What are some FTC guidelines for social media influencers?

The Federal Trade Commission (FTC) updated guides about the endorsements for social media posts. These updated guidelines aim to protect the public from deceptive and unfair business practices, offering clarity on what types of endorsements the FTC considers misleading under Section 5 of the FTC Act.  These guidelines are not new – just updated – as previous versions had been released in 2009, 2015, and 2018.

If you have any questions about your advertising or social media campaigns, contact Verna Law, P.C. at 914-980-9519 or anthony@vernalaw.com.

Understanding the FTC’s Updated Guidelines

The FTC’s revised Guides Concerning the Use of Endorsements and Testimonials in Advertising are not legally binding but provide essential insights. They help businesses, advertising firms, and endorsers ensure compliance with FTC standards. Key updates focus on when disclosures are required in endorsement advertising and what constitutes a sufficient disclosure.

When Are Disclosures Required?

Disclosures are mandatory when there is an unexpected material connection between the seller of a product and the endorser. Not every endorsement needs a disclosure. For example, if someone shares their genuine love for a new water bottle without any compensation or material connection, no disclosure is required. However, if they were paid or received the product for free, a disclosure becomes necessary.  This is a great example of product placement in the use of social media influencers.

A “material connection” is defined as any relationship that might influence the weight or credibility of the endorsement. This includes monetary relationships, free products, early access, or even the chance to win a prize. For instance, if a video game maker sends a free game to a popular streamer, and the streamer plays it live, they must disclose that they received the game for free if their audience wouldn’t expect it.

Clear and Conspicuous Disclosure

If there are unexpected material connections, they must be disclosed clearly and conspicuously. For online disclosures, this means such disclosures must be unavoidable. It should appear in the same medium as the advertisement—visually, audibly, or both. For example, if an influencer promotes a vitamin in a social media post, the disclosure should be at the top of the post, not hidden behind a “more” button. Disclosure practices should be automatic on the creator’s part.

Current FTC Guidelines for Content Creation

1. Clear Disclosure: Disclose any paid partnership, sponsorship, or gifted post. For video content, this must be on the video itself, either verbally or as a text overlay. Phrases like “#ad,” “#sponsored,” or “#gifted” are accepted by the FTC.

2. Honesty and Authenticity: Endorsements should reflect honest opinions and experiences. Misleading portrayals or exaggerations are against FTC guidelines.

3. Consistent Disclosure: Each post involving a paid relationship or free product exchange requires a disclosure. Consistency is crucial.

4. Platform-Specific Rules: Utilize built-in tools for disclosing partnerships, but ensure disclosures are clear on the content itself regardless of platform features.

5. Targeting Children: Extra precautions are necessary if content targets children, with clearer and more obvious disclosures required. Understanding COPPA for child-directed advertising is paramount.

In light of this warning shot from the FTC, what should businesses who use influencers or who solicit customer endorsements, case studies, or testimonials do now? At a minimum, they should do the following:

• Understand how they are sourcing and using third-party content, including reviews, to market their brand. Companies should identify the participants in their marketing ecosystem that may be working with them, including agencies, publishers and influencer partners, and understand their respective practices around endorsement and testimonial marketing.
  
• Work with their marketing teams to create a standard set of advertising disclosures and marketing agreements and policies for third-party partners, such as influencers.
  
• Review their terms of service to ensure that they properly address endorsement and testimonial marketing to their customers or consumers.
  
• Review internal social media policies and practices to ensure employees and other contractors or agents are compliant with the FTC guidelines.
  
• Enact a process to monitor compliance (or outsource monitoring) and terminate non-compliant partners.

How to Comply as a Creator

• Place Disclosures Prominently: Ensure disclosures are visible, ideally at the beginning of the post or video. Use both verbal and written disclosures for video content.
• Understand Platform-Specific Rules: Familiarize yourself with each platform’s endorsement-related rules.
• Stay Informed: Regularly update yourself on FTC guidelines through the FTC website and platform resources.
• Be Transparent with Followers: Honesty fosters trust with your audience. Be upfront about brand partnerships and influencer marketing campaigns.
• Consult Experts: When in doubt, consult with a marketing attorney or legal expert in influencer marketing for compliance. Have a social media policy.  

