Regulator opens investigations into transparency of paid online endorsements

Out-Law News | 19 Jun 2015 | 3:24 pm | 3 min. read

The Competition and Markets Authority (CMA) is investigating whether a number of businesses have broken consumer protection laws by failing to disclose that they have paid others to endorse their company online.

The investigations have been launched after the CMA held a call for information earlier this year in an effort to deepen its understanding of the way businesses use online reviews and endorsements. The information-gathering exercise was conducted after concerns were raised about the "trustworthiness" and "impartiality" of online reviews and endorsements.

The regulator said that it had found evidence that some companies might be breaching the UK's Consumer Protection from Unfair Trading Regulations (CPRs) and advertising rules.

"We are … concerned that some businesses may be paying for advertising or sponsored content in blogs and other online articles without ensuring that this is obviously identifiable to consumers," the CMA said in a new report (71-page / 734KB PDF). "In some circumstances, we found that paid endorsements are not being disclosed adequately and, in others, we found that they are not being disclosed at all. The information we gathered suggests that many businesses may be engaging in these practices."

"Our qualitative research suggests that consumers are likely to place less reliance on promotional material than they would on an endorsement that they might consider to be the genuine opinion of a blogger or vlogger. This activity therefore has the potential to lead to consumers choosing a product or service that does not meet their needs as well as an alternative product or service would, and for some businesses to lose custom as a result," it said.

The CMA said that it estimates that online reviews influence as much as £23 billion worth of consumer spending in the UK each year. It said, however, that there are review practices that concern it, including the writing or commissioning of "fake positive reviews" by businesses. It said it is also concerned that businesses are involved in "fake negative reviews" of rivals' products or services.

Businesses promoting products or services online, or which allow consumers to review them, should "not pretend to be a consumer and write fake reviews about their own or other businesses’ goods and services". They should also "ensure that advertising and paid promotions are clearly identifiable to readers/viewers as paid-for content (whether the payment is financial or otherwise)", the CMA said.

Review sites should not suppress negative reviews they collect and display unless they make it "clear to readers that they are presenting a selection of reviews only", the CMA said. It said that other review-related initiatives which can result in good outcomes for individual consumers may, however, breach consumer protection rules.

"It appears that some sites may not be publishing some genuine negative reviews and instead encourage businesses to take action to resolve the customer’s complaint," the CMA said. "This might lead to a good outcome for the individual customer who left the review; however, we are concerned that other consumers looking at these review sites are getting a less complete picture of what reviewers have said about a business. This could mean that they do not make the best choice for them, particularly if they are not aware that this practice is taking place."

CMA said businesses that publish or host product or service reviews should know where reviews come from and how they are checked prior to their publication and ensure that all reviews, positive and negative, are published without "unreasonable delay" so long as they are "genuine and lawful".

The review platforms should also outline to consumers the circumstances in which their reviews might not be published or could be edited, and disclose any "commercial relationships" they have with businesses that appear on their site and whether and how this affects review ratings, it said.

Paid-for content should be clearly identifiable as such and "appropriate procedures" should also be installed to ensure fake reviews are detected and removed, the guidance said.

The CPRs prohibit unfair commercial practices, which include using advertorials – editorial comment to promote a product – without making it clear that the trader has paid for the promotion. The Regulations also ban businesses from pretending to be a consumer and giving themselves a positive review in a practice known as 'astroturfing' as it fakes grass-roots support for a product or service. This is a criminal offence and business proprietors are potentially liable for an unlimited fine and a prison sentence of two years.

In 2011, the Internet Advertising Bureau (IAB) UK and Incorporated Society of British Advertisers (ISBA) published guidance on how brand owners and marketers can comply with consumer protection laws and rules on advertising when making a payment in order to "editorially promote" products and services on social media platforms.