FTC Rule Banning Fake Reviews & Testimonials: Impact on Business

Until now, no one could require a company to confirm that a review was written by an actual consumer who had personal experience using a product or service, let alone hold the company liable if it is not the case.

All that changed in August 2024. The Federal Trade Commission (FTC) took a critical step to better protect consumers and honest businesses by implementing the Final Rule Banning Fake Reviews and Testimonials.

This rule was necessitated by the growing problem of fake reviews and misleading testimonials. Our research has shown that 75.5% of consumers trust online reviews, demonstrating the power of reviews to influence purchase decisions. This, in turn, confirms the extent of the overall negative impact of fake reviews.

Consumers are not the only ones who suffer from this negative impact. Businesses that are honest and open are also indirectly harmed by the fake-review industry. First, they lose potential customers because they do not have such a nice image with reviews as dishonest companies do. Second, they get hit by the general wave of consumer negativity that makes honest reviews less trustworthy. 

The Rule goes into effect in 60 days, in mid-October. During this time, companies should revise their review portfolio and implement new standards in the review generation process to avoid penalties. Our legal expert has analyzed the Rule and provided the following recommendations for compliance.

• What Does The Final FTC Rule Prohibit?
• What is Сonsidered a Fake Review?
• Who Cannot Write a Review About Your Products or Services?
• What is The Penalty for FTC Rule Breakers?
• Practical Recommendation to Comply with the FTC Rule
• Is Pissed Consumer compliant with the new FTC Rule?

What Does The Final FTC Rule Prohibit?

The FTC's Rule is comprehensive and covers several deceptive practices related to online reviews and testimonials. Here's a breakdown of its key provisions:

• Banning Fake Reviews: The Rule prohibits the creation, purchase, or sale of fake consumer reviews, including positive and negative reviews that are fabricated to manipulate consumer perceptions.

• AI-generated reviews: With the rise of AI, the Rule also addresses the use of AI-generated fake testimonials, ensuring that such content does not mislead consumers.

• Company-Controlled Review Websites: Companies are prohibited from creating deceptive review sites and review pages on their corporate sites that falsely claim to be independent or misrepresent the overall sentiment of reviews by selectively suppressing negative feedback.

• Review Suppression: The Rule prohibits a business from using unfounded legal threats, physical threats, intimidation, or specific false public accusations to prevent or remove a negative consumer review. In addition, a business cannot claim that the testimonials in a review section of its website represent all or most customer reviews if the business has suppressed some feedback based on its ratings or negative sentiment.

• Misuse of fake social media indicators: The Rule prohibits the sale or purchase of fake indicators of social media influence, such as followers or views generated by a bot or hijacked account. 

What is Сonsidered a Fake Review?

A review or a testimonial is considered fake if it falls into one of three categories:

1. Non-Existent Reviewer: The review is written by someone who does not exist.
2. No Actual Experience: The review is written by someone who has not used or had any experience with the product, service, or business.
3. Misrepresentation of Experience: The review materially misrepresents, either explicitly or implicitly, the reviewer's actual experience with the product, service, or business.

However, anonymous reviews or the use of pseudonyms by review authors are allowed if the text of the review or testimonial contains general phrases indicating their relationship to the companies.

Who Cannot Write a Review About Your Products or Services?

The new Rule clearly defines the range of people whose reviews can and will be considered violations. This list includes officers and directors, employees, and agents of a reviewed company. Reviews by anyone in the above categories can be regarded as violations and penalized accordingly. The list also includes immediate relatives of people with a material relationship with a business. If you want one of these people to write a review, you must clearly and conspicuously disclose the relationship between your company and that person.

What is The Penalty for FTC Rule Breakers?

Companies found in violation will be subject to civil penalties. The maximum fine for violating the FTC's new fake reviews and testimonials Rule is $51,744 per violation. Even ten fake reviews can have a significant impact on a company's bottom line. However, courts are required to consider a number of statutory factors that may reduce the amount of the fine.

Practical Recommendation to Comply with the FTC Rule

Nobody wants his/her business to become the first example of a guilty party under the new Rule. Thus, the following simple guidelines will help you ensure that you continue operating a law-abiding business. 

Verify the Authenticity of Testimonials

If you want reviews or testimonials to be posted on your site, you must be able to prove that this is an actual consumer who had an experience interacting with your product. For each testimonial, you should have the author's contact information so that you can contact them if necessary and confirm the authenticity of the testimonial.

Embrace Transparency by Posting All Reviews

Post all reviews, whether good, bad, or neutral. Most companies only post testimonials, thinking that makes them look good to potential customers. However, consumers have long since stopped trusting first-party sites. According to the research we referenced at the beginning of the article, only 43.2% of consumers trust reviews on brands’ websites, and that number is steadily declining. Managing reviews honestly and openly will not only keep you out of trouble with the FTC, but also build your credibility with consumers and set you apart from the competition. 

Encourage Honest Feedback Without Bias

Now, when you invite a consumer to leave a review, you should not in any way imply the preferred sentiment of the feedback, nor should you explicitly or implicitly hint at any reward for doing so. In this context, the best call to action is to leave an honest review of a product or a service on a site you trust.

Leverage Review Sites for Consumer Trust

Claim your company profiles on review sites and use them as the primary place for reviews. There are several benefits to this strategy. One of the benefits is that reviews on review sites are 100% user-generated content and, therefore, review sites will take care of review moderation. Another benefit is a higher level of consumer trust. 

There is no need to fear negative reviews. There is no product that everyone who buys it is happy with. With a proper review management strategy, negative reviews can become an excellent fuel for increasing potential consumers' trust in your brand.

Is Pissed Consumer compliant with the new FTC Rule?

At PissedConsumer, we have always fought for honesty and trustworthiness in reviews. Over the years, we have developed a multi-step moderation process that effectively combats fake reviews and testimonials. Currently, a unique artificial intelligence algorithm performs most of the processes. If the AI has any doubts, our experts step in.

PissedConsumer can catch fakes better because we’ve analyzed millions of reviews from about a hundred thousand companies since the platform was founded and collected extensive knowledge about fake and real reviews. When the moderation team detects reviews with similar language, AI-generated content, or other signs of fake reviews, they take comprehensive action. Moreover, we are constantly working on improving our workflow.

Conclusion

The FTC's Final Rule Banning Fake Reviews and Testimonials marks a significant shift in the online review landscape. Compliance with this Rule is not just a legal obligation; it's an opportunity for businesses to build trust with consumers and stand out in an increasingly competitive market.

PissedConsumer is committed to supporting businesses in this transition. Our platform's reliable moderation processes and technological capabilities are designed to help companies comply with new regulations while maintaining the integrity of their online reputation. We encourage all businesses to review their current practices to ensure full compliance with the FTC's new rule.