Importance of FTC Guidelines

The FTC guidelines protect consumers from misleading advertising. Influencers’ endorsements are influential, and undisclosed brand relationships can mislead followers, affecting their purchasing decisions. Adhering to these guidelines prevents legal repercussions and builds trust with your audience.

Revised FTC Endorsement Guides Effective July 26, 2023

The revised FTC Guides reflect the changing media landscape, helping marketers, content creators, and influencers navigate endorsements while protecting consumers from dishonest advertising. These updates address the liability of advertisers, endorsers, and third parties like ad agencies or review brokers.

Key Highlights of the 2023 Revisions

• Updated Definitions: Clarifies that tags and certain communications can be endorsements, and expands the definition of “product” to include brands.
• Advertiser and Influencer Liability: Advertisers and endorsers can be held liable for misleading statements and undisclosed material connections to individual social media influencers.
• Consumer Endorsements and Reviews: Discourages manipulation of consumer reviews and requires substantiation of endorsement claims.
• Expert Endorsements: Experts must have the expertise they claim to have.
• Endorsements Directed to Children: Endorsements targeting children are scrutinized more closely.
• Disclosure of Material Connections: Must be clear and conspicuous, and unavoidable for online disclosures.

FTC Enforcement Action

The FTC enforcement action, which can include warning letters, civil penalties, corrective advertising, injunctions, monetary redress, consent decrees, and administrative proceedings.

Staying informed on FTC guidelines is essential for creators. These guidelines maintain transparency and trust with your audience, crucial in the evolving digital marketing landscape.

Warning letter sent:

The Federal Trade Commission (FTC) issued a warning letter to the American Beverage Association (ABA) on November 13, 2023, addressing concerns about potentially deceptive marketing practices on Instagram and TikTok. The FTC Act, specifically Section 5, prohibits “unfair or deceptive acts or practices” in commerce (15 U.S.C. § 45). The FTC reviewed posts by dieticians endorsing the safety of aspartame, which were allegedly paid for by the ABA, and found the disclosures regarding these endorsements to be inadequate.

According to the FTC’s Endorsement Guides, a “material connection” between an endorser and the marketer of a product must be clearly and conspicuously disclosed (16 C.F.R. § 255.5). The FTC identified several violations in the dieticians’ posts, including the absence of disclosures in some posts, the lack of disclosures within the videos themselves, and the use of terms like “#sponsored” or “#ad” in truncated text descriptions, which are not sufficiently conspicuous. The FTC also criticized the use of the “Paid partnership” tool, deeming it insufficiently noticeable.

Further, the FTC expressed concerns that some dieticians did not clearly identify the ABA as the sponsor, preventing consumers from understanding the nature of the endorsements. The FTC emphasized that the use of terms like “safetyofaspartame.com” or “#safetyofaspartame” does not adequately communicate the paid relationship between the dieticians and the ABA. This failure to disclose material connections violates Section 5 of the FTC Act, which can mislead consumers about the weight and credibility of the endorsements.

Enclosed with the letter is the FTC’s Notice of Penalty Offenses, which lists practices deemed deceptive or unfair under Section 5 of the FTC Act. The notice highlights that failing to disclose a material connection between an endorser and the seller of an advertised product can result in civil penalties of up to $50,120 per violation (15 U.S.C. § 45(m)(1)(B)). The ABA is urged to review its social media policies and ensure compliance with FTC guidelines to avoid potential fines.

The FTC has given the ABA fifteen working days to respond with specific actions taken to address the issues raised. Failure to comply may result in legal action, including a federal district court injunction or an administrative cease and desist order. The letter concludes by offering contact information for further questions regarding compliance with the FTC Act.  

Background

In October 2021, the FTC sent Notices of Penalty Offenses to nearly 2,000 companies, warning against deceptive practices in three areas: education, endorsements, and money-making ventures. These companies could face fines up to $43,792 per violation. This move aims to tackle the rise of deceptive endorsements online and money-making schemes during the COVID-19 pandemic.

Previously, the FTC used Section 13(b) of the FTC Act to seek monetary relief in consumer protection cases. However, in April, the Supreme Court ruled that Section 13(b) doesn’t allow the FTC to obtain monetary relief. In response, the FTC turned to Section 5 of the FTC Act, which outlaws unfair or deceptive practices but doesn’t automatically allow fines for first-time offenses.

