FTC Launches "Operation AI Comply" to Combat Deceptive AI Claims

Operation AI Comply has come out swinging against five companies the FTC says are peddling 'deceptive AI claims and schemes'

Five's a good start sure, but I'll bet this has made a few AI hype merchants more than a little worried. The internet is awash with companies using the "magic-in-a-box" nature of AI to hype their often-dubious products, and it seems like the Federal Trade Commission is finally taking action. The US government consumer protection agency has announced Operation AI Comply to combat "operations that use AI hype or sell AI technology that can be used in deceptive and unfair ways," kicking things off with five companies that it reckons have fallen foul of existing consumer protection laws. Top of the list is DoNotPay, an AI legal assistant that the FTC says did not deliver on its promises to "sue for assault with a lawyer" and "replace the $200-billion-dollar legal industry with artificial intelligence." The complaint alleges that DoNotPay offered a service that it claimed would check a small business website for "hundreds of federal and state law violations", which the FTC says was not effective, along with allegations of a lack of testing to determine if the output was equal to the level of a human lawyer. DoNotPay has reportedly agreed to a settlement requiring it to pay $193,000 in fines, along with providing a notice to consumers who made use of the AI features between 2021 and 2023 warning them of the limitations of its service. The FTC has also filed against Ascend Ecom, a company it describes as an "online business opportunity scheme" (if that description doesn't set off red flags, I don't know what will) that the FTC alleges "defrauded consumers of at least $25 million" and promised to produce a five-figure monthly income by the second year of subscription. Also on the list is Ecommerce Empire Builders -- a name that seems like it should set off sirens and tip a bucket of water over your head at its mere mention -- Rytr, an AI writing assistant that allegedly writes deceiving reviews, and FBA Machine, "a business opportunity scheme that allegedly falsely promised consumers that they would make guaranteed income through online storefronts that utilized AI-powered software." FTC Chair Lina M. Khan said: "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." Well, good. While plenty of companies have been happy to bolt AI features onto their products and services to ride the AI hype train, they're still required to not mislead the consumer with what they can actually achieve -- and it seems like the FTC are going after some particularly egregious-looking examples to start off with. Of course, there are some legitimate uses for AI that are already active in the real-world and potentially doing some good. But snake-oil salesmen will always jump on the latest fad to make a quick buck, and we can only hope that, through continued action like this, many might finally be held to account for their ill-gotten gains.

FTC initiates action against AI related deceptive conduct

The Federal Trade Commission (FTC) is taking action against five entities that used artificial intelligence to deceive and harm customers, as part of its new law enforcement sweep called Operation AI Comply. FTC Chair Lina M. Khan said "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. " These crimes ranged from schemes claiming to possess AI tools as good as lawyers to e-commerce business opportunity falsely promising high returns through AI-powered schemes. One of the companies also provided a service that allowed its subscribers to generate fake reviews using AI and deceive customers. DoNotPay This company claimed to offer an AI service that was "the world's first robot lawyer." The company made various unverified claims. According to the FTC's complaint, DoNotPay promised that its service would allow consumers to "sue for assault without a lawyer" and "generate perfectly valid legal documents in no time," and that the company would "replace the $200-billion-dollar legal industry with artificial intelligence." Aside from this, DoNotPay also claimed that it offered a service that would check a small business website for federal and state legal violations based solely on the consumer's email address saving a small business $125,000 in legal fees. However, this service was also not effective. DoNotPay has agreed to a proposed order to settle the charges against it and pay a $193,000 fine. The Commission will also order it to provide a notice to consumers that subscribed to its service between 2021 and 2023 warning them about the limitations of law-related services. The company will also be banned from making claims about its ability to substitute for any professional service without supporting evidence. The company operated a scheme that falsely claimed that its "cutting edge" AI-powered tools would help consumers quickly earn thousands of dollars a month in passive income by opening online storefronts. It defrauded consumers of at least $25 million by charging tens of thousands of dollars to start online stores on ecommerce platforms such as Amazon, Walmart, Etsy, and TikTok, while also compelling them to spend more money on inventory. Ascend falsely advertised itself as a leader in e-commerce that used proprietary software and artificial intelligence to maximize clients' business success. The complaint alleged that Ascend received numerous complaints from consumers, pressured consumers to modify or delete negative reviews, frequently failed to honor their "guaranteed buyback," and unlawfully threatened to withhold the supposed "guaranteed buyback" for those who left negative reviews of the company online. The federal court has issued an order temporarily halting this scheme and the FTC's case is still ongoing. A scheme, Ecommerce Empire Builders, falsely claimed that consumers could have "AI-powered Ecommerce Empire" and make millions of dollars by participating in its training programs that can cost almost $2,000 or by buying an online storefront for tens of thousands of dollars. In its social media ads, it claimed that its clients can make $10,000 monthly, but the FTC's complaint alleges that the company has no evidence to back up those claims. Consumers have complained that the stores they purchased made little to no money, and that the company has resisted providing refunds to consumers, either denying refunds or only providing partial refunds. Like Ascend, the federal court has halted the scheme while the FTC continues to investigate. In June, the FTC took action against a scheme that allegedly falsely promised consumers a guaranteed income through online storefronts that utilized AI-powered software. According to the FTC, the scheme was under the names Passive Scaling and then FBA Machine. It cost consumers more than $15.9 million based on deceptive earnings claims. These were rarely compensated. Passive Scaling rebranded itself as FBA Machine in 2023 after it was sued and failed to refund its customers. Its marketing materials claim that FBA Machine uses "AI-powered" tools to price products in the stores and maximize profits. Allegedly, it promised consumers a "7-figure business" and cited supposed clients who "generate over $100,000 per month in profit." The company sales agents told consumers that the business was "risk-free" and falsely guaranteed refunds to consumers who did earn back initial investments, which ranged from tens of thousands to hundreds of thousands of dollars. The federal court has also issued an order against FBA Machine temporarily halting the scheme. Marketed and sold as an AI "writing assistant" service, it allowed consumers to create fake detailed consumer reviews. The "Testimonial & Review" generation tool allowed paid subscribers to create reviews for products with no input from the user. Paid subscribers could generate an unlimited number of reviews based on very limited and generic input. In many cases, these AI-generated reviews would deceive potential consumers and influence their purchasing decisions. The complaint alleges that at least some of Rytr's subscribers used the service to produce hundreds, and in some cases tens of thousands, of reviews potentially containing false information. The complaint has charged Rytr with violating the FTC Act by providing subscribers with the means to generate false and deceptive written content for consumer reviews. Further, it alleges that the company engaged in an unfair business practice by offering a service that is likely to pollute the marketplace and harm both consumers as well as honest competitors. The FTC proposed that banning Rytr from advertising, promoting, marketing, or selling any service dedicated to - or promoted as - generating consumer reviews or testimonials. The proliferation and popularity of AI has led to new fraud methods in recent years. For example, recently a North Carolina man was arrested for committing wire fraud by creating automated bots and streaming AI-generated songs on streaming platforms. He fraudulently obtained more than $10 million in royalty payments from platforms such as Amazon Music, Apple Music, Spotify, and YouTube Music. He collaborated with an AI-company to create a large music catalogue the bots could stream to create large amounts of revenue, demonstrating a new method of using AI to commit fraud.