Does Your Dealership’s Advertising Violate FTC Guidelines?

After a public comment period, the Federal Trade Commission (“FTC”) recently updated its "Guides Concerning the Use of Endorsements and Testimonials in Advertising," commonly known as the “Endorsement Guides.” The Endorsement Guides, first enacted in 1980 and amended in 2009, were created to advise businesses on what endorsement practices may be deemed “unfair or deceptive” in violation of the FTC Act. The Endorsement Guides express the FTC’s truth-in-advertising principle that endorsements must be honest and evidence-based.  

Traditionally, the Endorsement Guides were designed to address print and/or television advertisements. However, as advertising has evolved to include digital marketing, such as social media and online reviews, the connection between the business and the advertisement has become less obvious to consumers. For instance, if a consumer reads a review by an endorser who received payment in exchange for writing the review, the connection between the endorser and the business using the endorsement must be disclosed. Otherwise, the business may be in violation of the Endorsement Guides and subject to enforcement action by the FTC under Section 5 of the FTC Act. 

Key Takeaways from the Revised Endorsement Guides

On June 29, 2023, the FTC finalized an updated version of its Endorsement Guides. Here are some key takeaways:

1. The FTC has issued new guidance on procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, or editing of consumer reviews. This new guidance supports the principle that advertisers should not take actions that could distort or otherwise misrepresent consumer views on their brand or product, such as excluding certain reviews that have fewer than three (3) stars or express negative commentary that would mislead consumers.
2. The FTC has provided additional guidance on incentivized reviews, employee reviews, and fake negative reviews of competitors. For example, if there is a connection between the endorser and the business using the endorsement for advertising that might affect the weight that the consumer would give to the review, such a connection needs to be disclosed.
3. The FTC has updated its definitions of “endorsement” and “endorser.” “Endorsements” now includes a broader definition to encompass verbal statements and tags in social media posts. "Endorser” is defined as “the party whose opinions, beliefs, findings, or experience the message appears to reflect” and includes actual as well as fictitious individuals, groups, or institutions. As a result, a writer of a fake review may be considered an “endorser” under the Endorsement Guides, and thus, be subject to an action by the FTC.
4. The FTC has provided additional guidance on the potential liability of advertisers, endorsers, and intermediaries (i.e., advertising agencies or public relations firms). For example, advertisers may be subject to liability for an endorser’s misleading or unsubstantiated statements, as well as for failing to disclose unexpected material connections between the advertiser and the endorser.

It is important to remember that the Endorsement Guides are administrative interpretations of the FTC Act, but are not binding law themselves. Therefore, while the Endorsement Guides set forth general principles that the FTC uses in evaluating endorsements and testimonials, the question of whether a particular endorsement or testimonial is deceptive will depend on the specific facts of the advertisement in question.

More FTC Updates: Proposed Regulations on Consumer Reviews and Testimonials

Following the release of the updated version of the Endorsement Guides, the FTC also proposed a new regulation titled “Rule on the Use of Consumer Reviews and Testimonials.” The Proposed Rule would officially prohibit certain types of conduct that are described in the Endorsement Guides. Examples of conduct that would be prohibited under the Proposed Rule include:

1. Fake consumer reviews, consumer testimonials, or celebrity testimonials,
2. Repurposing a review written for one product so that it appears to have been written for a different product,
3. Compensation for positive or negative consumer reviews, and
4. Consumer reviews written by officers or managers of a business absent “clear and conspicuous” disclosure of the individual’s relationship to the business.
   

These are just a few examples of conduct that would be covered by the Proposed Rule.  Once the Proposed Rule is published in the Federal Register it will be open to the public for a 60-day comment period. The FTC will consider the public comments when deciding how to implement the Proposed Rule.

Next Steps for Dealerships

The updated Endorsement Guides and possible implementation of the Proposed Rule require businesses to closely evaluate their internal and external advertising policies, including consumer reviews and presentations on social media platforms. To the extent you have additional questions, we recommend reviewing the Endorsement Guides with legal counsel to determine if any changes to your practices are necessary. 

Our attorneys are available to answer questions and provide further counsel on whether your business’s advertising and marketing efforts are meeting FTC guidelines.

Please contact Hilary Holmes Rheaume at hrheaume@bernsteinshur.com or Afra Danai at adanai@bernsteinshur.com.