According to the Federal Trade Commission, the new rule would result in civil penalties for violators but might “level the playing field” for “honest” businesses.

The Federal Trade Commission building at Washington, D.C. AP Photo/Alex Brandon, (Source: NY The Sun)

Federal Trade Commission on Fast-expanding Endorsement Industry

The Federal Trade Commission’s proposed rule may pose a problem for the fast-expanding online influencer and endorsement industry. The scrutiny of sponsored social media partnerships with influencers, including celebrity endorsements, is anticipated to expand as a result of new legislation aimed at combating bogus reviews and testimonials, news from NY The Sun.

Although the FTC already had requirements for disclosing financial relationships between brands and influencers, the agency last Friday unveiled proposed revisions that would make these standards even more precise by giving businesses and their brands more detailed instructions.

The proposed rule will require much more obvious disclosure of the relationships between brands and influencers, such as through a hashtag or a disclaimer that shows that the post is an advertisement sponsored by a specific brand.

The head of the FTC’s Bureau of Consumer Protection, Samuel Levine, stated in the news release that the regulation will result in civil fines for violators and should help level the playing field for honest businesses.

The federal trade commission adds that influencers shouldn’t just be reading from a script while knowing their statement is false in its new guidelines that businesses would be prohibited from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a specific sentiment, either positive or negative.

Influencer marketing, which includes celebrity endorsements, has grown significantly over the past five years and is now a $16.4 billion sector, up from $1.4 billion in 2016, according to research from Influencer Marketing Hub for 2022.

According to the same study, 93% of businesses use influencer marketing in some capacity, with Instagram serving as the most popular social media platform for advertising. These collaborations have included the brand ambassadorships for New Balance of baseball greats Shohei Ohtani and Francisco Lindor as well as singer and social media influencer Addison Rae’s Instagram makeup promotions for Fenty and Honest Beauty, as described in the New York Times Magazine article “The Beauty of 78.5 million Followers.

According to the federal trade commission, however, unfair or deceptive practices involving consumer reviews or testimonials are prevalent, and updated guidelines would be in the public interest. A 2022 Trust and Safety Report from Yelp reveals that the company removed more than 26,000 reviews it determined were posted by spammers. Amazon noted in its comments that it has more than 10 lawsuits across more than 20,000 online groups and websites regarding attempts to present false reviews for compensation.

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Influencers’ Feedback on Federal Trade Commission

When it comes to influencers, Kay Dean, the founder of Fake Watch, an organization that provided feedback to the federal trade commission, tells the Sun in a telephone interview that she also holds some of the platforms themselves somewhat responsible for failing to oversee influencers’ product promotion. They are influencers, she explained, meaning they run a culinary blog or something similar. Fake review brokers approach them on Instagram, and they publish reviews.

Although the new regulations merely clarify laws that already existed in some form, Heitner Legal’s founder, Darren Heitner, asserted that the rules are long overdue in that they give specific examples for something that influencers and ambassadors have all been vaguely aware of but were unsure of to what extent they were required to disclose their relationships with their partner companies.

Mr. Heitner says it could be challenging for the commission to control influencers and endorsements for smaller businesses, but he also thinks the commission has identified several bigger businesses to cause deterrence.  He thinks the federal trade commission will try to make examples out of some people and some companies, particularly those with many followers. However, new, small businesses will inevitably continue to break the law.

According to Paavana Kumar, a partner at Davis+Gilbert LLP, the federal trade commission has monitored the disclosure of endorsements and influencer partnerships through recurring audits and is now more concerned with making sure the influencer is a “bonafide user” of a good or service. If there is a known relationship between the celebrity and the marketer, claims like “I love this product” are relatively unlikely to be challenged or investigated, according to Ms. Kumar.

Ms. Kumar adds that she thinks the federal trade commission is more concerned with stopping statements made by influencers that can be proven to be false, like a claim regarding a drug or cosmetic product.