The U.S. Federal Trade Commission has announced a crackdown on companies allegedly making deceptive artificial intelligence claims and schemes, including robot lawyer startup DoNotPay Inc.
The crackdown, named “Operation AI Comply,” has seen the FTC take action against multiple companies that are alleged to have relied on AI as a way to supercharge deceptive or unfair conduct that harms consumers.
The cases announced today include actions against a company promoting an AI tool that allows customers to create fake reviews, action against what the FTC calls “a company claiming to sell ‘AI Lawyer’ services,” referring to DoNotPay and multiple companies claiming that they could use AI to help consumers make money through online storefronts.
“Using AI tools to trick, mislead, or defraud people is illegal,” FTC Chair Lina M. Khan said in a statement today. “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.”
The allegations against DoNotPay, a venture capital-funded startup, include that the product failed to live up to its claims that the service could substitute for the expertise of a human lawyer.
The FTC claims in its complaint against the company that it promised a service that would allow consumers to “sue for assault without a lawyer” and “generate perfectly valid legal documents in no time” and that the company would “replace the $200-billion-dollar legal industry with artificial intelligence.” The complaint then alleges that DoNotPay could not deliver on these promises, did not conduct testing to determine whether its AI chatbot’s output was equal to the level of a human lawyer and that the company did not hire or retain any attorneys.
DoNotPay is also alleged to have offered a service to check small business websites for law violations based on a consumer’s email address and that if violations found were unaddressed, it could cost a business $125,000 in legal fees. The complaint alleges that the service was not effective.
The complaint is not going to court, however, with DoNotPay agreeing to a proposed commission order to settle the charges against it. The settlement will require the company to pay $193,000 and provide a notice to consumers who subscribed to DoNotPay between 2021 and 2023 warning them of the limitations of the law-related features of the service. The settlement will also prevent the company from making further claims about any ability to substitute lawyers without evidence to back it up.
In response to the announcement, DoNotPay said in a statement sent to SiliconANGLE that it is “pleased to have worked constructively with the FTC to settle this case and fully resolve these issues, without admitting liability.”
“The complaint relates to the usage of a few hundred customers some years ago (out of millions of people), with services that have long been discontinued,” the statement added. “DoNotPay retained Maneesha Mithal, former Associate Director at the FTC, as outside counsel, who has been incredibly helpful in handling this matter.”
The FTC also took action against e-commerce company Ascend Ecom LLC, alleging that the company falsely promised consumers thousands of dollars in passive income through “cutting-edge” AI-powered tools. Ascend Ecom is alleged to have charged consumers tens of thousands of dollars to start online stores but failed to deliver on its promises. The FTC claims the scheme defrauded consumers of at least $25 million and a federal court has temporarily halted the operation while the case proceeds.
In addition, the FTC filed a complaint against another e-commerce company called Ecommerce Empire Builders, which is accused of misleading consumers with promises of creating AI-powered e-commerce businesses. The company allegedly charged consumers up to $35,000 for storefronts, but many reported earning little to no income. The FTC claims EEB has resisted refund requests and a court has also placed this scheme under a receiver while the case is ongoing.
Other companies targeted include AI-writing company Rytr LLC for generating false online reviews and another e-commerce company called FBA Machine for promising guaranteed income through AI-powered online storefronts.
Image: FTC
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