FTC Launches Crackdown on Misleading AI Claims and Scams

The FTC goes hunting for misleading 'AI' product claims and scams

Five companies peddling AI-enhanced products and schemes have been targeted for misleading customers. The term "AI" is inescapable right now, spreading its way across every facet of every market, whether it actually makes sense or not. And as it turns out, the US Federal Trade Commission (FTC) is as sick of all this AI-related branding as everyone else. A recent regulatory push dubbed "Operation AI Comply" now has the FTC cracking down on some of the more notable AI implementations, including at least three alleged scams. A press release from last week detailed five new cases that the FTC is taking on, specifically targeting firms that sprinkle AI-related claims into their businesses. It quotes chairperson Lina M. Khan, who's been particularly proactive since her appointment in 2021: "Using AI tools to trick, mislead, or defraud people is illegal. The FTC's enforcement actions make clear that there is no AI exemption from the laws on the books. By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected." One company has already settled its case, but four others remain under active investigation, according to the press release: The last three are arguably only tangentially related to AI. The dream of "passive income" has been a frequent online siren song since The 4-Hour Workweek was published in 2007, and all three are examples of this thinking being applied to sell more "courses" and pre-built online stores. (Pro tip: If someone is selling you a money-making method, ask yourself why they aren't just using that method to make even more money and why they would give away their secrets.) But these three companies sprinkled over-used pitches with claims of new AI generation tools to make them seem more trendy and plausible. All three charged their customers thousands -- or even tens of thousands -- of dollars for "training" and implementation of online stores, which allegedly needed almost no work in order to generate massive, never-ending profits. They've all been halted by federal courts pending more investigations and legal actions. This news follows a push to outlaw AI-generated product reviews and fake social media clout. The FTC is going hell-bent against the effects that large language models are having on American consumers and businesses. The Commission isn't unanimous on all these actions, but it's pretty close: the two Republican-appointed Commissioners only objected on the Rytr case, while all four other cases were 5-0 votes. To be clear, the FTC isn't outlawing the use of AI; rather, the misleading use of AI-related claims to embellish products. It's a refreshingly swift action from regulators who generally struggle to keep up with the latest tech. But it'll take a lot of diligence to keep up with the growing flood of AI scams and other shenanigans as the technology spreads.

FTC cracks down on five AI companies

The Federal Trade Commission (FTC) has taken legal action against five companies for deceptive practices related to their AI technologies, following through on its commitment to regulate unethical AI use. These lawsuits come under the FTC's "Operation AI Comply," targeting firms that either exaggerated their AI's capabilities or used it to break the law. Three of the companies -- Ascend Ecom, Ecommerce Empire Builders, and FBA Machine -- are fighting the allegations in court. They were accused of selling get-rich-quick schemes that claimed their AI-driven tools could create profitable online stores. Instead, these promises led to consumers losing millions, as the profits never materialized. Each of these companies has been issued court orders to cease operations while the cases unfold. FTC Chair Lina Khan emphasized that the misuse of AI for fraudulent purposes is illegal, stating, "The FTC's enforcement actions make clear that there is no AI exemption from the law". The crackdown is part of the agency's larger mission to protect consumers from deceptive practices and ensure ethical AI development. Two companies have already settled with the FTC. One of the more familiar names, DoNotPay, known for its "robot lawyer," was fined for misrepresenting its AI as a legal substitute. Despite the hype, it failed to deliver services that matched real human lawyers, leaving users with incomplete documents and unresolved issues. The most controversial case involves Rytr, an AI company that allowed users to generate fake online reviews. This practice violated the FTC's rules on deceptive advertising, especially since many of these fake testimonials contained false details unrelated to the products or services in question. Although the FTC's decision was contentious, with some commissioners dissenting, Rytr has agreed to stop offering its AI review-generating services. Critics of the case, including former FTC Chief Technologist Neil Chilson, argue that holding AI companies responsible for user-generated content sets a dangerous precedent. He expressed concerns that this decision could stifle innovation by penalizing developers for how users misuse their tools, even if the company itself didn't cause harm. The FTC's actions mark a significant moment in regulating AI technologies. While some worry this could stifle innovation, the agency is standing firm on enforcing consumer protection laws, making it clear that AI developers must be accountable for how their technology is used. As AI continues to evolve, this might be just the beginning of stricter oversight in the industry.