FTC cracks down on AI claims by DoNotPay and others

The Federal Trade Commission on Wednesday announced a crackdown on what the regulator called “deceptive AI claims and schemes” by three business opportunity ventures and two companies, including the legal services firm DoNotPay.

The FTC said the five enforcement cases it has filed show how the companies and ventures “have seized on the hype surrounding” artificial intelligence “and are using it to lure consumers into bogus schemes.”

“Using AI tools to trick, mislead, or defraud people is illegal,” FTC Chair Lina Khan said in a statement.

“The FTC’s enforcement actions make clear that there is no AI exemption from the laws on the book,” Khan said. “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.”

In a complaint, the FTC said that DoNotPay, which touted its AI service as “the world’s first robot lawyer,” failed to live up to that claim.

While DoNotPay said its service would allow customers to sue someone for assault without an attorney, and generate valid legal documents in “no time,” the company did not test whether its AI chatbot’s “output was equal to the level of a human lawyer,” the FTC said in a statement.

The FTC also said that DoNotPay’s service that purportedly checked a small business website for federal and state violations, using only a customer’s email address, was not effective in detecting those potentially costly violations.

DoNotPay, which did not admit wrongdoing, agreed to settle the FTC’s charges by paying $193,000 and giving consumers who subscribed to its service from 2021 through 2023 a notice that warns them about the limitations of the service’s 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 said.

In one of the four other cases announced Wednesday, the FTC is suing a business opportunity scheme that has operated under names including Ascend Ecom, Ascend CapVentures, and ACV Nexus, which has been operated by two men named William Basta and Kenneth Leung.

The FTC, in a lawsuit filed in Los Angeles federal court, alleges that the Ascend scheme has “defrauded consumers of at least $25 million” by making “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.”

“Since about 2023, Defendants’ deceptive sales pitch has said their business model is powered by artificial intelligence (“AI”),” the suit says. “Defendants claim…