Faking it by Omission? The FTC Targets Undisclosed Compensation for Online Reviews

Illustration for fake website testimonials By Julie Liu

When we sift through reviews for products and services, one of our top considerations is whether the words genuinely come from the customer’s experience and not a company’s imagination. There is no way, however, to determine a reviewer’s honesty beyond relying upon whatever disclaimers he or she provides. We have previously discussed the state of the law on fake business reviews. But what about “real” reviews incentivized by the reward of a good deal? If there was any question on the matter, the Federal Trade Commission (FTC) has now provided a real-life example of how to abide by the rules.

In a recent chapter in the battle against unfair competition online, the FTC zeroed in on automobile shipment broker AmeriFreight for its persuasive approach to seeking customer feedback. The FTC alleged in its complaint that AmeriFreight offered $50 discounts to customers in exchange for writing reviews on an independent review website and advertised its services to consumers as being “top rated” based on those reviews. In addition to the discount, reviewers automatically became eligible for a $100 “Best Monthly Review Award,” further incentivizing customers to write reviews. The complaint indicated that the issue was not the encouragement of reviews; the complaint alleged that AmeriFreight portrayed the reviews as unbiased and failed to disclose that the reviewers were compensated—a violation of Section 5 of the FTC Act. The case concluded late last month with the FTC’s approval of a final consent order which requires AmeriFreight to clearly disclose any “material connection” it has with an endorser and to not misrepresent customer reviews or product ratings.

The outcome highlights that a business may still run afoul of consumer protection law when it is being technically honest (i.e., allowing real consumers to write the reviews). In this case, AmeriFreight’s forceful tactics may have contributed to the violation; the company required non-reviewing customers to take the additional step of checking a box on a business form indicating that $50 would be added to their cost, not unlike a penalty.

Generally, however, the FTC takes a broad approach in defining fraudulent business practices, prohibiting fake reviews and misleading endorsements (defined as “any advertising message … that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser …”). The disclosure of endorsements is necessary when advertisers use payment or other forms of compensation to make a review worth the endorser’s while. The FTC has not historically issued monetary penalties to endorsers, but other potential plaintiffs may be willing to go to court and demand heavy fines depending on the misconduct. Notably, the state of New York has asked companies to pay up to $43,000 for posting false reviews.

While the FTC has updated its endorsement guidelines to reflect the growing presence of social media, uncertainty remains about some issues, such as what constitutes a disclosure or an endorsement requiring a disclosure (especially where it is harder to distinguish good customer service from review-manipulating behavior). This uncertainty will persist as standards shift to accommodate newer apps and online venues for reviews. In any case, companies should avoid taking shortcuts to boost their reputation when doing so comes at the cost of consumer choice.

Image source: brands2life.com.

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