July 31, 2023
By Barrie Charapp Beaty
We have been writing for months about the FTC’s focus on advertising. We write again about advertising because the FTC just updated “Guides Concerning Use of Endorsements and Testimonials in Advertising” at the end of June and have proposed a new trade regulation rule on Use of Consumer Reviews and Testimonials.
Guides Concerning Use of Endorsements and Testimonials in Advertising
Back in July 2022, the FTC proposed revisions to the Guides and asked for public comment. Based on the public comment, the FTC made final revisions to the Guides published the final version at the end of June 2023. Although most of the Guides’ focus is on influencers’ endorsements of products, the guidance does pertain to motor vehicle dealers and it should be considered.
Why are the Guides important?
The Guides are the FTC’s interpretation of how to use endorsements and testimonials in advertising in order to avoid a claim by the FTC for violating the FTC Act for unfair methods of competition and unfair or deceptive acts or practices.
What are in the Guides?
The Guides are extensive with scenarios that would be considered advertising violations under the FTC Act. Below, we highlight what is in the Guides and what is pertinent to dealers’ advertising.
- Definition of Endorsement. The Guides redefined endorsement to mean “any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser. The party whose opinions, beliefs, findings, or experience the message appears to reflect will be called the endorser and may be an individual, group, or institution.” For purposes of enforcement, the FTC will treat testimonials and endorsements the same.
- Bona Fide User Requirement. The Guides require that endorsements must be “honest opinions, findings, beliefs, or experience of the endorser.” Additionally, the person endorsing the product or service must be a bona fide user of the endorsed product at the time that the endorsement is given. You can continue to run an “advertisement only so long as [you have] good reason to believe that the endorser remains a bona fide user of the product.” As provided in the Guides, you must cease a commercial if you know the endorser of your dealership, or vehicle purchased from your dealership, no longer drives that car. For example, if your dealership runs an ad with a famous football player who purchased a vehicle from your dealership stating how much he loved the car and his experience with your store, you must cease using that if you know the football player no longer has that car and purchased a new car at another dealership.
- Real Reviews. Reviews, which fall within the definition of endorsement, should not be fake. Reviews need to be from actual customers and not left by someone at the dealership, family member or friend of an employee, or someone you pay to leave you a review. Your reviews must be honest endorsements from customers of your store.
- Disclose Material Connections. Under the Guides, you are liable for false or unsubstantiated statements made through endorsements, as well as failing to disclose a material connection between you and the person giving the endorsement. If you are using customer endorsements, you must use actual customers with an honest endorsement. If you are using incentivized customers for endorsements, you must disclose that the customer is incentivized. For example, if you have a review from a customer that your dealership was the best it ever dealt with, but you gave the customer a voucher for monies off of service or a free service for that review, you would have to disclose that you incentivized the customer for that review.
- Do not distort endorsements by your customers. If a customer leaves a glowing review of her experience with a salesperson, but states in the review the customer had a terrible experience with your finance department, do not cut out the bad review from the glowing review and use it for endorsing your dealership. The FTC would view such a move a distorting the customer’s experience and a false endorsement.
What is the bottom line?
Dealers need to ensure that the reviews left by their customers, which the FTC would view as endorsements, are not fake. These reviews/endorsements must be true, accurate and an honest portrayal of the customer’s experience with your dealership. If you incentivized a customer to leave a review, disclose it. If you are using advertising that is not the honest opinion or customer of your dealership, cease using it. Any deception in your advertisements or endorsements will be viewed by the FTC as a violation of the FTC Act.
FTC Proposes a New Rule on the Use of Consumer Reviews and Testimonials
In addition to the release of the final adopted Guides by the FTC, the FTC also released a new proposed trade regulation rule on the use of consumer review and testimonials.
What is the basis for this proposed rule?
Back in the fall of 2022, the FTC filed in the Federal Register a request for public comments on how it should use its authority to regulate use of consumer reviews and testimonials. Based on those public comments, the FTC claims this TRR is needed because of the prevalence of fake reviews, as well as the need to prevent unfair or deceptive acts or practices by companies in using the consumer reviews and testimonials.
What does the Proposed Rule provide?
This rule would prohibit the following activities.
- Selling or obtaining fake customer reviews and testimonials. Essentially, the proposed TRR prohibits you from procuring, disseminating, writing or selling customer reviews or testimonials by anyone who: (a) does not actually exist; (b) did not actually purchase a car or service a vehicle at your dealership; and (c) misrepresents the experience they had with your dealership.
- Incentivizing Customer Reviews. The proposed TRR would prohibit you from providing compensation or incentives contingent upon a customer review, either positive or negative. So while the Guides actually require you to disclose if you incentivized a customer for a positive review, the FTC proposes to actually find it a violation of the FTC Act in the proposed TRR if you incentivized a customer to leave a review.
- Hijacking Reviews. The FTC proposes to ban you from using a testimonial for one of your dealerships to appear as a testimonial for another of your dealerships.
- Insider reviews and testimonials. The proposed TRR would ban the officers or managers of your dealership from writing reviews or testimonials of the motor vehicles you sell and services you provide without clearly disclosing the relationship with the dealership. It proposes to ban publishing reviews from any person who is an officer, manager, employee or relative of an employee of your dealership without clearly disclosing the relationship the reviewer has with the dealership. Additionally, the FTC looks to ban the officers or managers from the dealership from soliciting a review of the dealership’s products or services from employees or their relatives.
- Review Suppression. The FTC proposes to prohibit use of unjustified legal threats, other intimidation, or false accusations to prevent or remove a negative customer review.
- Fake Social Media followers. The FTC proposes to prohibit you from buying fake social media followers.
What are the next steps for this proposed rule?
This proposed TRR on use of consumer reviews and testimonials is not in effect yet. The FTC seeks comments on the rule prior to finalizing the rule. Although not published in the Federal Register at the time that this article was written, public comment is requested on this proposed rule 60 days from publication. You can file your comment online with the federal register http://www.regulations.gov or mail your comment to the FTC at the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue, NW, Suite CC-5610 (Annex B), Washington, DC 20580. We will update you further on any developments of this TRR.