Policy

If you're paying influencers, the FTC has a warning for you

The agency said it reminded more than 700 companies including Apple, Amazon and Tesla that they can face fines for certain deceptions about endorsements.

Envelope with red warning exclamation point coming out

The FTC under Chair Lina Khan has been coming down on corporate practices.

Photo: CalypsoArt/Getty Images

The U.S. Federal Trade Commission on Wednesday said it put hundreds of the world's most prominent companies "on notice" that being dishonest about endorsements comes with consequences.

The use of so-called influencer marketing, other sponsored content and even the use of positive customer reviews on services such as Instagram drove the warnings, the commission cautioned.

"The rise of social media has blurred the line between authentic content and advertising, leading to an explosion in deceptive endorsements across the marketplace," the FTC said in a statement about the letters.

A wide array of recipients received one of the warnings, including drugmakers like Pfizer, apparel companies such as Nike, video game publishers like Activision Blizzard, carmakers including Tesla, restaurant franchises such as Burger King as well as beer and liquor companies, home décor brands, broadband providers, hotels and more.

Amazon, Apple, Facebook, Google, Microsoft and Yelp all received the letters, according to the FTC, which said the list included more than 700 "large companies, top advertisers, leading retailers, top consumer product companies, and major advertising agencies."

The notices are not indications of wrongdoing, the agency stressed. Should a company be found in violation of the law, however, it could result in fines of nearly $44,000 per instance.

The commission, which has been taking an increasingly tough line on corporate practices and flexing little-used procedural powers under Chair Lina Khan, released a sample letter, which alerted firms to a long list of practices that the FTC has previously found illegal in other cases.

These practices include "falsely claiming an endorsement by a third party" as well as "misrepresenting that an endorser is an actual user" and "failing to disclose an unexpected material connection with an endorser."

While both the existence and use of social media "influencers" are a relatively recent phenomenon, the FTC said it found previously that such actions violate the prohibition on "unfair or deceptive acts or practices." A company that knows about these determinations and flouts them can face fines under the Federal Trade Commission Act — hence the notices warning these firms.

The true size of the influencer industry is difficult to measure, but data firm Statista estimates the global market was worth nearly $10 billion last year.

Users of Instagram or YouTube regularly come across prominent accounts and channels hawking clothes, cosmetics, gadgets, toys, investment products and more. Some of the accounts belong to celebrities; others have a strong online-only following in a particular niche. And while some of the posts make clear that they were sponsored or that the reviewers got the products for free before a recommendation, others are less transparent.

The FTC has weighed in on the issue before, but has largely focused its attention on influencers themselves rather than the companies that might partner with them. In 2019, for instance, the commission released "Disclosures 101 for Social Media Influencers," an eight-page pamphlet heavy on icons and illustrations for those who are trying to monetize their feeds.

The guide urges influencers to disclose "any financial, employment, personal, or family relationship with a brand," to view even tags and likes as endorsements, and to avoid making "claims about a product that would require proof the advertiser doesn't have — such as scientific proof that a product can treat a health condition."

Even before that, in 2017, the FTC released answers to questions it was receiving about endorsements pertaining to paid video game streaming, travel blogging, book reviews and even the operator of "a YouTube channel that focuses on hunting, camping, and the outdoors" who occasionally discussed specific knives.

Wednesday's letters, though, went to prominent international brands that might be hiring influencers, placing sponsored content in publications or republishing consumer reviews.

Earlier in October, the commission issued similar warning letters to for-profit colleges. The FTC said then it was "resurrecting" its authority to issue the notices and seek fines.

Khan, a tech skeptic who took over the commission earlier this year, spent much of her first few months leading the commission's Democratic majority to enact changes to streamline investigations, ready rules to govern certain industries and broaden the types of conduct that the FTC can look into.

Republicans have dismissed her actions as lacking in transparency and procedural fairness, and suggested the changes will confuse honest businesses.

Democratic Commissioner Rohit Chopra left the commission earlier this month, however, to take over the Consumer Financial Protection Bureau, meaning the FTC is now split 2-2 along partisan lines and Khan, for the time being, likely won't be able to advance major changes.

President Joe Biden has nominated privacy hawk Alvaro Bedoya to take over the final slot.

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