Notices of Penalty Offenses

The FTC issued three key Notices in October 2021:

1. Educational Institutions: Over 70 for-profit colleges were warned against false claims about graduate employment prospects, salaries, job qualifications, and institutional facilities.

2. Endorsements and Testimonials: More than 700 companies received warnings against false or misleading endorsements. This includes fake endorsements, undisclosed connections with endorsers, and outdated or fabricated claims about product performance.

3. Money-Making Ventures: Over 1,100 businesses offering income opportunities were cautioned not to deceive consumers about potential earnings. This includes false promises about profitability and misleading claims about the exclusivity of the opportunity.

Implications for Companies

These Notices signal the FTC’s intent to enforce consumer protection laws more vigorously. Companies that received these Notices now have explicit knowledge of what the FTC considers illegal practices, increasing their risk of penalties for violations. Companies should review their practices to ensure compliance with FTC guidelines, especially regarding endorsements and performance claims. Legal counsel can help navigate these complex regulations and avoid penalties.

Conclusion

The FTC’s renewed focus on deceptive advertising practices is a clear warning to companies to adhere strictly to consumer protection laws. By proactively reviewing and adjusting their practices, businesses can avoid hefty fines and stay compliant with FTC standards.

The Federal Trade Commission (FTC) has enforced the provisions of Section 5 of the FTC Act in several cases involving social media violations. Section 5 prohibits “unfair or deceptive acts or practices in or affecting commerce.” Here are some notable cases:

1. Lord & Taylor (2016): Lord & Taylor settled with the FTC over charges that it deceived consumers through a social media campaign. The campaign involved paying influencers to post photos on Instagram without disclosing that they had been paid or given the product for free. This lack of disclosure was deemed deceptive under Section 5 of the FTC Act.

2. Warner Bros. (2016): Warner Bros. settled with the FTC over charges that it deceived consumers by paying online influencers to post positive gameplay videos of a new game without adequately disclosing the sponsorship. This was considered a violation of Section 5 of the FTC Act.

3. Cure Encapsulations (2019): Cure Encapsulations settled with the FTC over charges related to false claims for a weight-loss supplement and fake reviews on Amazon.com. These actions were deemed deceptive under Section 5 of the FTC Act and the FTC’s Endorsement Guides.

These cases highlight the FTC’s enforcement of Section 5 to ensure that businesses do not engage in deceptive practices, including those involving social media marketing and advertising.

FTC Enforcements in all areas continues

In the case of Federal Trade Commission v. Precision Patient Outcomes, Inc., the Federal Trade Commission (FTC) sued Precision Patient Outcomes, Inc. (PPO) for deceptive marketing practices related to its promotion of its products. The FTC alleged that PPO made false and unsubstantiated claims about the effectiveness of its medical software in improving patient outcomes and reducing healthcare costs. The court found in favor of the FTC, ruling that PPO had engaged in deceptive marketing practices in violation of the FTC Act. The court ordered PPO to cease its deceptive practices and pay monetary relief to affected consumers.

In the case of Federal Trade Commission v. Neora LLC, the Federal Trade Commission (FTC) filed a lawsuit against Neora LLC, a multi-level marketing company, alleging that it operated as an illegal pyramid scheme and made false income claims to its participants. The court found in favor of the FTC, ruling that Neora had indeed operated as an illegal pyramid scheme and had engaged in deceptive marketing practices. As a result, the court ordered Neora to cease its deceptive practices, prohibited it from operating as a pyramid scheme, and required it to pay monetary relief to affected consumers.

In the case of Federal Trade Commission v. Digital Income System, Inc., the Federal Trade Commission (FTC) sued Digital Income System, Inc. for operating a fraudulent scheme that promised consumers large income from home-based businesses. The FTC alleged that Digital Income System, Inc. falsely claimed that consumers could earn substantial income with little to no effort by purchasing its program. The court found in favor of the FTC, ruling that Digital Income System, Inc. had engaged in deceptive practices in violation of the FTC Act. The court ordered Digital Income System, Inc. to cease its deceptive practices, prohibited it from making false income claims, and required it to pay monetary relief to affected consumers.

If you have any questions about your advertising or social media campaigns, contact Verna Law, P.C. at 914-980-9519 or anthony@vernalaw.com.