By Laura Brett, NAD

In August 2024, the Federal Trade Commission’s (FTC) introduced a final rule targeting fake reviews and testimonials, allowing the agency to seek civil penalties for violations. This rule prohibits a range of widespread review practices from undisclosed insider reviews to AI-generated fake reviews, aiming to ensure transparency and honesty in consumer feedback. Effective October 21, 2024, the rule reflects the FTC’s commitment to combating deceptive advertising practices. By adopting this rule, the FTC is reinforcing its effort to preserve the value of reviews for consumers by preventing businesses from concealing or falsifying customer feedback. 

The Beauty Industry Under the Lens 

The beauty industry is known for its embrace of influencer marketing and highly visible marketing campaigns that feature either expert or consumer reviews. To that end, beauty brands should aim to understand the scope of FTC’s new rule banning fake reviews and testimonials to help protect against potential penalties. BBB National Programs’ National Advertising Division (NAD) has identified a few key aspects of the rule that should be a focus for responsible brands trying to stay within the rule of law.   

In August 2024, the FTC introduced a final rule targeting fake reviews and testimonials, allowing the agency to seek civil penalties for violations. This rule prohibits a range of widespread review practices from undisclosed insider reviews to AI-generated fake reviews, aiming to ensure transparency and honesty in consumer feedback. Effective October 21, 2024, the rule reflects the FTC’s commitment to combating deceptive advertising practices. By adopting this rule, the FTC is reinforcing its effort to preserve the value of reviews for consumers by preventing businesses from concealing or falsifying customer feedback. 

First, at a moment when celebrities and influencers increasingly invest in products they promote, the rule prohibits insiders from writing reviews without disclosing their connection to the product being reviewed. This raises the stakes for disclosing material connections between the investor-influencer and the brand.   

A second note of caution concerns the prohibition against “fake” reviews. Fake reviews, as defined by the rule, include reviews of products by someone who has not had actual experience with the product. Beauty brands should ensure that any endorsers—influencers, celebrities, or creators—use the product they are promoting to avoid violating the rule. 

Finally, the rule bars company-controlled websites that appear to provide independent reviews. This raises the question of whether product reviews on an affiliate operated website could put the beauty brand on the hook for civil penalties.   

On the whole, beauty brands should scrutinize their review and endorsement practices to protect against potential civil penalties and avoid damaging their brand reputation. Maintaining transparency in reviews is essential not only for legal compliance but also as a necessity for building consumer trust.

The Rule 

The rule prohibits fake reviews, undisclosed insider testimonials, and AI-generated reviews with penalties of up to $51,744 per violation. Specifically, it speaks to:

• Fake or false consumer reviews and testimonials. 
• Reviews by company insiders without clear disclosure of their connection to the business. 
• AI-generated fake reviews. 

Compliance Requirements 

• Honest and transparent reviews. 
• Clear disclosure of any material connections. 

Enforcement  

• Exemplifies the FTC efforts following the Supreme Court’s 2021 decision in AMG Capital Management. 
• The rule strengthens the FTC’s ability to seek civil penalties and consumer redress for violations and deter deceptive practices. 

Guidance for Beauty Businesses 

The rule provides clear guidelines for businesses on acceptable practices for using consumer reviews and testimonials in marketing.  

• Endorsements must be honest and not misleading. 
• Reviews must reflect the honest opinion of the endorser. 
• Avoid buying reviews or using insider reviews without disclosing material connections. 

Ban on Incentives for Specific Sentiments 

• The rule bans offering incentives for expressing a particular sentiment; Applies to both explicit and implied incentives. i.e. discounts or rewards for positive reviews. 

Insights from FTC Officials

At BBB National Programs’ recent National Advertising Division Conference, FTC officials, including Commissioner Melissa Holyoak and Bureau of Consumer Protection Director Samuel Levine, emphasized the focus on protecting consumers online and their support for the rule to combat fake reviews to benefit both consumers and honest businesses.   

