26/02/2020
Technology & Regulation in the Spotlight

FTC Enforces against Operators of Comparison Website for Deceptive Ranking of Financial Products

The Federal Trade Commission (“FTC“) has settled a case against the operators of LendEdu, a website that compares student loans and other financial products, for touting fake positive reviews and misleading consumers with rankings of financial products that were not objective

According to the administrative complaint issued by the FTC, LendEdu falsely claimed that the website provided accurate and unbiased information regarding consumer financial products. By doing so, the company misled consumers into believing that the LendEdu website provided objective product information, when in fact it offered higher rankings and ratings to companies that paid for their placement. The FTC did not name any lender or financial product providers who allegedly paid for a higher ranking.

In addition, the FTC alleged that LendEdu misrepresented that consumer reviews on its website and third-party websites, reflected actual experiences of impartial consumers. According to the FTC, 90% of the reviews posted on LendEdu’s website and customer service on trustpilot.com, were written or “made up” by LendEdu employees or their family and friends by providing five-star rating for the company.

The proposed settlement by the FTC would prohibit the company and its operators from making or assisting others in making any misrepresentations regarding the objectivity or impartiality of any content, the influence of compensation on any content, any material connection with an entity offering a product and the impartiality of user reviews. LendEdu and its operators will also be required to provide a clear representation as to the influence of any compensation or material connection on the rating and ranking of companies and products. In addition, the company will be required to pay a $350,000 fine.

FTC Commissioner Calls for Tougher Penalties for Influencer’s Advertisements Disguised as Reviews

FTC Commissioner Rohit Chopra has issued a statement, calling for tougher penalties on businesses which seek to disguise their advertisements on online platforms as authentic reviews – which is also called astroturfing. The statement comes just after the FTC commission voted to open its Endorsement Guides for Advertising to public comments.

According to the statement, since many consumers have become skeptical of traditional advertising, companies are increasingly turning to alternative advertising channels, such as influencers in social media like Instagram and YouTube. According to an estimate, during 2019, companies spent approximately $8 billion on advertising through social media influencers, a number which is projected to increase to $15 billion by 2022.

While some companies and influencers use the online sphere to legitimately advertise products, others are using these channels to “launder advertising” – disguising advertisements by influencers as genuine reviews, distorting the online marketplace and preventing consumers from making informed purchasing decisions.

According to this statement, in order to “fight” such phenomenon, the FTC should focus its enforcement on advertisers who pressure the influencers into disguising the fact they are being paid for posts, rather than pursuing individual influencers.

In this regard, it has been recently reported by us that the FTC has released a guide for social media influencers on their disclosure obligations for endorsements, which provides influencers with advice on what triggers the need for disclosure.

These developments demonstrate the FTC’s focus on comparison and review based marketing websites and influence channels.

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Feel free to contact us with any further question or comments regarding the update and subjects detailed above.

Kind regards,

Ariel Yosefi, Partner

Head of Technology & eCommerce Regulation

Herzog Fox & Neeman