Recently Edmunds.com sued an online reputation company that posted reviews to its website, and other websites such as Yelp. The lawsuit alleges that the company, Humankind, posted fake reviews on behalf of dealership clients that showed the dealerships in a favorable light. Last year, Yelp began flagging reviews that it believed were paid for by businesses hoping to boost their popularity on Yelp. These actions by Edmunds.com and Yelp highlight a growing concern that the parties are trying to manipulate ratings on review websites in order to attract additional business. Many dealers do not understand that services that offer to post reviews on a business’s behalf for a fee may breach state and federal consumer protection laws.
According to guidance issued by the Federal Trade Commission (“FTC”) on paid reviews:
The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed [emphasis added].
A favorable review posted online about a dealership’s services would fall within the definition of an endorsement. It is likely that the FTC would find a material connection between dealerships that pay for reviews and the individual endorsers or businesses that compile these endorsements. If material connections exist between your business and the endorser, the FTC requires full disclosure of this relationship. In case above, full disclosure would mean each review stating clearly what consideration the dealership paid for the review. Even if you do not contract with a vendor to submit reviews, you have to comply with the FTC’s rules. For example, if you give a consumer a gift card in return for a favorable review, the customer must disclose he or she received the gift card in exchange for the review. Failing to make the necessary disclosures may result in significant fines and penalties. In one enforcement action, the FTC levied $250,000 in fines against a business for failing to disclose it compensated reviewers for favorable reviews.
If your dealership pays for favorable reviews, you should reconsider this practice. Failing to disclose material connections between the dealership and the reviewer may result in enforcement actions and significant fines. If you contract with vendors to provide this service, you are responsible for their conduct. It is not enough to plead ignorance regarding the vendor’s practices. When selecting a vendor offering “reputation management” services, you must ask whether or not the vendor pays reviewers for reviews.