FTC Commissioner Proposes Making Endorsement Guides Into Rules, Seeking Stiffer Penalties

At least one FTC commissioner seems convinced that the agency’s Enforcement Guides are ripe for an update to address unscrupulous influencer marketing practices. Democrat Rohit Chopra proposes their codification into formal rules that would make violators liable for civil penalties and damages.

The US Federal Trade Commission is soliciting public comment as it considers updating its “Endorsement Guides” amid increasingly problematic online marketing practices.

According to its 12 February announcement, the initiative is part of the agency’s systematic review of all FTC rules and guides.

However, at least one FTC commissioner believes the Endorsement Guides – formally, the “Guides Concerning the Use of Endorsements and Testimonials in Advertising” – are particularly ripe for an overhaul.

In a same-day statement, Commissioner Rohit Chopra says “misinformation is plaguing the digital economy,” with “fake accounts, fake likes, fake followers and fake reviews … making it difficult for families and small businesses looking for truthful information.”

The FTC seeks feedback on a range of issues, including the prevalence of deceptive or unfair endorsement practices in the marketplace and the extent to which its Guides are proving effective at addressing them.

The agency also is interested in whether changes in technology since it last updated the Guides in 2009 warrant revisions to the document.

"We need to seek tougher remedies for companies that are illegally astroturfing or disguising their advertising as an authentic endorsement or review." – Rohit Chopra

In the area of disclosures, such as those required from social media influencers acting as paid sponsors of products or services they recommend to followers online, the FTC invites comment on children’s understanding of the relationship between material connections and credibility. (Also see "Ad Watchdog Reports Kardashians To FTC For Deceptive Instagram Posts" - HBW Insight, 10 Sep, 2016.)

The Endorsement Guides dictate that disclosures must be made in a clear and conspicuous manner when a relationship exists between an endorser and advertiser that “might affect the weight or credibility that consumers give the endorsement” unless the context of the communication makes that connection sufficiently clear.

In 2015, the FTC updated a supplemental resource, “What People Are Asking,” to provide clarity on frequented asked questions regarding advertiser and endorser responsibilities. (Also see "FTC Updates Endorsement Guide Resource: 'What People Are Asking'" - HBW Insight, 2 Jun, 2015.)

That document contains multiple references to influencers, a term that does not appear once in the Endorsement Guides (first published in 1980), where discussion is limited to “bloggers.”

Semantics? In any event, the FTC asks whether elements of the FAQ document should be incorporated in the Endorsement Guides.

Chopra, one of two Democrats in the FTC's five-person commisionership, is squarely focused on influencer marketing concerns.

In his statement he observes, “Advertisers and social media platforms are seeking big returns from influencer marketing, which can allow paid advertising to seem more authentic.”

According to Chopra, the $8bn advertisers paid influencers in 2019 is projected to nearly double to $15bn by 2022.

“I support a close and careful review of the FTC’s non-binding Endorsement Guides and a self-critical analysis of the agency’s enforcement approach,” he says.

‘Bold’ Next Steps

The FTC has been stepping up enforcement in recent years against advertisers and influencers seen as operating in disregard of its guidance and in violation of FTC Act provisions. (Also see "FTC Takes First Enforcement Action Against Social Media Influencers" - HBW Insight, 20 Sep, 2017.)

In one such case, the agency targeted practices at Sunday Riley Modern Skincare, LLC. According to the FTC, the company directed employees to write fake, glowing reviews of the company’s products on Sephora.com, even coaching them on how to disguise their identities for a higher veneer of authenticity.  (Also see "FTC Busts Sunday Riley Skincare For Fake Sephora Reviews, But Not All Its Commissioners Are Satisfied" - HBW Insight, 22 Oct, 2019.)

Chopra was critical of the settlement reached with Sunday Riley, which prohibited the company from repeating such behavior but included no admission of wrongdoing, no consumer notice or redress, and no forfeiture of ill-gotten gains.

In his view, the case’s resolution did not send a strong-enough signal to the marketplace to deter others from engaging in similar conduct.

“Going forward, we need to seek tougher remedies for companies that are illegally astroturfing or disguising their advertising as an authentic endorsement or review,” Chopra asserts in his statement regarding the potential Endorsement Guide update.

“The FTC will need to determine whether to create new requirements for social media platforms and advertisers and whether to activate civil penalty liability,” he says.

Chopra proposes possible next steps beyond the reissuance of voluntary guidance, including:

• Developing requirements for technology platforms (eg, Instagram, YouTube, and TikTok) that facilitate and either directly or indirectly profit from influencer marketing;

• Specifying the requirements that companies must adhere to in their contractual arrangements with influencers, including through sample terms that companies can include in contracts; and

• Codifying elements of the existing endorsement guides into formal rules so that violators can be liable for civil penalties under Section 5(m)(1)(A) and liable for damages under Section 19.

“Bold measures” are needed “to safeguard our digital economy from lies, distortions, and disinformation. I welcome broad participation during the public comment period to help us chart our path forward,” he says.

Comments will be accepted for 60 days following publication in the Federal Register.  

The FTC’s authority to pursue permanent injunctions and monetary penalties from alleged violators of the FTC Act has been under attack of late in federal courts, raising concerns from the independent government agency about potential erosion of its powers to effectively protect the marketplace and consumers from unfair and deceptive conduct.  (Also see "FTC Predicted ‘Parade Of Horribles’ If Third Circuit Were To Rule As It Just Did" - HBW Insight, 5 Mar, 2019.)