As part of a new enforcement initiative called “Operation AI Comply,” the FTC recently announced that it has brought the following five enforcement actions against businesses that use or sell AI tools in a manner that the FTC has alleged is deceptive and unfair:
- DoNotPay. The FTC brought suit against DoNotPay, which had claimed to be “the world’s first robot lawyer.” The company advertised its AI service as capable of allowing consumers to sue without a lawyer and generate valid legal documents quickly, aiming to replace the legal industry with AI. However, the FTC’s complaint states that DoNotPay did not test its chatbot’s effectiveness against human lawyers and lacked any retained attorneys.
Additionally, DoNotPay offered a service claiming to check small business websites for legal violations based on just an email address, which was also found ineffective.
As part of a proposed settlement, DoNotPay will pay $193,000 and must inform consumers about the limitations of its service. The settlement will also prevent the company from making unsupported claims about its ability to replace professional services.
The FTC’s decision to pursue this action was unanimous, and the settlement is open for public comment before finalization.
- Ascend Ecom. The FTC filed suit against Ascend Ecom, an online business opportunity scheme. The FTC alleged Ascend Ecom misled consumers with false claims about its AI-powered tools that supposedly enable quick earnings through online storefronts.
The complaint alleges that Ascend charged consumers tens of thousands of dollars to start online stores on platforms like Amazon and Etsy, while also requiring significant investments in inventory. Despite promises of generating substantial monthly income within two years, most consumers experienced financial losses instead, accumulating debt and negative bank balances.
Additionally, the scheme is accused of pressuring consumers to alter or remove negative reviews and failing to honor a “guaranteed buyback” policy, even threatening to withhold it from dissatisfied customers. A federal court has temporarily halted the scheme and placed it under a receiver’s control while the case proceeds in court.
The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Central District of California.
- Ecommerce Empire Builders. The FTC charged Ecommerce Empire Builders (EEB) with misleading consumers about building an “AI-powered Ecommerce Empire” through costly training programs and “done for you” storefronts. The FTC alleges that the scheme promised participants the potential to earn millions, but the FTC alleges these profits rarely materialize.
According to the FTC’s complaint, consumers paid as much as $35,000 for storefronts, only to find they generated little to no income. EEB’s marketing claimed clients could make $10,000 monthly without evidence to support such claims. Many consumers reported difficulty obtaining refunds, as EEB either denied requests or offered partial refunds.
A federal court has temporarily halted EEB’s operations and placed it under a receiver’s control while the case continues. The FTC’s complaint was unanimously approved by the Commission and filed in the U.S. District Court for the Eastern District of Pennsylvania.
- Rytr. The FTC charged Rytr, an AI writing assistant service, with generating false consumer reviews and testimonials. The FTC alleges that since April 2021, Rytr allowed paid subscribers to produce unlimited detailed reviews based on minimal input, often resulting in misleading content that could deceive potential buyers. The FTC’s complaint further alleges that many subscribers created hundreds or even thousands of potentially false reviews.
To settle the complaint, a proposed order would prevent Rytr from advertising or selling any service related to generating consumer reviews or testimonials. The Commission’s vote to file the complaint was 3-2, with two commissioners dissenting.
Commissioner Andrew Ferguson issued a dissenting statement joined by Commissioner Melissa Holyoak. The dissenting opinion criticizes the case against Rydr arguing that it overextends the FTC’s enforcement powers by punishing Ryder for providing a generative AI tool used that could legitimately be used by businesses simply because of the mere possibility the tool could be used for fraudulent or deceptive purposes, which the Commissioners argue could potentially have a stifling effect on innovation.
- FBA Machine. In June 2024, the FTC took action against a business opportunity scheme that the FTC alleges falsely promised consumers guaranteed income through online storefronts using AI software. The scheme, known as Passive Scaling and later rebranded as FBA Machine, allegedly defrauded consumers of over $15.9 million with deceptive earnings claims.
Following the FTC’s complaint, a federal court temporarily halted the scheme and appointed a receiver. The case is ongoing, and the complaint was filed in the U.S. District Court for the District of New Jersey, with the Commission voting 5-0 to authorize the action.
The five enforcement actions expand upon other enforcement proceedings that the FTC previously brought against other businesses using AI tools, such as the pre-existing claims the FTC has brought against companies utilizing AI tools to offer services for creating online storefronts, enrolling in career training, sending anonymous messages, utilizing facial recognition in retail stores, and DNA testing. Collectively, these enforcement actions signal that the FTC continues to make the use of AI tools by businesses, and its impact on consumers, a top enforcement priority.
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