QUESTION
A social media influencer approached our marketing department to provide an endorsement. The influencer wants to be paid an endorsement fee. The marketing department says this would be a good lead source for us. We asked our regulator about it, and they cautioned that this comes under the advertising regulations.
I am concerned that we do not know much about the regulations or what we are getting ourselves into. We've been a mortgage lender in business for over twenty years. We are familiar with getting testimonials from customers but have no experience getting endorsements from influencers.
And, to say the least, we want no trouble with our regulator about our marketing involved with an influencer. So, we need some guidance. We are hoping you can shed some light on this situation.
What are some of the concerns and challenges regarding endorsements from social media influencers?
ANSWER
I must admit that I can't figure out all the buzz behind the popularity of social media influencers; indeed, there are celebrity influencers who promote products and services to millions of social media followers, even though they fail to mention they were paid for their promotions. I won't get into the obvious concern that getting paid undermines the authenticity of the endorsement.
You don't mention the name of your regulator, but no matter. I will provide an answer based on the Federal Trade Commission (FTC) advertising requirements, since the FTC serves a critical role in regulating advertising to protect consumers from false, misleading, or deceptive claims.
The FTC is essentially a consumer advocacy agency that, among other things, combats untruthful advertising through enforcement actions, regulatory guidance, and consumer education. I think a cursory overview of the FTC's approach to ensuring truth in advertising can offer some helpful advice with respect to social media endorsements and testimonials.
FTC Oversight
The FTC's oversight of advertising is derived primarily from its authority under the FTC Act to prevent "unfair or deceptive acts or practices."[i] The FTC's deception enforcement policy specifies several factors in analyzing whether an act or practice is deceptive:
· There must be a representation, omission, or practice that is likely to mislead consumers. The FTC examines the overall net impression made by the ad, not just isolated words or phrases.[ii]
· The act or practice must be evaluated from the perspective of a reasonable consumer. The test is whether it is likely to mislead reasonable consumers. If the representation or practice impacts or is directed primarily to a particular group, the FTC examines reasonableness from the perspective of that group.[iii]
· The representation, omission, or practice must be material. That is, it must be important to consumers' decisions or conduct regarding the product.[iv]
· The representation, omission, or practice is likely to mislead consumers acting reasonably under the circumstances.[v] The facts and circumstances dictate the evaluation.
It is critical to note that the FTC does not need to show actual deceit or even that any consumers were actually misled. Rather, it must simply show that the conduct in question has a tendency or capacity to deceive consumers who act reasonably.[vi]
Tangentially relevant to your question is the action taken by the FTC against operators of websites that purport to provide independent reviews of products and services. The FTC has alleged the defendants posted fake positive reviews to increase sales and false negative reviews to harm competitors.[vii] Consider this an example of how the FTC combats deception relating to online reviews and endorsements.
In addition to its authority to prevent deception, the FTC can challenge unfair practices.[viii] Unfair practices involve conduct that substantially injures consumers, violates established public policy, or may be unethical or unscrupulous.[ix]
Advertising Issues
One of the FTC's best known advertising guides is entitled Guides Concerning the Use of Endorsements and Testimonials in Advertising ("Endorsement Guides").[x] In this guidance, the FTC proposed extensive updates to the Endorsement Guides to address changes in the marketplace, especially the rise of social media influencers.[xi] The guidance defines an endorsement as
an advertising message consumers likely believe reflects someone's independent opinions or experiences with a product.[xii]
I will expand on this definition shortly.
The Endorsement Guides outline FTC's views on topics like when endorsements must disclose material connections and how advertisers should substantiate claims made through endorsements. They also offer numerous examples to illustrate practical implementation. For instance, one example explains that tagging a brand in a social media post can constitute an endorsement as part of a paid relationship.[xiii]
Here's where you must be very cautious, for you are now at the point where competent handling of the relationship with the social media influencer is imperative to avoid considerable regulatory risk. In updating the Endorsement Guides, the FTC clarified principles like the need to substantiate both express and implied claims made through endorsements.[xiv] If you are unfamiliar with such claims, pause your efforts and get professional compliance assistance.
As a matter of fact, new examples include posting fake reviews and threats against negative reviewers.[xv] So, you must be sure to be current with the task at hand. These and other revisions, proposed and actual, reflect the FTC's close monitoring of deceptive practices in connection with consumer reviews, influencer marketing, and, in particular, social media influencer endorsements.
The combination of general guides and specific guidance articles should be constantly monitored because the FTC updates and expands its guidance as technology and marketing practices continue evolving.
