FTC and NAD Actions Highlight Continued Scrutiny of Online Reviews

FTC and NAD Actions Highlight Continued Scrutiny of Online Reviews

June 23, 2020, Covington Alert

As consumers rely more and more on the “independent” reviews of their peers in choosing products and services, advertisers need to remain vigilant that their role (if any) in disseminating such reviews is fairly disclosed, accurate and not misleading. The pitfalls in this area were recently illustrated by a pair of enforcement actions brought by the Federal Trade Commission and the National Advertising Division of the Better Business Bureau. These actions, the latest in a series of similar enforcement efforts, confirm that review sites remain a hotbed of enforcement activity, and both actions serve as good reminders of the standards that review sites must observe to avoid similar actions.

The first of these actions is an FTC enforcement against LendEDU, which centered around the “objective,” “honest,” “accurate,” and “unbiased” rankings of financial products that LendEDU posted to its review site. The FTC alleged that, far from being objective and honest, these rankings were in fact determined based on compensation from the companies being ranked. In addition, the FTC alleged that over ninety percent of LendEDU’s “unbiased” positive reviews were in fact written by LendEDU employees and their friends and families.

The FTC and LendEDU finalized a settlement in this case on May 28. In addition to a $350,000 payment, this settlement prohibits LendEDU from misrepresenting the objectivity of its ratings.  LendEDU must further disclose any facts that may influence its rankings, including any compensation or other connections with the companies that it ranks. The settlement also imposes a number of standard compliance reporting and record-keeping obligations on the company.

This case is the latest in a long series of FTC enforcements involving fake or misleading customer reviews. The FTC brought an assortment of high-profile actions regarding such reviews in 2019 against businesses offering products ranging from subscription snack boxes to skincare products. Review-related issues continue in 2020, as evidenced not only by this case but by additional enforcement actions against businesses selling supplements and pain-relief products.

NAD has also been active in this area: just a few days after the FTC finalized its LendEDU settlement, NAD concluded an inquiry into three of L’Oreal’s review sites. On June 3, NAD announced that L’Oreal had agreed to make changes to its Makeup.com, Skincare.com, and Hair.com websites to make clear that the content on these sites was written by or for L’Oreal. All three of these sites feature a variety of articles on improving the health and aesthetics of readers’ hair and skin. As part of its routine monitoring program, NAD noted that, although the sites made references to L’Oreal, they lacked any readily noticeable disclaimers informing consumers that the content on these sites was created at the direction of L’Oreal. According to NAD, consumers could be deceived if they believed the sites conveyed only independent content when in actuality they were paid advertisements.

L’Oreal responded immediately to the inquiry, explaining that its more noticeable logos and disclaimers had been inadvertently moved during a website redesign. L’Oreal promptly modified its sites to make clear that their content is written by or for the company, and NAD concluded the inquiry without further action or recommendations.

As the LendEDU case illustrates, businesses must take care not to mislead customers into thinking that rankings or reviews are independent or objective when they are in fact subject to other influences. The FTC’s Endorsement Guides require businesses to disclose any “material connections” between a reviewer and a product or company. As such, if reviews are influenced by money, relationships, or some other connection that readers would not expect, this fact should be disclosed. The L’Oreal case also provides a reminder that in addition to the Endorsement Guides, advertisers need to be familiar with the Commission’s December 2015 Enforcement Policy Statement on Deceptively Formatted Advertisements and the dot.com disclosure guidelines.

In addition, the L’Oreal case provides a few reminders about when disclosures are necessary and what form they must take. Even beyond reviews, businesses must inform consumers when content that they would assume is independent, such as articles or editorials, actually is written by or for a company. And just posting a small disclaimer may not be enough; these notices must be clear and conspicuous to avoid scrutiny by the FTC and NAD.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Advertising and Consumer Protection practice.