Modernizing Federal Trade Commission enforcements for the influencer economy

By Grace Park

The creator economy has rapidly surged into one of modern commerce’s most prominent currencies, currently valued at approximately $250 billion and expected to reach $500 billion by 2027. Despite accounting for hundreds of billions of dollars in advertising and brand partnerships worldwide, the United States’s disclosure laws have failed to keep pace, still struggling to distinguish forms of authentic expression from paid promotions. Continuing to regulate digital advertising through guidelines designed for traditional media platforms is growing increasingly irrelevant in reflecting the complex overlap between self-expression and monetization in today’s influencer economy. To address such outdated guidelines, the FTC could implement AI-driven monitoring to existing law to fulfill its duty of protecting consumers while also contributing to the operation of efficient and ethical digital markets.  

The Federal Trade Commission’s Endorsement Guides derived from Section 5 of the FTC Act, first issued in 2009 and most recently revised in 2023, states creators should “make it obvious” when there is any “material connection” with brands to prevent “unfair or deceptive acts or practices in or affecting commerce,” including undisclosed endorsements that have the potential to mislead consumers. Although this statute aimed to modernize regulations, it has only proved effective for written blogs and long-form videos, not for short-form or livestreamed content that predominately drives the influencer market; in fact, the Federal Register admitted that emerging technologies like AI algorithms in the fast-paced influencer market have made it difficult to enforce such regulations. This difficulty partially stems from the fact that, under the current guidelines, the FTC can only act after a violation occurs, by filing a post-hoc case, meaning undisclosed sponsorships would already be actively circulating in the media. This is inevitably a slow process, where deceptive content can only be flagged after consumers have already been misled. Therefore, these disclosures, that rely on voluntary honesty rather than structural mandates, induce a fragile system, where consumers are constantly tempted to question influencer authenticity, ultimately leading to declining trust in sponsored content. Such a weakened public trust can cause information asymmetry, which is when one party has more information than another, and can lead to a market failure where ethical behavior becomes a disadvantage. In this case, creators compliant with the disclosure rules would be at risk of losing popularity, while their noncompliant competitors profit from being dishonest. 

The limitations of these guidelines are most prevalent in the FTC’s delayed enforcement of disclosure guidelines in cases of influencer advertising misconduct. In 2016, the FTC filed a complaint to Warner Bros. Entertainment Inc. when they determined the company’s advertising agency, Plaid Social Labs, had intentionally deceived consumers through marketing campaigns on Twitter and Facebook that promoted the video game Middle Earth: Shadow of Mordor. Warner Bros. had provided a free advance-release version of the game and paid influencers, from hundreds to tens of thousands of dollars, to post positive reviews while barring them from exposing any glitches they may have experienced. Moreover, Warner Bros. not only did not require these influencers to disclose their sponsorships, but also instructed them to signal any disclosure in the video description box beneath other information, only visible to viewers who clicked “Show More,” a feature not even available on Twitter or Facebook. Eventually, under the final order, which was voted 3-0, Warner Bros. was prohibited from enacting similar directions to its endorsers in future campaigns. 

Although the case concluded by banning Warner Bros. from intentionally misleading consumers, this case depicts the underlying issue of the FTC’s current guidelines. Influencers’ undisclosed marketing campaigns had immediately gained attention from viewers, who falsely believed that the reviews were genuine. Essentially, the FTC issued a consent order only after the campaign had achieved its marketing objectives and generated 5.5 million views, exposing how under current guidelines, the FTC can only intervene after deceptive content gains popularity and causes possibly irreversible economic and reputational damage.

