Reviewing the Regulation of Fake Reviews

When exchanging goods and services online, customer reviews help potential consumers make informed purchase decisions and allow businesses to advertise their products freely. But those reviews may not be trustworthy.

With 77 percent of online shoppers using reviews to inform their purchase decisions, customer reviews play a crucial role in shaping international commerce. Fake reviews, which include manufactured and deceptive reviews, constitute about 4 percent of all reviews online. This 4 percent translates to a cost to consumers of $152 billion in online spending each year and a cost to businesses of $791 billion in lost sales each year in the United States alone.

Despite the prevalence of fake reviews, the Center for Data Innovation found that almost half of American consumers trust online reviews to the same degree that they trust recommendations from friends or family members.

Some states have taken up the mantle to enact bills intended to protect consumers from trusting the verity of online reviews. A bill in Tennessee, for example, would have rendered the posting of fraudulent online reviews a violation of the state’s Consumer Protection Act.

Recognizing the need for a more comprehensive framework, the Federal Trade Commission (FTC) has since called for public feedback on the use of reviews and endorsements. The agency specifically sought comment on the “pervasiveness and potential harms” of “deceptive or unfair practices” concerning online reviews. FTC includes in its definition of deceptive or unfair online review practices the use of fraudulent reviews, paid reviews, insider reviews, and review suppression.

The FTC has also already pursued enforcement actions against certain perpetuators of fake reviews. For example, just a few months after seeking comment on the proposed rulemaking, the FTC ordered Fashion Nova, a digital fashion retailer, to pay $4.2 million for suppressing negative reviews of its products. The FTC also sued Roomster, a digital apartment and roommate platform, for purchasing reviews and charging consumers for fraudulent apartment listings. An assortment of individual states, including California and New York, have also filed lawsuits.

Following a Supreme Court decision that limited the FTC’s ability to pursue monetary relief for consumers under the Federal Trade Commission Act, however, these individual enforcement actions may be insufficient to protect consumers from deceptive online review practices.

In this week’s Saturday Seminar, experts discuss the ways in which regulation can protect consumers and businesses from fake reviews online.

• In an article published by the Journal of Consumer Policy, Madalena Barreto Torres de Mendonca Narciso of the Netherlands’s Maastricht University classifies fake reviews as “an obstacle that haunts consumers, practitioners, regulators, and academics alike.” Focusing on the regulatory standpoint, Narciso suggests that online reviews have the potential to play a complementary regulatory role, working in tandem with more traditional consumer law to protect consumers. Narciso explains that, particularly in the European Union, regulations protect consumers by providing them with information, which has resulted in extraordinarily long terms and conditions that overload users. Online reviews could, in theory, provide an additional, simpler source of information about the product or service that consumers could use to inform their purchase decisions. Eventually, these reviews could justify the deregulation of consumer information, Narciso contends.
• Online reviews can have substantial financial repercussions, and these potential repercussions encourage companies to plant fake, favorable reviews for their products, according to Sameer Kulkarni of Amity Business School in an article published by Business, Management and Economics Engineering. Kulkarni explains that published indications of consumer trust, like those contained in online reviews, help companies to attract new buyers and retain existing customers. If these reviews are doctored by financially motivated companies, Kulkarni contends this may ultimately erode consumer trust in review platforms and inhibit the successful functioning of online markets. Kulkarni argues that regulatory initiatives have so far struggled to curtail these manipulations of the marketplace. The EU, for example, recently found that about 55 percent of active online platforms violate its unfair commercial practices directive.
• In a report published by the Center for Data Innovation, Morgan Stevens and Daniel Castro discuss the FTC’s recent steps to combat fake reviews. The FTC, Stevens and Castro explain, has jurisdiction to bring actions against companies accused of manipulating their consumer reviews. In 2022, for example, the FTC settled with a company that censored negative reviews on its website. In addition, at the end of 2022, the FTC reported its intention to enact more stringent guidelines against review manipulation. Stevens and Castro provide several recommendations for the FTC and other policymakers to stop the rise of fake reviews, including enforcing stricter penalties and regularly updating the FTC’s best practice guidelines for businesses and consumers.
• In an article published in SN Social Sciences, Juan María Martínez Otero of the University of Valencia analyzes enforcement actions against fake reviews in the United States and compares U.S. actions with those in the European Union. The FTC, Otero explains, has prosecuted fake reviews as deceptive advertising under consumer protection law. Otero observes that enforcement actions in both the United States and European Union tend to be against fake positive reviews rather than fake negative reviews. But Otero contends that the United States has adopted a much stricter approach to combat fake reviews, as shown by the significantly higher number of sanctions against companies in the United States than in the European Union. To eradicate fake reviews effectively, Otero recommends that digital platforms exchange information with public authorities to work together in a joint collaborative fight against deceptive advertising.
• In a recent article for Law, Innovation and Technology, Mateja Durović and Tim Kniepkamp of King’s College London discuss the inadequacy of current EU consumer law in protecting consumers from fake reviews online. They argue that an effective framework would minimize the manipulation of authentic online reviews by holding online platforms accountable for fake review violations. Among other suggestions, Durović and Kniepkamp recommend implementing reviewer identification processes that help platforms link opinion spam or reviews created by traders to bad actors. They also advocate limits on incentives that companies provide for submitting online testimonials. They suggest capping incentives at 5 percent of the transaction value, requiring disclosure of incentivized reviews, and excluding incentivized reviews from average ratings.
• Increasing e-commerce usage in Indonesia has revealed significant power imbalances between consumers and businesses, argue Hardiana Clarisa and Hany Areta Athayalia of the University of Indonesia in a recent article for The Lawpreneurship Journal. According to Clarisa and Athayalia, consumers lack awareness of their rights and obligations, leaving them vulnerable to fake reviews and exploitation. They contend that Indonesia would do well to emulateS. provisions on regulating fake reviews. Specifically, they point to the Consumer Fairness Review Act (CFRA), which outlines the illegality of reviews that are fake or paid for by business actors. In addition, they recommend Indonesia adopt the CRFA’s compliance education provision, which would require the government to instruct all businesses on the law’s prohibitions on reviews.