A rule proposed by the Federal Trade Commission could present a challenge for the rapidly growing world of online influencers and endorsements.

New regulations cracking down on fake reviews and testimonials will likely increase scrutiny on paid social media partnerships with influencers, including celebrity endorsements.

Although FTC guides for disclosure of financial partnerships between companies and influencers were already in place, the FTC announced proposed changes last Friday that will sharpen these guidelines through providing more specific instructions to companies and their brands.

While it heretofore was sufficient to simply tack on #ad or #partnership to a post, the proposed rule will require much more conspicuous disclosure of the partnerships between brands and influencers, such as through a hashtag or a disclaimer that shows that the post is an advertisement sponsored by a particular brand. 

“The rule would trigger civil penalties for violators and should help level the playing field for honest companies,” the director of the FTC’s Bureau of Consumer Protection, Samuel Levine, said in the press release.  

“Businesses would be prohibited from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a particular sentiment, either positive or negative,” the FTC says in its new guides, explaining that influencers should not be merely “reading from a script” while “know[ing] their statement is untrue.” 

The commission estimates that more than 24.5 million small businesses would be affected by this proposed rule.

The phenomenon of influencer marketing, which includes celebrity endorsements, has exploded in the past five years, growing to a $16.4 billion industry, up from $1.4 billion in 2016, according to a 2022 report from Influencer Marketing Hub. 

The same report notes that 93 percent of companies utilize influencer marketing in some way, with Instagram as the preferred social media channel for promotions. 

These partnerships have included baseball superstars Shohei Ohtani and Francisco Lindor’s brand ambassadorships for New Balance and singer and social media influencer Addison Rae’s makeup promotions on Instagram for Fenty and Honest Beauty, detailed in a New York Times Magazine article, “The Beauty of 78.5 Million Followers.” 

But the FTC found that “unfair or deceptive practices involving consumer reviews or testimonials are prevalent” and that updated guidance would be in the “public interest.” 

Amazon noted in its comments that it has more than 10 lawsuits across more than 20,000 online groups and websites over attempts to put forth fake reviews for compensation, while a 2022 Trust and Safety Report from Yelp discloses that the company removed more than 26,000 reviews Yelp determined were posted by the respective business’s affiliates, competitors, or former employees.  

Kay Dean, who runs Fake Watch, an organization that submitted comments to the FTC, tells the Sun in a telephone interview that, when it comes to influencers, she also places some of the blame on the platforms themselves for not monitoring promotion of products by influencers. 

“They’re an influencer, meaning they have a food blog or something, and then they get approached on Instagram by fake review brokers, and they post reviews,” she said. 

Ms. Dean, a former federal investigator, became interested in the phenomenon of fake reviews after having a negative experience with a medical provider after relying on online reviews. 

“I use no automation in my research — it’s just my eyes on spreadsheets — and the amount of fraud that I can just single-handedly uncover on any given day is shocking,” she adds.

The founder of Heitner Legal, Darren Heitner, said that while the new rules only clarify regulations that already existed in some form, he believes the rules are “long overdue” in providing specific examples for something of which influencers and ambassadors have all been “vaguely aware of” while still unsure as “to what extent” they had to disclose their relationships with their partner companies.

Mr. Heitner notes that it might be difficult for the commission to regulate influencers and endorsements for smaller companies, adding that he believes the commission has pinpointed several larger companies to “cause deterrence.”  

“I think the FTC will try to make an example out of certain individuals and certain companies, particularly those with massive followings,” he said. “But we’ll certainly continue to see small startup companies violate the rules.”

A partner at Davis+Gilbert LLP, Paavana Kumar, says the FTC has tracked the disclosure of endorsements and influencer partnerships through periodic audits and is also particularly focused on ensuring the influencer is a “bonafide user” of a product or service.

“Claims like ‘I love this product,’ if there’s a disclosed relationship between the celebrity and the advertiser, I think are relatively unlikely to be challenged or investigated,” Ms. Kumar says.

Ms. Kumar adds that she believes the FTC is more interested in preventing claims from influencers that are verifiably inaccurate, such as a claim about a medication or cosmetic product. 

Ms. Kumar shares that testimonials like “‘I found that my skin looks 10 times better after using this product’ — if that’s not the typical result that someone might achieve or the influencer doesn’t really have a basis to say that, that’s the kind of claim to which I think a regulator would pay more attention.”