FTC seeks stronger penalties for influencer marketers who fail to disclose
FTC Commissioner Rohit Chopra, following concerns that the current non-binding Endorsement Guides and soft-touch enforcement approach has led to widespread non-compliance, has called for a public review of the Endorsement Guides and recommends bold changes.
"When companies launder advertising by paying someone for a seemingly authentic endorsement or review, this is illegal payola. If these companies are also pressuring influencers to post in ways that disguise that their review or endorsement is paid advertising, those advertisers especially need to be held accountable."
What's wrong with the existing Endorsement Guides?
Although the Guides have not been updated since 2009, the FTC has provided supplementary guidance to reflect the changing ways influencers and brands are using social media and technology to advertise and promote products. The Guides reflect the basic truth-in-advertising principle that endorsements must be honest and not misleading. An endorsement must reflect the honest opinion of the endorser and can’t be used to make a claim that the product’s marketer couldn’t legally make.The examples in the Guides and the FAQ's are useful and cover a relatively wide range of scenarios and the information is much broader than the guidance given by many other countries and their SRO's.
The concern however, expressed by many both inside and outside of the industry, is that, without the full force of the law (the Guides are simply that: voluntary guidance), influencers and brands are disseminating, in the words of Chopra
"lies, distortions, and disinformation".
What action has the FTC taken in the past?
The FTC has pursued non-compliant brands in the past but they now acknowledge that their limited sanctions and soft-touch approach does not appear to have deterred misconduct in the industry.
Chopra uses the example of Lord & Taylor, who paid fifty social media influencers thousands of dollars each to post an image with the influencer wearing a particular dress but did not specify that a disclosure was required. The FTC pursued Lord & Taylor but settled the matter for no customer refunds, no forfeiture of ill-gotten gains, no notice to consumers, no deletion of wrongfully obtained personal data, and no findings or admission of liability.
In short, there were no financial or strong civil penalties imposed; Lord & Taylor were simply bound not to make the same mistakes again and were required to establish a monitoring and review program for the company’s endorsement campaigns.
What changes are the FTC calling for?
Chopra has called for a "close and careful review of the FTC’s non-binding Endorsement Guides and a self-critical analysis of the agency’s enforcement approach", which includes:
Developing requirements for technology platforms (e.g. Instagram, YouTube, and TikTok) that facilitate and either directly or indirectly profit from influencer marketing;
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; 7 and
Specifying the requirements that companies must adhere to in their contractual arrangements with influencers, including through sample terms that companies can include in contracts.
What's the likely effect of those changes?
The primary aims, it seems, is for more responsibility to be levelled at platforms such as Instagram, YouTube etc to provide clear, consistent methods for differentiating between organic and paid for posts. Many would argue they already do this through "Paid Partnership" tools. But there are still a myriad of scenarios that influencers would argue do not fall neatly within these features. Equally there have been concerns that the features do less to promote clear disclosure and are designed more to channel advertising revenue to the platforms.
Codifying the rules and giving them the full force of the law would affect the manner in which the FTC could investigate and penalise brands and influencers. There have long been calls for tougher financial penalties against brands who profit from non-disclosure so these changes would make it easier for the FTC to impose hefty financial penalties.
Finally, specifying contractual terms is a sensible move. Most responsible brands already include references to the Endorsement Guides and specify the type, location, placement of the relevant disclosures in their contracts but a template would help smaller brands who perhaps don't have the support of an in-house legal team or influencer marketing regulatory consultants. It won't, however, address the problem of the countless brands that don't actually use contracts and make their arrangements through DM's. But compliant disclosure was probably never high on their agenda anyway.
If you want help unravelling the rules and regulations for on disclosure, contact influencer marketing regulatory expert Rupa Shah at Hashtag Ad Consulting.