Podcast - FTC to Focus on Deceptive AI Claims: Compliance Management Strategies

Good day and welcome to another podcast of Clearly Conspicuous. As we stated in previous sessions, our goal in these podcasts is to make you succeed in this current regulatory and governmental environment, make you aware of what's going on with the federal and state consumer protection agencies and give you practical tips for success. It's a privilege to be with you today.

Today we discuss the FTC's interest in deceptive artificial intelligence claims and also provide a compliance management strategy. As you all may well be aware, the Federal Trade Commission (FTC) has shown a growing and express interest in scrutinizing deceptive claims related to artificial intelligence (AI). This interest stems from the agency's core mission to protect consumers and ensure fair competition. So, here's a broad overview of the FTC's actions and posture on AI-related deception:

Context: Why the FTC Is Involved

The FTC's authority under Section 5 of the FTC Act gives it broad power to police unfair or deceptive acts or practices, including false advertising, misleading marketing claims and unfair business practices. As AI technologies, especially generative AI, have become more prominent in consumer products and business services, the FTC sees increased potential for deceptive or hyped claims that can mislead consumers or distort markets.

Enforcement Focus Areas

The FTC has signaled that it is especially concerned with:

• exaggerated performance claims about AI-powered products
• falsely labeling products as AI-driven to capitalize on the hype (AI-washing)
• opaque data practices, especially involving biometric or personal data collected by AI systems
• bias and discrimination in AI decision-making systems, for example, in hiring, credit scoring or surveillance
• consumer manipulation, especially through hyper-personalized content or simulated interactions that appear human

Key Guidance and Public Statements

The FTC has issued formal business guidance and blog posts warning companies about deceptive AI practices. Notable takeaways include:

• Unsubstantiated claims that a product uses AI or uses it in a particular way could be considered deceptive.
• Don't overpromise what AI can do and remind companies that claims must be truthful, substantiated and not misleading.
• The FTC will increase its scrutiny of AI systems that collect or use biometric data, especially where deception or lack of consent is involved.

Enforcement Actions

FTC Chairman Andrew Ferguson called for the FTC to regulate artificial intelligence claims through its existing consumer protection authorities, and he quotes: "Imposing comprehensive regulations at the incipiency of a potential technological revolution would be foolish. For now, we should limit ourselves to enforcing existing laws against illegal conduct when it involves AI no differently than when it does not." 

Two recently announced enforcement actions involving artificial intelligence underscore the new FTC leadership's commitment to evaluate AI claims under traditional deception frameworks.

Workado agreed in April to resolve allegations that it made false or misleading performance claims in violation of Section 5 of the FTC Act related to its "AI Content Detector." The FTC alleged that Workado violated Section 5 when it promoted its AI detector as "98 percent accurate" even though independent testing showed a much lower accuracy rate.

Cleo AI agreed to pay $17 million to resolve allegations that Cleo AI made misleading promises about consumers' access to quick cash advances.  Cleo AI provides subscribers with cash advances in amounts determined using an artificial intelligence risk classifier. The FTC alleged that Cleo AI violated Section 5 of the FTC Act by making misleading claims about the timing and amount of cash advances. The FTC also alleged that Cleo AI violated the Restore Online Shoppers' Confidence Act (ROSCA) because it failed to disclose material information about the timing and amount of the cash advances when consumers subscribed to the service, and it also prevented subscribers with outstanding cash advances from cancelling.

Concluding Thoughts

So folks, here's the takeaway: The FTC is clearly laying the groundwork for aggressive enforcement against deceptive AI practices. Companies leveraging AI in their products, services or marketing must ensure claims about AI capabilities are truthful and substantiated, avoid manipulative design, bias or misuse of personal data, and stay current with FTC guidance, which reflects a desire to shape norms and deter misconduct early in this technological evolution.

So, ladies and gentlemen, stay tuned to further programs as we identify and address the key issues and developments, and provide strategies for success. I wish you continued success and a meaningful day. Thank you.