FTC Tightens Screws on Social Media Influencers

Social media influencer advertising has become a major factor in e-commerce.

Marketers of both big and small brands long have committed large chunks of their advertising budgets to endorsements by well-known personalities, in an effort to influence consumers to purchase products and services.

Social media influencer campaigns are based on that tried-and-true formula, but the implication is that the endorsements are voluntary.

The U.S. Federal Trade Commission has taken notice of social media influencer programs and has expressed concern over whether endorsements are voluntary or are compensated with money or other valuable incentives.

Failure to disclose a commercial relationship between the marketer and the influencer constitutes an unfair or deceptive business practice, according to the FTC.

“Consumers need to know when social media influencers are being paid, or have any other material connection to the brands endorsed in their posts,” said acting FTC Chairman Maureen Ohlhausen when the agency recently settled a social media influencer case.

That settlement should send a message that commercial connections in social media endorsements “must be clearly disclosed, so consumers can make informed purchasing decisions,” Ohlhausen said last month in a settlement notice.

The FTC’s concern stems from its historic role of ensuring that consumers are protected from false and misleading advertising.

Aggressive Approach

At the same time that it revealed the settlement, the FTC sent warning letters to a group of influencer personalities, including actresses Lindsay Lohan and Lisa Rinna, informing them of the need to observe federal regulations. In addition, the commission published updated regulatory guidelines directed specifically to social media influencer advertising.

The burst of FTC activity underscored the commission’s increasingly assertive posture in regulating social media influencer programs. The FTC recently reached settlements with marketers for Lord & Taylor, Warner Brothers and Sony for failing to observe federal regulations covering social media influencer campaigns.

Last month’s settlement was the agency’s first enforcement action aimed directly at the influencer personalities themselves.

“While this is the first instance of social media influencers settling claims of misrepresentation online, it likely will not be the last,” Phyllis Marcus, a partner at Hunton & Williams, noted in an online post.

The FTC’s actions on social media endorsements “have gone all up and down the marketing chain,” she told the E-Commerce Times.

Multiple Connections

The recently settled case involved the owners of CSGO Lotto, an online gaming service. First, Trevor Martin and Thomas Cassell, two social media influencers widely followed in the Internet gaming sector, deceptively endorsed the services of CSGO Lotto, “while failing to disclose they jointly owned the company,” the FTC charged.

Second, the two owners compensated various well-known personalities in the gaming business with money or credits valued between US$2,500 and $55,000 per transaction to endorse CSGO Lotto, without adequately disclosing the financial arrangements, the commission said.

“Cassell, Martin, and CSGO Lotto falsely claimed that their videos and social media posts — and the videos and posts of the influencers they hired — reflected the independent opinions of impartial users,” the FTC maintained.

Posting platforms included YouTube and Facebook.

The settlement requires Cassell, Martin and the company to make endorsement disclosures clearly and conspicuously in the future. Failure could result in penalties of up to $40,000 per day.

Per the normal terms of such consent agreements, the company and the two owners cited by the FTC neither admitted or denied the charges. The settlement will become final after the FTC reviews public comments that were due in early October.

Warnings and Notices

The warning letters that the FTC issued last month were addressed to a group of 21 endorsement personalities as a follow-up to 90 educational letters the commission sent to marketing brands and influencers earlier this year.

Despite that notice, the FTC suspected that the 21 influencers still maintained associations with social media endorsements via Instagram, which failed to provide adequate clarification of any commercial connections. The commission required responses to the warning letters by Sept. 30.

The FTC’s updated guidelines include answers to a number of newly generated questions relevant to social media advertising, including influencer postings. The guidelines cover not only the endorser personalities but also the original brand marketers, advertising agencies, public relations firms, and even companies that recruit and assemble influencers.

“Marketers, brands and advertisers are responsible for the lack of disclosure of material connections in social media by the influencers they hire or otherwise incentivize,” said Michael Ostheimer, an FTC attorney in the commission’s advertising practices division.

“The FTC has long required disclosure of material relationships in product endorsements, and their recent action regarding social media influencers will be carefully reviewed and evaluated by companies in the retail industry,” said Paul Martino, senior policy counsel at the National Retail Federation.

The NRF “will solicit the views of our member companies on this matter,” he told the E-Commerce Times.

“It would be premature for us to judge its significance to our industry or take a position on the FTC action before the end of the agency’s public comment period,” Martino said.

The updates address not only the broad legal concepts surrounding false or misleading practices, but also technical presentation points, such as the use of hashtags, placement of notices on device screens, and determination of compensation for endorsers.

Social Media Platforms Exempted

Significantly, the social media platforms themselves are not affected by the FTC’s activities.

“The platforms are not responsible for the social media posts of influencers who use them,” the FTC’s Ostheimer told the E-Commerce Times.

Some platforms even have initiated programs to assist marketers in meeting FTC requirements. Instagram earlier this year launched a social media influencer disclosure program featuring the use of a “Paid Partnership” subhead, for example.

“Partnerships between community creators and businesses are an important part of the Instagram experience, and a healthy community should be open and consistent about paid partnerships,” an Instagram blog post reads.

“Since June of this year we have been closely working with a select group of creators and businesses throughout the Instagram community to test our new ‘Paid Partnership With’ tag,” the company said in a statement provided to the E-Commerce Times by spokesperson Jessica Gibby. “We’ve gradually expanded access to the tag to more of our partners across Instagram.”

Instagram’s ‘Paid Partnership With’ notification “clearly describes when creators and their business partners have entered into a commercial relationship to post on Instagram,” according to the company.

In addition, Instagram has adopted a policy that is the same as Facebook’s branded content policy.

While such platform-provided tools can be helpful, marketers should not necessarily rely on them.

The FTC’s warning that “brands should not assume that a social media platform’s own disclosure tools are sufficient to bring a post into compliance,” noted Hunton & William’s Marcus in an advisory.

The bottom line is that the FTC has well publicized its policy through actual enforcement cases, press statements and advisories, including “The FTC’s Endorsement Guides: What People Are Asking.”

Thus, social media marketers who fail to inform themselves of the FTC policies or who disregard regulations could find themselves subject to FTC oversight.

“The FTC’s warning letters show that the agency is committed to capitalizing on its recent enforcement actions against brands and influencers,” Marcus said, “and will continue to scrutinize social media compliance with the Endorsement Guides.”

John K. Higgins

John K. Higgins has been an ECT News Network reporter since 2009. His main areas of focus are U.S. government technology issues such as IT contracting, cybersecurity, privacy, cloud technology, big data and e-commerce regulation. As a freelance journalist and career business writer, he has written for numerous publications, includingThe Corps Report and Business Week.Email John.

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