The Federal Trade Commission (FTC) recently announced a groundbreaking final rule aimed at curbing fake reviews and testimonials in the marketplace. This move represents a significant step towards battling deceptive advertising, and small businesses must pay close attention to these changes to ensure compliance and avoid potential penalties.
So, what do you need to know as a small business about this ruling?
What Does This FTC Ruling Cover?
Fake or False Reviews and Testimonials
The rule explicitly prohibits businesses from creating, selling, or disseminating fake reviews or testimonials. This includes reviews from non-existent individuals (e.g., AI-generated reviews) or those who did not have actual experience with the product or service. If a business knew or should have known that a review was fake, it will be held accountable.
Buying Positive or Negative Reviews
Reviews from company insiders (e.g., employees, managers, or relatives) must be clearly disclosed. The rule prohibits businesses from failing to disclose material connections between the reviewer and the company. For example, if a manager asks an employee to solicit a review from a relative, the business could be held accountable if the connection is not clearly stated.
Company-Controlled Review Websites
Businesses are prohibited from misrepresenting that a website they control provides independent reviews. This applies to websites or entities that present themselves as unbiased but are under the control of the company whose products or services are being reviewed.
Review Suppression
The rule also targets businesses that suppress negative reviews through intimidation, legal threats, or false public accusations. Additionally, businesses cannot misrepresent that the reviews shown on their website are a complete reflection of all customer feedback if negative reviews have been removed or hidden.
Misuse of Fake Social Media Indicators
Fake social media influence indicators, such as bot-generated followers or views, are now prohibited if used for commercial purposes. Businesses that buy or sell these fake indicators—knowing or should have known that they are fake—will face penalties.
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Why This Matters for Small Business
Any penalties regarding this new FTC ruling will ultimately hit small businesses the hardest. Many customers rely on reviews to build trust in a company, attract new customers, and compete in the marketplace. While this will allow customers to have more transparency in their purchasing decisions, it leaves a bigger risk for business owners that may not be aware they are violating a new law.
It’s crucial to retain legal counsel that can guide you on these regulations and provide ongoing support.
Here are a few steps you can take:
Avoid Fake Reviews and Testimonials
Ensure that all reviews and testimonials about your business are genuine. Do not create or purchase fake reviews, and do not encourage others to do so on your behalf.
Disclose Insider Reviews
If any of your employees, managers, or their relatives post reviews about your business, make sure these connections are clearly disclosed. Transparency is key to maintaining trust with your customers and staying compliant with the FTC’s rules.
Be Cautious with Incentives
Offering incentives for reviews can be a slippery slope. If you do offer a discount or freebie in exchange for feedback, ensure that it is not conditional on receiving a positive review. Let customers know that honest feedback is valued, regardless of sentiment.
Avoid Suppressing Negative Reviews
Do not engage in practices that suppress or hide negative reviews. Instead, use negative feedback as an opportunity to improve your business. Consumers appreciate transparency and will trust businesses that address and resolve issues openly.
Steer Clear of Fake Social Media Indicators
Building a real following on social media takes time, but it’s worth the effort. Avoid purchasing fake followers or views, as this could not only violate the FTC’s rule but also damage your credibility with your audience.
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As this rule takes effect, now is the perfect time to review your company’s practices around reviews, testimonials, and social media presence.
Richards Rodriguez & Skeith can guide small businesses in Austin, Texas on how to approach these new considerations and what actions you can proactively take with our corporate and securities services.
Taking proactive steps to comply with the FTC’s new rule will not only keep you on the right side of the law but also strengthen your relationship with your customers. After all, in a marketplace where authenticity is increasingly valued, honesty truly is the best policy.
