances of each case.

Conclusion

The FTC's rule against fake reviews represents an effort to clean up the digital marketplace. The rule aims to foster an improved environment for businesses and an attempt to protect consumers. This regulation is set to take effect 60 days after its publication in the Federal Register, marking an enhancement in the FTC's enforcement capabilities. As fake reviews continue to be a significant problem across various platforms, the need for continued vigilance and stricter enforcement measures remains critical. It remains to be seen whether or not the new rules can be effectively enforced to slow the proliferation of fake reviews.

References

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Federal Trade Commission. (2024, August). Federal Trade Commission announces final rule banning fake reviews and testimonials. FTC. https://www.ftc.gov/news-events/news/press-releases/2024/08/federal-trade-commission-announces-final-rule-banning-fake-reviews-testimonials 

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