Another case that demonstrates the underlying issues in the current guidelines can be seen in FTC v. Lord & Taylor (2016), where Lord & Taylor was charged with paying 50 fashion influencers to engage in a social media campaign that would promote a new private-label Design Lab collection without disclosing their partnership. The influencers could not reveal the fact that Lord & Taylor had sent them the dress and payout, of $1,000 to $4,000, for endorsement. The campaign went viral in just two days, with the influencers’ content reaching 11.4 million Instagram users and Lord & Taylor’s Instagram handle receiving 328,000 brand engagements; the dress rapidly sold out. Furthermore, Lord & Taylor pre-approved a photo and caption of the Paisley Asymmetrical Dress to be published in the fashion publication Nylon, without any indication of it being a paid advertisement. Eventually, the consent order prohibited Lord & Taylor from misrepresenting paid advertising as independent content and mandated disclosure of any relationship between the retailer and an endorser, along with implementing a monitoring program for future campaigns. 

The two cases indicate a prevalent pattern of how the FTC heavily relies on retrospective forms of recourse, such as consent orders, to resolve influencer endorsement violations. Scholars have argued such settlements cannot effectively prevent corporations from acting similarly in the future, as misconduct only leads to minimal penalties and lets companies move on without significantly owning up to their wrongdoing. A recent analysis stated that the FTC’s current strategy of only addressing miscompliance through consent orders has resulted in issues being resolved years after the misleading content becomes popular, questioning the current guideline’s competence to ensure timely responses. This indicates that the FTC’s enforcement can only provide a delayed response to noncompliance because it relies too heavily on public reporting rather than proactive evaluations. In today’s fast-paced e-commerce economy, by the time regulators begin investigating, the content would have already achieved its commercial intentions, and such delays not only worsen the Commission’s credibility but also weaken the overall effectiveness of the guidelines themselves. 

The FTC could address these shortcomings by modernizing enforcement with relevant regulations that better fit the influencer economy, specifically by integrating artificial intelligence into social media platforms’ infrastructures to reduce dependence on manual disclosures. This approach has already shown to be technically feasible, as ReelMind AI analyzes visual and textual cues to verify sponsorship compliance, while Impact.com is testing AI tools across marketing platforms to monitor and manage disclosure practices. Because these technologies are already being operated in the private sector, adopting it into the FTC’s guidelines can also be considered realistic. To build on these models, the FTC could enforce a standardized process across major platforms, where algorithms detect sponsorships, creators confirm them, and regulators track compliance through a shared database. To ensure the guidelines remain relevant, a review board of FTC officials, engineers, and advertisers could regularly update standards. This would facilitate a living guideline that will adapt to technology’s rapid advancements and aligns with the Commission’s “flexible” Endorsement Guides designed to evolve with commerce. Overall, the FTC could improve the efficacy of enforcement guidelines by implementing the aforementioned strategies of automating monitoring that will ensure faster detection of noncompliant content, contributing to a more responsive regulatory process. 

Effective disclosure enforcement is essential because it protects both consumers and creators. Introducing incentives can further motivate people to follow this policy. In this case, all parties of the system will be incentivized to follow the guidelines: platforms minimize regulatory liability, brands achieve higher returns on investment (ROI), and creators earn credibility and better partnerships. Furthermore, this demonstration of honesty can generate measurable financial growth and positively impact the overall economy, as trusted brands consistently outperform competitors in long-term market outcomes. By converting ethical behavior into tangible returns, this new regulation will help people perceive honesty as a profit multiplier, rather than a regulatory burden. From a legal perspective, improving disclosure enforcement strengthens the FTC’s ability to prevent deceptive practices, fulfilling its original mandate from 1914. In the digital economy, ensuring that every campaign is honest and correctly disclosed is not solely a marketing concern, but rather a practice that maintains regulatory legitimacy and consumer rights. 

Although the FTC already prohibits deceptive endorsements, the current enforcement tools have failed to keep up with the speed and complexity of influencer advertising. Integrating AI-based monitoring within the FTC’s existing disclosure guidelines could address this problem, utilizing modern technology, like AI, into an enforcement technique.By applying data-driven oversight to existing legal obligations, the FTC can reinforce consumer protection, rebuild public trust, and re-affirm the importance of enforcing honesty in digital markets. By connecting ethical practices with efficient economics, the FTC can improve the digital marketplace to be one where trust itself drives growth, which should be the standard for the future of e-commerce.