The Federal Trade Commission (FTC) has launched a new enforcement initiative called Operation AI Comply, targeting companies that have used artificial intelligence (AI) to support deceptive products and services.
As part of this effort, the FTC has taken action against several businesses, including Rytr, DoNotPay, and companies involved in online storefront schemes. These companies collectively misled consumers by making false claims about the capabilities of their AI-powered tools, resulting in significant financial losses.
Rytr Facilitates Creation of Fake Reviews
Rytr, a company offering an AI writing service, was accused of enabling users to generate fake reviews with no basis in actual user input. The FTC’s complaint described how Rytr’s subscribers used the AI to produce thousands of fake reviews that included misleading or false information, causing harm to consumers and legitimate businesses. The FTC argued that Rytr’s service allowed for a widespread dissemination of deceptive content, potentially influencing consumer behavior and harming competition.
As a result, the agency proposed barring Rytr from advertising, promoting, or selling services related to generating consumer reviews or testimonials in the future. This follows the FTC’s broader ban on AI-generated and fake reviews enacted in August.
DoNotPay Misleads Consumers With False Legal Claims
DoNotPay, which billed itself as “the world’s first robot lawyer,” also faced FTC action as part of Operation AI Comply. The company had advertised AI services to help consumers sue for assault, generate legal documents, and assist with legal processes without the need for human lawyers. However, the FTC alleged that DoNotPay did not conduct any testing to compare its AI chatbot’s performance with that of a human lawyer.
Furthermore, the company did not employ any attorneys, raising questions about the validity of its claims. The FTC also highlighted DoNotPay’s failure to effectively provide certain services, such as checking small business websites for legal violations.
In addition to the FTC complaint, DoNotPay faced a proposed settlement requiring the company to pay $193,000 in fines. As part of this settlement, the company is required to notify customers who subscribed to its services between 2021 and 2023 about the limitations of its AI offerings. DoNotPay agreed to settle the case without admitting liability, stating that the FTC’s complaint involved services that only “a few hundred” customers used and which have since been discontinued.
Additionally, DoNotPay had previously faced intervention from state bar associations in 2023, when it attempted to use its AI chatbot in a court setting. The company also claimed it could help users get accounts unbanned from social media platforms, though this service was not effective.
FTC Takes Action Against AI-Driven E-Commerce Scams
The FTC also targeted businesses involved in e-commerce schemes that exploited AI to lure customers with promises of high earnings.
One company, FBA Machine, was accused of falsely claiming that consumers could operate a “7-figure business” through its services, which were advertised as risk-free and supported by AI-driven proprietary software. The FTC reported that FBA Machine customers were charged significant upfront fees and promised refunds if they didn’t recoup their initial investments. However, many customers lost tens of thousands to hundreds of thousands of dollars, and in total, FBA Machine’s fraudulent scheme cost consumers nearly $16 million.
Another company, Ascend Ecom, told customers that they could generate a five-figure monthly income by starting online stores with the help of its AI tools. Like FBA Machine, Ascend Ecom charged high fees and made bold promises about earnings that were not delivered. The FTC estimated that Ascend Ecom’s deceptive practices defrauded customers of at least $25 million.
FTC Chair Lina M. Khan emphasized that AI tools used to mislead or defraud consumers are illegal, stating, “The FTC’s enforcement actions make clear that there is no AI exemption from the laws on the books.” She further noted that these efforts are intended to protect consumers and ensure that honest businesses can compete fairly in the market.
