FTC Targets AI Companies for Exaggerating Their Tech in Latest Consumer Protection Sweep

By Jason Nelson

The U.S. Federal Trade Commission is putting companies on notice—if businesses try to fool customers by overstating what their AI can do, they’ll face serious consequences.

Also known as AI washing, the FTC announced Tuesday it had filed complaints against five companies that it said used the hype around AI to target consumers with deceptive offers.

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

AI washing refers to a marketing scheme where companies exaggerate or make false claims about their products or services and the use of artificial intelligence. They attempt to make a product seem more advanced or innovative than it actually is.

The companies named by the FTC include DoNotPay, which offers an AI-powered robot lawyer service; Ascend Ecom, touting AI-powered tools to help consumers quickly earn passive income.

There was also Ecommerce Empire Builders, which claimed to help consumers build an “AI-powered Ecommerce Empire” for a fee starting at $2,000. Also named in the FTC’s document was Rytr, a free generative AI writing platform, a tool to generate fake customer reviews that were used to "pollute the marketplace," the agency alleged.

Another company, FBA Machine, formerly known as Passive Scaling, promised consumers they could operate a "seven-figure" business, citing testimonials that said clients generated over $100,000 a month in revenue." The FTC claimed that the scheme cost consumers over $15.9 million based on deceptive earning claims.

A federal judge issued a temporary cease-and-desist order against Ascend Ecom, Ecommerce Empire Builders, and FBA Machine, putting the companies under the control of a court-ordered receiver. Further actions against DoNotPay and Rytr are pending, the FTC said.

“DoNotPay is pleased to have worked constructively with the FTC to settle this case and fully resolve these issues, without admitting liability,” a DoNotPay spokesperson told Decrypt. “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.”

Decrypt has reached out to the other four companies involved but is yet to receive a response.

The DoNotPay spokesperson noted that the company retained Maneesha Mithal, former Associate Director at the FTC, as outside counsel, who they said was “incredibly helpful in handling this matter.”

Since the launch of ChatGPT in 2022 and the proliferation of AI tools online, regulators have stepped up efforts to curb the technology’s use in scams and other forms of cybercrime.

In March, the U.S. Securities and Exchange Commission charged the U.S. branch of the Toronto-based Delphia and San Francisco-based Global Predictions with breaking regulations related to marketing over making what the agency said were false and misleading claims about their AI capabilities and regulatory status, respectively.

Both companies were fined a total of $400,000 in penalties and issued a cease-and-desist order.

"Global Predictions cooperated fully with the inquiry and is pleased to put this behind us," Global Predictions co-founder and CEO Alexander Harmsen told Decrypt at the time. "Additionally, we have clarified across our marketing how exactly we use AI," he said.

Edited by Sebastian Sinclair

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