FTC targets DoNotPay and others for using AI for ‘deceptive practices’ in major crackdown

The U.S. Federal Trade Commission (FTC) has announced it is taking action against multiple companies that have relied on AI as a way to supercharge “deceptive or unfair conduct that harms consumers.”

The operation, AI Comply, targets three business opportunity ventures and two companies, including the legal services firm DoNotPay.

The FTC said one of the companies promoted an AI tool that enabled its customers to create fake reviews, while another company claimed to sell “AI Lawyer” services, and multiple firms alleged that they could use AI to help consumers make money through online storefronts.

FTC Chair Lina M. Khan stated: “Using AI tools to trick, mislead, or defraud people is illegal.

“The FTC’s enforcement actions make clear that there is no AI exemption from the laws on the books. By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected.”

ReadWrite reported last month that the FTC has been attempting to put guardrails up against AI, after they voted unanimously to ban fake online reviews.

In the complaint, the FTC said that DoNotPay failed to live up to its claim that it could provide “the world’s first robot lawyer.”

The FTC stated that while DoNotPay claimed its service could enable customers to “sue someone for assault without an attorney” and produce valid legal documents in “no time,” the company failed to verify if its AI chatbot’s “output was equal to the level of a human lawyer.”

In addition, the FTC highlighted that DoNotPay’s service, which supposedly scanned a small business website for federal and state violations using only the customer’s email address, “was not effective in detecting those potentially costly violations.”

DoNotPay did not admit to any wrongdoing but agreed to settle the charges by paying $193,000. It will also notify consumers who subscribed to its service between 2021 and 2023 about the limitations of its law-related features. “The proposed order also will prohibit the company from making claims about its ability to substitute for any professional service without evidence to back it up,” the FTC stated.

In one of the four cases announced on Wednesday, the FTC is suing a business opportunity scheme known by names such as Ascend Ecom, Ascend CapVentures, and ACV Nexus, operated by William Basta and Kenneth Leung.

According to the FTC’s lawsuit, filed in Los Angeles federal court, the Ascend scheme has “defrauded consumers of at least $25 million” by using “deceptive earnings claims to persuade consumers to shell out tens of thousands of dollars each to invest in what Defendants claim is a surefire business opportunity in e-commerce, or online stores.”

The suit then states, “Since about 2023, Defendants’ deceptive sales pitch has said their business model is powered by artificial intelligence (‘AI’).” It adds, “Defendants claim consumers will quickly earn thousands of dollars in passive income, which will be generated from sales in online stores on e-commerce platforms such as Amazon.com and Walmart.com.”

However, after consumers invest in the scheme, “the promised gains never materialize, and consumers are left with depleted bank accounts and hefty credit card bills,” the suit alleges.

The FTC noted that, as a result of the lawsuit, a judge has issued an order temporarily halting the scheme and placing it under the control of a receiver.

In June, the FTC also acted against a scheme operating as Passive Scaling and FBA Machine, alleging false promises of guaranteed income through AI-powered online stores. Run by Bratislav Rozenfeld, the scheme cost consumers over $15.9 million. A federal court has temporarily halted the operation, placing it under a receiver’s control.

Since April 2021, Rytr sold an AI “writing assistant” for generating testimonials and reviews. The FTC suggested that it produced false, misleading reviews with specific, unrelated details, deceiving consumers. The proposed settlement bars Rytr from selling review-generating services. The Commission voted 3-2 on the complaint.

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