The FTC’s Endorsement Guides provide that if there is a “material connection” between an endorser and an advertiser – in other words, a connection that might affect the weight or credibility that consumers give the endorsement – that connection should be “clearly and conspicuously” disclosed, unless it is already clear from the context of the communication. A material connection could be a business or family relationship, monetary payment, or the gift of a free product.
Importantly, the Endorsement Guides apply to both marketers and endorsers.
A key issue is – and always has been – whether consumers understand the reviewer’s relationship to the company whose products are being recommended. FTC defense lawyers have also begun to see the agency utilizing civil investigative demands (CIDs) to delve into the factors behind rankings and placements, including underlying algorithms.
Consider the recent announcement by the Federal Trade Commission that the operators of a website that compares student loans and other financial products have agreed to settle allegations that they misled consumers to believe their website provided objective product information, when in fact they offered higher rankings and ratings to companies that paid for placement.
In an administrative complaint against Delaware-based LendEDU and its operators Nathaniel Matherson, Matthew Lenhard, and Alexander Coleman, the FTC also alleged the company touted fake positive reviews of its LendEDU.com website.
“LendEDU told consumers that its financial product rankings were based on objective and unbiased information about the quality of the product being offered, but in fact LendEDU sold its rankings to the highest bidder,” said FTC attorney Andrew Smith, Director of the Bureau of Consumer Protection. “These misrepresentations undermine consumer trust, and we will hold lead generators like LendEDU accountable for their false promises of objectivity.”
According to the FTC’s complaint, the operators of LendEDU.com falsely claimed that the website provided “objective,” “accurate,” and “unbiased” information about consumer financial products, such as student loans, personal loans, and credit cards. Specifically, as alleged by the FTC, LendEDU misrepresented that the information on its website was not affected by compensation from advertisers.
In addition, the complaint alleges that LendEDU and its operators misrepresented that consumer reviews on its website and third-party websites reflected actual experiences of impartial consumers. In most instances, as alleged by the FTC< those reviews were written or made up by LendEDU employees, their family or friends, or other individuals with personal or professional relationships with LendEDU.
According to the FTC’s complaint, reviews about LendEDU’s website and customer service appear on third-party review platforms, including trustpilot.com, which allows users to select a star rating when reviewing a company. Of the 126 reviews on trustpilot.com, 90 percent were written or made up by LendEDU employees or their family, friends, or other associates, and all of these manufactured reviews provided five-star ratings for the company, according to the FTC.
The proposed settlement order by would prohibit the company and its operators from making the same types of misrepresentations cited in the FTC’s complaint. The proposed order also requires the company to pay $350,000.
Commissioner Rebecca K. Slaughter issued a concurring statement on the matter. “In this matter, our dedicated staff in the Division of Financial Practices assembled a powerful complaint that underscores how pay-to-play greed and deception have corrupted the ratings and rankings on which consumers increasingly rely to make informed purchasing choices online … I write separately to highlight the importance of this case in addressing a cutting edge market practice that I fear is becoming increasingly common online: purportedly neutral rankings and recommendations that actually reflect paid product placement. The complaint’s second count alleges that the respondents violated section 5 of the FTC Act by deceptively failing to “disclose adequately to consumers that financial services companies paid Respondents for website content, including rate tables, rankings, and star ratings.” Companies that engage in pay-to-play rankings and ratings should take heed: This conduct robs consumers of vital information, pollutes our online marketplaces, and violates the law, which will result in serious consequences.”
This matter should be of interest to marketers and lead generators involved in paid-for ratings, rankings, comparison and/or review campaigns. If you or your company are interested in implementing preventative compliance measures, or have received an FTC subpoena, a civil investigative demands (CID) or have been named as a defendant in an enforcement lawsuit, contact experienced FTC defense lawyers.
Richard B. Newman is one of the leading FTC defense lawyers in the digital marketing industry. Follow him on National Law Review @FTC Defense Lawyers and Facebook @FTC Defense Attorneys.
Informational purposes only. Not legal advice. May be considered attorney advertising.