FTC Guidelines Influence How Influencers Influence

While social media influencers were showing off pictures from the Amalfi Coast this summer, the Federal Trade Commission (FTC) was finalizing its guidelines regarding the endorsements that paid for their vacations in Italy.

With the goal of protecting the public from deceptive and unfair business practices, the FTC revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising. While these guidelines are not binding, they shed light on what types of endorsements the FTC considers deceptive and unfair under Section 5 of the FTC Act.

Businesses, intermediaries such as advertising and PR firms, and endorsers will want to make sure they review the revised guidelines to confirm whether they are compliant. Of particular note, the revised guidelines provide additional instructions related to when disclosures are required in endorsement advertising, and if required, what constitutes a sufficient disclosure.

Disclosures are required when there is an unexpected material connection between the seller of a product and the endorser.

Not every endorsement requires a disclosure. If someone buys a new water bottle and thinks it is far superior to the 15 other water bottles they own, they can share that with the world without worrying about disclosures or violating any FTC guidelines. That is, provided they were not paid to promote the water bottle or otherwise have an “unexpected material connection” to the business selling the water bottle.

The FTC defines a material connection as one that would affect the weight or credibility of the endorsement. This certainly includes monetary relationships, but can also include providing the endorser with free products, early access to products, or even just the chance to win a prize. For example, if a video game maker sends a copy of its new game to a popular streamer, and that streamer goes on to stream herself playing the video game, there may be a material connection as consumers may view the streamer’s endorsement of the game differently if they knew she received it for free. Under the revised guidelines, if her audience would not have expected that she received the game for free, the streamer should disclose that (and the video game maker should ensure that she does).

In the revised guidelines, the FTC notes that a material connection is unexpected “when a significant minority of the audience for an endorsement does not understand or expect the connection.” The FTC did not provide specifics on what constitutes a “significant minority” of an audience, indicating this will be determined on a case-by-case basis. The revised examples shed some light on how the FTC views certain forms of endorsements. For example, consumers expect that a famous actor appearing in a commercial on television is compensated for her appearance. In contrast, consumers may not expect that a tennis player is paid to post on social media when they see his post discussing the success of his recent eye surgery while tagging the surgeon in the post. While there is no formula for determining what the FTC will consider a significant minority at this point, businesses will want to consider how audiences will view an endorsement and whether a material connection is readily apparent before deciding to not disclose the connection.

If a disclosure is required, it must be clear and conspicuous.

Assuming there is an unexpected material connection between the seller of a product and the endorser, the advertisement must disclose the material connection. A proper disclosure must be clear and conspicuous. For online disclosures, this means that the disclosure must be unavoidable. Furthermore, the disclosure should appear in at least the same means as the advertisement, whether visually, audibly, or both.

The revised guidelines provide an example of an influencer who promotes a vitamin product in a social media post. As his followers see the post, they can clearly see the promotional message for the vitamin. However, to see the disclosure, they would have to click a “more” button. According to the FTC, this additional step of clicking “more” makes the disclosure avoidable. To make it unavoidable, the disclosure should have appeared towards the top of the post. Where a disclosure is required, businesses and endorsers will want to ensure that where users can view and/or hear the advertisement, they can also see and/or hear the disclosure.

As the FTC begins to implement its new guidelines regarding endorsements and testimonial advertising, businesses, adverting firms, and endorsers should review their current practices to ensure they are following the revised guidelines.

This article appeared in the September 2023 issue of MarkIt to Market®. To view our past issues, as well as other firm newsletters, please click here.