Mark Pestronk
Mark Pestronk

Q: I have heard that there are federal regulations about paid endorsements in ads and social media. Where can I find those regulations? If I add a good client review to our website after paying the client $100 for permission to do so, do we have to disclose anything? If we paid the client $100 to post the review on her Facebook page, would that be legal? What if we arranged for her to get a discounted trip in return for her next endorsement? What if we paid her just to post an Instagram photo from her last trip? Would it make any difference if the endorser is our employee instead of a client? If we don't disclose anything that we have to disclose, what could happen to us?

A: The Federal Trade Commission (FTC) has a regulation called "Guides Concerning the Use of Endorsements and Testimonials in Advertising," which can be found at 16 CFR Part 255. The FTC considers noncompliance with the guidelines to be an unfair and deceptive practice in violation of federal law.

A review or endorsement that appears on your website or in an ad, blog or social media is fine as long as there is no financial connection between your agency and the reviewer or endorser. The FTC disclosure requirements come into play only where there is a financial connection.

The basic principle of the regulation is that if there is a financial connection between your agency and the reviewer, endorser or celebrity that "would not reasonably be expected by the audience," then you have to disclose that connection clearly and conspicuously. On the other hand, if the financial connection would be expected by, or obvious to, a consumer, then you don't have to disclose anything.

Applying the basic principle to each of your questions is difficult because there is so much gray area between what an ordinary consumer wouldn't expect, on the one hand, and what is obvious, on the other hand. The FTC helps by providing dozens of examples of when disclosure would or wouldn't be required, so we can analogize to find answers to your questions.

If you pay a client to post a favorable Facebook review or even to post a photo on Instagram with a caption plugging your agency, the client must disclose that she received payment, since no one would ordinarily know about the financial connection. Otherwise, both she and your agency are in violation of the rule.

If you promise or provide the client with a discounted trip for her next social media review or photo posting, she must likewise disclose the financial connection when she posts. Some examples of acceptable wording are: "ABC Travel paid for part of my trip," "Thanks to ABC Travel for the discounted trip" or "Sponsored by ABC Travel."

If the reviewer is your employee or independent contractor (IC) who received a free or discounted trip, then you wouldn't need to disclose anything on your website, other than the fact that the reviewer is your employee or IC, since the financial connection would be expected by, and obvious to, anyone. On the other hand, if the employee posted the review or endorsement on social media, you would need to require her to disclose that she is affiliated with your agency or that she received consideration for the posting.

If you don't comply with the FTC's regulation, it can fine your agency as well as the endorser. Any consumer who can show that he was misled and suffered a loss due to nondisclosure can also sue you for damages under each state's unfair trade practices law.

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