US FTC Targets AI Firms in Crackdown on Deceptive Practices

A slew of companies accused by the U.S. Federal Trade Commission of falsely touting artificial intelligence capabilities either settled with the watchdog agency or will face off against federal attorneys in court.

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The commission filed complaints against five companies, including one that claimed to sell “AI lawyer” services and another that promised consumers they could make money through AI-powered online storefronts and enabled the creation of fake reviews. The law enforcement actions were part of a new campaign the FTC calls “Operation AI Comply,” aimed at companies using AI “to lure consumers into bogus schemes,” the commission said.

“Using AI tools to trick, mislead, or defraud people is illegal,” FTC Chair Lina Khan said, adding that the crackdown aims to “make clear that there is no AI exemption from the laws on the books.”

The FTC filed a complaint against DoNotPay, a company that claimed it could “replace the $200-billion-dollar legal industry” with AI, allowing users to generate valid legal documents and “sue for assault without a lawyer.” DoNotPay failed to evaluate whether its AI chatbots were in fact producing legal counsel equivalent to the level of a human lawyer, according to the complaint.

DoNotPay – which allegedly did not have any human lawyers on retainer – also offered services to purportedly check small business websites for hundreds of federal and state law violations that could cost upward of $125,000 in legal fees. DoNotPay has agreed to a proposed settlement of $193,000 and would be required under the settlement terms to notify consumers who subscribed to the service about its limitations. Commissioners voted unanimously to approve the settlement; it is still subject to public comment and a final commission vote, steps that are typically formalities.

The FTC also targeted Ascend Ecom, which allegedly promised “cutting-edge” AI tools to help customers earn thousands in passive income through online storefronts. Operators behind the $25 million alleged scam used aliases such as Ascend Ecommerce and ACV since 2021 and claimed to lead the industry in using AI to grow clients’ e-commerce businesses.

A federal court has issued an order temporarily halting Ascend from continuing the scheme following the FTC’s complaint.

The commission sued a similar business for an alleged scam dubbed Ecommerce Empire Builders that charged users nearly $2,000 to build online storefronts that failed to materialize promises of millions of dollars in earnings. According to the FTC, the company used social media to promote claims that its clients could earn up to $10,000 monthly, though numerous consumers “made little or no money,” and the company “has resisted providing refunds to consumers.”

A federal court has also temporarily blocked Ecommerce Empire Builders from continuing its operations, as well as FBA Machine, a company the FTC took action against in June for similarly promoting guaranteed income through AI-powered online storefronts.

The FTC also filed a complaint against a company called Rytr, which has sold an AI “writing assistant” since 2021 that allows paid subscribers to generate “an unlimited number of detailed consumer reviews based on very limited and generic input.”

The company allowed customers to create AI-generated reviews containing information “that would deceive potential consumers who were using the reviews to make purchasing decisions,” according to the FTC. The complaint says Rytr violated the federal consumer protection law by giving subscribers the means to generate false and misleading content for consumer reviews.