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States Take On Fake Online Reviews and Endorsements

State attorneys general and a key federal agency are working to prevent false or manipulated reviews that can lead to purchases of of poor-quality products or services, reports Pew's Stateline. But the scale of the problem overwhelms those enforcement efforts so far, according to recent studies from the Center for Data Innovation and the World Economic Forum. The forum estimates that fake reviews cost consumers $152 billion in online spending annually, and influence up to $791 billion in e-commerce spending in the U.S. alone when consumers choose another product based on a negative review. “It’s a real problem for both consumers and business,” said Daniel Castro, director of the Center for Data Innovation, which published a report in September on the issue. “The problem with fake reviews is there’s a lot of incentive to cheat,” he said, adding that people can use fake reviews to build up their own businesses or to hurt a competitor.

Few states have laws or regulations specifically targeting online reviews, Castro said. Consumer-friendly states such as California, Colorado, Illinois and Massachusetts use their broad consumer protection laws to go after offenders, while many other states remain silent on the issue or do not have strong enough laws, he said. To address the problem, the Federal Trade Commission announced last week it is exploring tougher rules to combat fake reviews, the suppression of negative reviews, and payments for positive reviews. The FTC served notice in the Federal Register that it is soliciting public comments on the proposed rule through January. Additionally, last year the FTC put more than 700 companies on notice that if they used false endorsements, the agency was ready to take action. In the meantime, since the federal agency is unable to seek monetary relief on its own, it is teaming up with states to file lawsuits on behalf of consumers. States are also working on strengthening laws in an attempt to prevent or decrease the number of fake reviews. In Tennessee, it's already illegal under state consumer law to use false testimonials. Tennessee’s consumer protection laws reflect other states’ laws that have penalties, including awarding of damages to injured parties. However, the National Consumer Law Center has argued that while some states have strong Unfair and Deceptive Trade Practices laws, many fall short, and “their effectiveness varies widely from state to state.”


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