Overview of the FTC's Charges Against Roomster Corp.
The FTC recently announced the settlement of an enforcement action taken against New York-based Roomster Corp. and its owners over charges that they created deceptive reviews by purchasing fake reviews to entice customers to pay for access to its listings.
New York-based Roomster operates a website and mobile app, the users of which pay a fee to access living arrangement listings, including rental properties, room rentals, sublets, and roommate requests.
In August of 2022, the FTC and six state Attorneys General filed a lawsuit against Roomster and its owners, accusing the defendants of saturating the internet with tens of thousands of four and five-star reviews for its listings, most of which were deceptive reviews allegedly purchased from another defendant in the case. Consumers who paid for Roomster’s service in reliance upon the accuracy of the listings (which the company advertised as “authentic” and “verified”) later complained that many of them were fake.
The Role of Deceptive Reviews
Consumers today rely heavily upon the truth and accuracy of reviews submitted by other consumers to make informed purchasing decisions. Fake reviews are lies, and lying to consumers with the intent to convince them to pay you money they would not have otherwise paid is fraud. While using fake reviews to promote a product or service may appear to be a relatively harmless exercise, the overall effect of this strategy is to distort the marketplace and undermine consumer confidence.
The FTC has been aggressively pursuing companies that manipulate or falsify reviews to influence consumer purchasing decisions. Last year, online retailer Fashion Nova paid $4.2 million to settle allegations that it blocked negative reviews of its products from being posted to its website, and in 2021, the FTC notified hundreds of businesses suspected of engaging in this type of conduct that they could face significant financial penalties for employing fake reviews or other deceptive endorsements to promote their products or services.
The Proposed Consent Order over deceptive reviews
The defendants agreed to a consent order that permanently bans them from paying or providing incentives for consumer reviews, and from using or disseminating reviews where they have a relationship with the reviewer that might affect the review’s weight or credibility.
In addition, the proposed order includes a monetary judgment of $36.2 million and civil penalties totaling $10.9 million payable to the states. These amounts will be suspended after the defendants pay $1.6 million to the six states based upon the their inability to pay the full amount. The order also prohibits the defendants from falsely claiming that any review is truthful or represents a real user, that any rental listing is verified, authentic, or available, or any other material fact.
The order also requires Roomster to take steps to monitor its affiliate marketers by reviewing their marketing materials without notice, investigating consumer complaints about affiliate activities, and providing refunds to consumers who were impacted by affiliate conduct that violated the order.
Ensuring Compliance in Online Marketplaces
The FTC’s action should serve as a stern reminder of the importance of authenticity and transparency in the marketplace. Trust, once lost, is hard to regain.
Members of our Blacklist Alliance Academy are educated on this matter through our online compliance courses, which showcase examples of companies repeatedly sued for fraudulent reviews, along with a comprehensive guide on the legal do’s and don’ts of online marketing that all marketing managers should be well aware of.
