The new Consumer Protection Act, 2019 notified on 9 August 2019 (CP Act 2019) has introduced several measures to amplify the existing laws to safeguard consumer rights. Some highlights are: introduction of regulatory authority; stricter penalties for misleading advertisements; and guidelines for e-commerce and electronic service providers. The new Act will significantly impact e-commerce, digital marketing and advertising standards.

We focus on how the sweep of CP Act, 2019 impacts 'influencers' – popular bloggers, vloggers, celebrities and social media personalities, people who exert highly persuasive effect on consumers' buying decisions.

Influencer Marketing

Social networking sites like Instagram, #YouTube, #FaceBook, #Vigo Video, #TikTok offer a highly interactive and visually rich experience to users. Hence these sites have acquired immense popularity for product promotion. Influencers are the key drivers of this ecosystem. Oxford English Dictionary defines 'influencer' as "a person with the ability to influence potential buyers of a product or service by promoting or recommending the items on social media".

The most persuasive element in influencer marketing is relatability to the influencer. Personal endorsement by an influencer yields tremendous authenticity to the quality and attributes of a product. Since influencer marketing does not look or feel like advertising at all, brands are strongly interested in exploiting this medium. It is here that lines between an honest appraisal based on personal usage of a product versus commercial advertisement gets blurred.

Since influencer's persuasiveness about a product originates from impartial impressions and personal experience, consumers deserve to know if influencers have been paid, incentivised or rewarded to endorse or review a product in any manner. Influencer posts falling short of adequate disclosures tend to distort and manipulate an unsuspecting customer's buying preferences. Hence it may amount to 'unfair trade practices'. Instances when influencer posts can be counted as 'advertisements' are:

(a) Paid-for Space. Influencer posts appearing in 'paid-for-ad space', for example, banner ads, paid-forsearch results and sponsored/promoted posts;

(b) Affiliate Marketing. Influencer posts promoting products containing brand hyperlink or influencer discount code or arrangements where influencer gets paid for every 'click-through' basis or sale that can tracked back to influencer post;

(c) 'Advertorials'. Influencer posts for which brands have either (i) paid, rewarded or incentivized the influencer; or (ii) exercised some form of editorial control over the content.

Before CP Act 2019, an express legislative framework that affixed liabilities for disguised endorsements or misleading advertisements was lacking. Advertising Standards Council of India (ASCI), an industry association, evolved certain codes to promote honesty and quality of content in advertising. But such codes are meant are for self-regulation. Since ASCI is neither a regulator nor it is empowered under law to formulate rules for public or relevant industries, these codes lacks the force of law.

New Consumer Protection Act - What has changed?

CP Act 2019 is the first instance when legislative framework for consumer protection has targeted advertising, marketing campaigns conducted through influencers. Influencers and brands who run campaigns on social media must take note of legislative changes for avoiding liability and ensuring compliance.

CP Act 2019 not only amplifies the definition of 'misleading advertisement' but also empowers authorities to impose penalties in respect of false and misleading advertisements. A ''misleading advertisement' is one that:

(a) falsely describes a product or service; or

(b) gives false guarantees or is likely to mislead consumers as to quality of a product or service; or (c) conveys a representation that would constitute an unfair trade practice; or

(d) deliberately conceals important information.

CP Act 2019 empowers consumer protection authorities to conduct investigation whether any advertisement is false or misleading or prejudicial to consumer interests. The authorities can issue directions to discontinue misleading advertisements and also impose penalties upto Rs. One (1) million and upto Rs. Five (5) million for subsequent contraventions. It is crucial to note that such penalties can also be imposed on an endorser of a product or service. In case of repeated contraventions, an endorser may also be prohibited from endorsement activities for a period of one (1) to three (3) years.

Do's and Don'ts for Influencers

Responsible influencers and brands who run campaigns on social media must take note of these changes for avoiding liability and ensuring compliance. Ultimately, this is about ensuring disclosure and transparency. In order to ensure transparency, influencers should:

Responsible influencers and brands who run campaigns on social media must take note of these changes for avoiding liability and ensuring compliance. Ultimately, this is about ensuring disclosure and transparency. In order to ensure transparency, influencers should:

  • disclose when they have been paid, given or loaned things;
  • be clear about their relationship with a brand or business, including any past relationship;
  • not be misleading and not suggest they have used a product when they have not, or that they have bought something that was in fact gifted; and
  • have clear contractual framework with the brand's owner/company whereby, amongst other legal protections, they are indemnified for any third party actions, law suits or claims for damage for promoting the brand or business.

Also, influencers ought to make it obvious, say by using labels/hashtags like Ad, Advert, Advertising, Promotion Feature #In Association With etc. prominently on their post so that users can notice the advertorial nature of post while engaging with it.

Brands Be Aware

Brands should adopt consistent policies so that endorsements by influencers are labelled correctly with the right keywords. Agreements with influencers should have clear rules for posts to ensure that influencers operate within the requirements. Brands should review influencer posts to check compliance.

23 September 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.