By: Penny Pathanaporn
Introduction
Have you ever noticed the endless stream of brand endorsements flooding your social media feed? Maybe you’d never even considered buying that gadget or outfit, but after watching a few influencer hauls and product reviews, you suddenly find yourself engaging in overconsumption.
While endorsement content may be enticing enough to make you click “add to cart,” they also raise important questions: just how truthful—and lawful—are these advertisements? To answer that question, we must examine the legislation that governs marketing practices, as enforced by the Federal Trade Commission (FTC).
Legal Framework and FTC Authority
Under Section 5 of the Federal Trade Commission Act (15 USC 45), commercial entities are prohibited from engaging in ‘‘unfair or deceptive acts or practices . . . .’’ According to the Federal Trade Commission (FTC), a practice is considered deceptive if three elements are met: (1) there is “a representation, omission or practice that is likely to mislead the consumer,” (2) the representation, omission or practice is directed toward a “consumer [who is] acting reasonably,” and (3) the representation, omission, or practice is likely to impact the consumer’s decision regarding the product.
In an effort to further regulate deceptive marketing practices, the FTC implemented a new rule on August 14, 2024: the Trade Regulation Rule on the Use of Consumer Reviews and Testimonials. Under this new rule, commercial entities are prohibited from, among other practices, “selling or purchasing fake consumer reviews or testimonials, buying positive or negative consumer reviews . . . [, and] creating a company-controlled review website that falsely purports to provide independent reviews . . . .” In addition, the rule bars “insiders [from] creating consumer reviews or testimonials without clearly disclosing their relationships.”
Given how readily traditional advertising has evolved into influencer marketing, it is no surprise that the FTC introduced this rule to directly address the shift in modern-day promotional tactics.
Revolve Class Action Lawsuit
Within the last month or so, Revolve—a fashion retailer—has been hit with a $50 million dollar class action lawsuit. The plaintiffs allege that Revolve’s marketing practices do not comply with Section 5 of the Federal Trade Commission Act (15 USC 45). In the lawsuit, the plaintiffs claim that Revolve allowed influencers to promote its products on social media without disclosing that these endorsements were paid partnerships, or that the influencers had preexisting relationships with the brand. The plaintiffs further claim that this marketing approach misled consumers into making purchases they might have reconsidered if they had known about the true nature of the endorsements.
Shein Class Action Lawsuit
Similar to Revolve, Shein–a fast fashion retailer with a global online presence—was recently named in a class action lawsuit alleging violations of the Federal Trade Commission Act. The plaintiffs allege that Shein paid influencers to endorse their products on social media without clearly disclosing their financial relationships.
According to the lawsuit, Shein allegedly depended on these influencers to portray themselves as regular shoppers or genuine supporters of the brand. This marketing strategy allegedly involved concealing sponsorship disclosures within hashtag-heavy captions or leaving the disclosures out altogether. Like the plaintiffs in the Revolve lawsuit, the plaintiffs here assert that they would have reconsidered their Shein purchases had they been aware of the true nature of the endorsements.
FTC Guidance: What Brands and Businesses Can Do to Prevent Liability
In direct response to the rise in influencer marketing, the FTC has published guidelines on how brands and influencers can collaborate while ensuring compliance with U.S. consumer protection laws. Per the guidelines, the FTC advises influencers to always “disclose when [they] have any financial, employment, personal, or family relationship with a brand.” This means that, whether the influencer was paid to promote the brand or merely gifted free products, the influencer must still make the appropriate disclosures to remain legally compliant.
In regard to disclosure placements, the FTC emphasizes that disclosures should be easily noticeable by consumers. For example, the FTC discourages placing the disclosures within a list of hashtags or links; instead, disclosures should appear directly alongside the message of endorsement. For video content, the FTC recommends including disclosures in the video itself in addition to the accompanying caption. As for language, disclosures should be written in clear and simple terms—ranging from direct acknowledgments of brand partnerships to shorter hashtags like “#sponsored” or “#ad.”
Lastly, it is crucial for brands and influencers alike to understand that, although brand endorsements may be published abroad, U.S. consumer protection laws will still apply if it is “reasonably foreseeable that the post will affect U.S. consumers.”
Conclusion
Influencer marketing represents a modern form of advertising—one that is both highly accessible and incredibly personal, blurring the line between genuine content and paid promotion. Left unchecked, influencer marketing—which involves consistent and personal engagement with consumers—can easily lead to negative impacts on consumption. The FTC’s new rule and guidelines help protect consumer rights while giving companies and influencers the freedom to develop their brands, honor their creativity, and grow their businesses.
#FTC #SocialMediaMarketing #AdDisclosure #WJLTA
Washington Journal of Law, Technology & Arts 