Educating the Social Media Influencer
For what it's worth, the FTC has also tried educating social media influencers on following endorsement guidelines in recent years. For instance, in 2019, the FTC sent educational letters to prominent social media figures reminding them about disclosing brand relationships. While not enforcement actions, these letters served as warnings to comply with the advertising guidelines. But none of what the influencer does or does not do about compliance will protect you, notwithstanding the FTC's consumer and business education efforts continuing to evolve as platforms, technologies, and advertising techniques change.
Minefields
Let's consider some salient minefields involving endorsements. Although the Endorsement Guides do not themselves have the force of regulations, they certainly reflect the FTC's views regarding endorsements.
Definition of Endorsement
The following is the FTC's broad definition of an endorsement. It is
"Any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser."[xvi]
This definition covers endorsements in both traditional and social media. It encompasses statements, images, tags, likes, reviews, and much more. But, really, any message in advertising which consumers likely perceive as representing someone's independent opinions or experiences with a product or service can be an endorsement.
And what is a nuanced example of a fake endorsement? An example would be where paid negative reviews of a competitor are obviously not endorsements, but fake positive reviews used to promote one's own products and services clearly are fake endorsements.[xvii]
Liability for Deceptive Endorsements
Both advertisers and endorsers can be liable for false or unsubstantiated claims made through endorsements.[xviii] The advertiser is responsible for claims made through their ads, whether by directly making statements or using paid endorsers.
Even though endorsers may be liable for deceptive endorsements they make, advertisers may also be liable for failing to adequately monitor endorsers for compliance issues.[xix] I suggest you draft and ratify a policy that sets forth how you, as an advertiser, will guide, monitor, and take action to remedy endorser non-compliance, whether the social media influencer, the endorser, is paid or not paid.[xx]
This principle applies even when advertisers merely disseminate existing endorsements, like sharing (which is retweeting or reposting) positive social media endorsements. As an advertiser, you should always confirm that endorsements reflect a social media influencer's honest views before rebroadcasting them.[xxi]
Substantiating Endorsement Claims
The advertiser must substantiate claims made through endorsements.[xxii] As with any advertising claims, you must substantiate consumer endorsements, because such endorsements are not necessarily competent or reliable evidence or proof.[xxiii]
In reviewing such endorsements, my firm has evaluated endorsements that are skewed. When that happens, we advise our clients they are obligated to ensure that representations of outcomes made by consumers should generally achieve the outcomes associated with using the advertised product or service.[xxiv] Our rule of thumb is, when endorsements reference exceptional results well beyond the norm, the ads should clearly and conspicuously disclose what consumers can expect to experience.
Disclosures
As an advertiser, you must disclose any connections between social media influencers, and other endorsers, and your company that could affect how people evaluate the endorsements.[xxv] This includes monetary payments and the receipt of free products or services. Put otherwise, any connections likely to affect the weight consumers give endorsements should be disclosed when they are not reasonably expected.[xxvi]
Social media influencers, for example, should disclose brand sponsorships and gifts. Consumers may give greater credence to reviews and opinions from people they perceive as unbiased. Thus, clear disclosure of connections allows consumers to consider endorsements in full context.
Jonathan FoxxChairman & Managing Director
[i] Section 5, FTC Act, 15 USC § 45. False
or misleading advertising falls under the umbrella of deceptive practices the
FTC can prohibit.
[ii] See Federal Trade Commission, FTC
Policy Statement on Deception (1983), as appended to In re Cliffdale Assocs.,
Inc., 103 FTC 110, 174 (1984).
[iii] Idem
[iv] Op. cit. ii, at 182
[v] Op. cit. ii, at 175-76
[vi] FTC v. Algoma Lumber Co., 291 U.S. 67,
81 (1934)
[vii] Complaint, FTC v. 427K, Inc., No.
4:22-cv-01069-JSW (N.D. Cal. February 28, 2022)
[viii] Op, cit. i
[ix] Federal Trade Commission, FTC Policy
Statement on Unfairness (1980), as appended to In re Int'l Harvester Co., 104 FTC
949, 1070 (1984).
[x] 16 CFR § 255, Originally issued in
1980, 45 Fed. Reg. 3870 (January 18, 1980)
[xi] 87 FR, 44288 (July 26, 2022)
[xii] 16 CFR § 255.0(b)
[xiii] 16 CFR § 255.0(g)(5)(ii)
[xiv] 87 FR 44311 (July 26, 2022)
[xv] Idem
[xvi] Op. cit. xii
[xvii] 16 CFR § 255.0(g)(12)
[xviii] Idem
[xix] Op. cit. xvii
[xx] 16 CFR § 255.1(d)(3)
[xxi] 16 CFR § 255.2(a) & (b)
[xxii] 16 CCFR § 255.2(a)
[xxiii] Idem, Example 5
[xxiv] 16 CFR § 255.2(b)
[xxv] 16 CFR § 255.5
[xxvi] 16 CFR § 255.5(a)
