FTC targets deceptive AI claims in new crackdown

The Federal Trade Commission (FTC) announced Wednesday it has taken action against five companies it said used or sold artificial intelligence (AI) technology in “deceptive and unfair ways.”

The crackdown by the FTC is part of a new law enforcement sweep called Operation AI Comply, according to the agency. In this instance, the five companies “relied” on AI to “supercharge deceptive or unfair conduct,” the FTC said.

“Using AI tools to trick, mislead, or defraud people is illegal,” FTC Chair Lina Khan said in a statement. “The FTC’s enforcement actions make clear that there is no AI exemption from the laws on the books.”

False claims related to AI are becoming more common in the marketplace as businesses seize on the hype around the emerging technology, the FTC said.

Businesses are increasingly luring consumers into “bogus schemes” by making them believe their lives will be easier with automation and problem-solving, the agency added.

Rytr, one of the businesses named in the FTC release, allegedly marketed and sold an AI “writing assistant” with multiple services, including a feature it claimed gave consumers unlimited, detailed reviews based on generic or limited input.

These reviews often did not relate to the consumer’s input, but included false, deceptive information to lure potential customers into buying the product. The company was also accused of offering a service to “pollute the marketplace” with fake reviews that would hurt both consumers and competitors.

A proposed settlement for the FTC complaint would prohibit Rytr from advertising or selling services focused on making consumer reviews or testimonials.

“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,” Kahn said.

DoNotPay, another business, boasted “the world’s first robot lawyer” using AI. It allegedly claimed the service would allow consumers to sue without a lawyer and “generate perfectly valid legal documents in no time.” According to the FTC’s complaint, the company did not test its system against human lawyers and failed to meet its promises.

The company agreed to settle with the FTC and pay $193,000. The settlement prohibited the company from making claims about its ability to replace a human professional without evidence, the agency said.

“DoNotPay is pleased to have worked constructively with the FTC to settle this case and fully resolve these issues, without admitting liability,” a company spokesperson told The Hill. “The complaint relates to the usage of a few hundred customers some years ago (out of millions of people), with services that have long been discontinued.”

Three of the cases involved businesses claiming AI could help consumers make passive income through online storefronts. They are currently suspended while proceedings play out in federal court, according to the FTC.

These businesses included Ascend Ecom, which defrauded consumers of at least $25 million in a scheme charging each customer tens of thousands of dollars to start and supply an e-commerce store, the FTC said.

Ecommerce Empire Builders, another business, defrauded customers into participating in training programs costing up to $2,000 to help consumers create “AI-powered” e-commerce stores with the claim consumers could make millions in profits. The business also allegedly offered a more hands-off option for tens of thousands of dollars, though the promised profits failed to materialize, the FTC said.

The fifth business, FBA Machine, which formerly ran under the name Passive Scaling before consumers sought refunds and lawsuits, allegedly defrauded customers more than $15.9 million. The business allegedly claimed it used “AI-powered” tools to help “price store products and maximize profits,” the FTC said.

Consumers were told they could run a seven-figure business through their online storefronts and were falsely guaranteed refunds if they did not make back their initial investments.

The Hill reached out to the businesses for comment.