In her keynote, Commissioner Holyoak stressed the importance of the FTC acting within its Congressional authority to maintain trust and avoid legal challenges, emphasized the FTC’s commitment to protecting children and teens from deceptive practices, and underscored the need to stop AI-powered fraud using innovative solutions to understand potential harms. She also outlined the need to examine processes to build responsible use of AI that both protect consumers and build fair competition.  

Bureau Director Levine highlighted the FTC’s pro-consumer agenda, positing that it saves consumers time and money by combatting junk fees and subscription traps, as well as by fighting deceptive practices in specific large-expense categories like cars, education, and housing. He also focused his remarks on the FTC’s efforts to protect privacy and safety online, noted the FTC’s advocacy for workers and entrepreneurs, and addressed the FTC’s focus on AI and its proactive approach to prevent AI-related harms.   

Six Quick Tips for Brands

• Prepare for Strong Enforcement: The FTC is prepared for strict enforcement of the rule.
• Stay Compliant: Ensure all reviews and testimonials comply with the rule.  
• Be Genuine: Endorsements must be from people with real-life experience using the product.
• No Fake Reviews: Avoid purchasing or incentivizing fraudulent reviews. 
• Watch Insiders: Ensure company insiders are not writing reviews without disclosing their connection to the brand. 
• Liability: Brands can face civil penalties if they knew or should have known about false or misleading reviews. 

Case Examples and Resources

Since 1971, NAD, an independent self-regulation system to foster consumer trust and fair competition, has reviewed truth-in-advertising challenges across all media and held national advertisements to high standards of accuracy. NAD’s case decisions represent the largest body of advertising law in the U.S.

NAD recommends brands leverage its case library to see how brands of all sizes and across industries hold competitors accountable. By challenging non-compliant advertising, brands can not only protect consumers but also strengthen trust and level the playing field for their industry.

Recent cases highlight the importance of honest testimonials and serve as a clear warning of the risks associated with deceptive advertising. These include:

• Smile Prep, LLC (Smileprep.com), Case #7131 (December 2022)

• NourishMax Diamond Infused Eye Cream, Case #7296 (March 2024)

• The Bare Beauty Babes, Case #7162 (March 2024)

The FTC’s final rule on Fake Reviews marks a milestone against deceptive use of reviews and serves to build transparency and honesty in marketing. For beauty brands, this regulation is especially critical. With trust being the foundation of consumer loyalty, companies must navigate these guidelines not only to avoid penalties but also to protect their reputations.

Incorporating these changes into advertising strategies is not just a legal necessity—it is an opportunity. Beauty brands that embrace transparency can build stronger connections with consumers while avoiding the pitfalls of misleading endorsements. By prioritizing authenticity and aligning with both the FTC’s rule and the standards set by NAD, brands can safeguard themselves from legal risks and build a more authentic relationship with consumers.    

Laura Brett leads BBB National Programs’ National Advertising Division (NAD)—the advertising industry’s system of self-regulation founded more than 50 years ago to boost consumer trust in advertising. She has helped develop NAD’s guidance in the evolving area of truthfulness and transparency for advertising in digital media, including the review of the adequacy of disclosures in influencer marketing and other digital formats. In addition to speaking regularly on the issues surrounding truthful and transparent advertising in all media, including digital, in the US and internationally, Brett has published articles on the ethical standards of advertisers in social media, has been called upon for her expertise by numerous national media outlets and has served on panels at FTC workshops and hearings. 

NAD holds national advertising across all media types to high standards of truth and accuracy by reviewing truth-in-advertising challenges from businesses, trade associations, consumers, or on its own initiative. NAD’s case decisions represent the single largest body of advertising law in the country. Each month, you can receive insights on recently released advertising law case decisions, stay up-to-date on ad law industry news, get ad law trends from Brett, learn about upcoming events and more.