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Stricter penalties on disguised influencer marketing on Instagram, YouTube, TikTok, says FTC Commissioner

US Federal Trade Commission (FTC) Commissioner Rohit Chopra has urged the agency to impose stricter penalties on companies that disguise advertising on platforms like Instagram, YouTube, and TikTok as authentic content, including making them liable for civil penalties under the US Code.

Target advertisers, not small influencers: He called for the FTC to develop and specify requirements that companies must adhere to in their contractual agreements with influencers, essentially holding advertisers and not small influencers responsible for disguised ads. “When individual influencers are able to post about their interests to earn extra money on the side, this is not a cause for major concern,” he wrote, but “when we do not hold lawbreaking companies accountable, this harms every honest business looking to compete fairly.”

Commissioner Chopra cited a 2016 case, where a Lord & Taylor (a department store in the US) campaign paid 50 social media influencers to post about a dress on Instagram, but didn’t require them to disclose that the posts were sponsored. The FTC charged Lord & Taylor with deceiving the public, settling the case by prohibiting the company from “misrepresenting that paid ads are from an independent source,” but didn’t levy a monetary fine. Note that since 2019, ads on Instagram include a clear disclosure that highlights that an update is “Sponsored. Paid partnership with [brand]”, and seem to meet all necessary disclosure requirements.

Disguised ads are illegal, Chopra said: Disguised paid promotions often reach a wider audience, including people who might not be able to discern the commercial nature of such content, Chopra said, and added that advertisers, in turn, successfully target specific ads to specific people by generating more data based on engagement, which fuels their “surveillance-based advertising businesses”. “When companies launder advertising by paying an influencer to pretend that their endorsement or review is untainted by a financial relationship, this is illegal payola,” he added.

  • Chopra said that “fake accounts, fake likes, fake followers, and fake reviews are now polluting the digital economy, making it difficult for families and small businesses looking for truthful information,” and urged the FTC to “stop fraud from festering”.

FTC called for a public consultation on the Enforcement Guides: Commissioner Chopra’s statement came after the FTC voted 5-0 to seek public comments and a regulatory review of the Endorsement Guides, which requires influencers to disclose sponsored posts. By means of the public consultation, the agency wants to find, among other things:

  • Whether the practices addressed by the Guides are prevalent in the marketplace and whether the Guides are effective at addressing those practices
  • Whether consumers have benefitted from the Guides and what impact, if any, they have had on the flow of truthful information to consumers
  • Whether changes in technology or the economy require changes to the Guides
  • How well advertisers and endorsers are disclosing unexpected material connections in social media
  • Whether children are capable of understanding disclosures of material connections and how those disclosures might affect children

What are the current norms to address disguised advertising? The Enforcement Guide, among other things, states that when there is a connection between an endorser and a seller of an advertised product that could affect the credibility of the endorsement, the connection must be clearly and conspicuously disclosed. However, the Guide was last updated in 2009, and according to the example cited by Commissioner Chopra in his statement, it seems to have done little in deterring companies and influencers from disguising sponsored content. In a series of tweets, he said that “we may need new rules for tech platforms and for companies that pay influencers to promote products”.

FTC’s scrutiny of big tech companies is increasing: This development comes after we reported yesterday that the FTC ordered Alphabet (including Google), Amazon, Facebook, Microsoft and Apple “to provide information about prior acquisitions not reported to the antitrust agencies under the Hart-Scott-Rodino (HSR) Act”. These companies will have to provide information such as the terms, scope, structure, and purpose of such transactions made between January 1, 2010 and December 31, 2019.

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