Influencers may be liable to pay 50 lakhs for not disclosing sponsorships

The government has made it mandatory for social media influencers to disclose any “material” interest they have in endorsing products and services. Violations of these regulations can result in strict legal action, including a ban on endorsements. These regulations are part of ongoing efforts to curb misleading advertisements and protect consumers in the expanding social influencer market, which is projected to be worth around ₹2,800 crore by 2025. 

The guidelines, named ‘Endorsement Know Hows’ for celebrities, influencers and virtual media influencers (avatars or computer-generated characters) on social media platforms’, have been issued by the Department of Consumers Affairs. Violations will be subject to penalties prescribed for misleading advertisements under the Consumer Protection Act 2019.

What will happen if influencers flout these rules?

The Central Consumer Protection Authority (CCPA) can impose penalties of up to Rs 10 lakh on manufacturers, advertisers, and endorsers for violations of these guidelines. For repeat offences, penalties of up to Rs 50 lakh can be imposed. The authority also has the power to prohibit an endorser of a misleading ad from making any endorsements for up to one year, and for subsequent violations, the prohibition can be extended to three years.

Consumer Affairs Secretary Rohit Kumar Singh announced the launch of these guidelines at a press conference, stating that they have been issued under the Consumer law, which provides a framework for the protection of consumers against unfair trade practices and misleading advertisements. He expressed the hope that these guidelines will act as a deterrent for social media influencers.

“It’s a very important subject. The size of social influencer market in India in 2022 was of the order of ₹1,275 crore and by 2025, it is likely to rise to ₹2,800 crore with a compound annual growth rate of about 19-20 per cent. The social media influencer of substance, those having good number of followers, are in excess of 1 lakh in the country,” Singh said.

He also added that influencers need to behave responsibly. 

“The today’s guidelines are aimed at social media influencers which have material connection with the brand they want to promote on various social media platforms. This is an obligation for them to behave responsibly as far as the disclosure is concerned to the consumers.

“One of the biggest paradigm of the consumer law is the consumers right to know and this falls in that purview. Consumers should know if something is thrown at him from digital media, the person or the entity which is sponsoring it have they taken money or any form of connection they have with the brand,” Singh said.

According to the secretary, if influencers fail to disclose their sponsorships, people can actually approach the authorities to seek legal action against these individuals. This will certainly make it much harder for influencers to “accidentally” forget to disclose such information. 

“These guidelines broadly define that framework as to how social media influencers should indulge in disclosure of their relationship with the brand,” the secretary said.

Disclosers should be hard to miss

CCPA Chief Commissioner Nidhi Khare emphasized that misleading advertisements in any form, format, or medium are prohibited by law. The new guidelines provide specific rules for who needs to disclose, when to disclose, and how to disclose. Individuals or groups who have access to an audience and the power to influence their purchasing decisions or opinions about a product, service, brand, or experience due to their authority, knowledge, position, or relationship with their audience will be required to disclose any material connection, as per the new norm.

The disclosure needs to be added “when there is a material connection between an advertiser and celebrity/influencer that may affect the weight or credibility of the representation made by the celebrity/influencer”, Khare said. She also added that the discloser has to be hard to miss and written in simple language that anyone can understand. 

Basic guidelines for disclosers

The disclosures should be prominently and clearly placed in the endorsement message, and should not be mixed with a group of hashtags or links. When endorsements are made in a picture, the disclosures should be superimposed over the image in a way that is hard to miss. 

In videos, the disclosures should be included in the video itself and not just in the description, and they should be made in both audio and video format. For live streams, disclosures should be displayed prominently throughout the entire stream. On platforms with limited space, such as Twitter, terms like ‘XYZAmbassador’ (where XYZ is a brand) are also acceptable. 

These guidelines are being issued under the Consumer Protection Act, with the main principle being the prevention of unfair trade practices.

“There are many ways in which unfair trading practices take place, one of the important unfair trading practice is the menace of misleading advertisements, by trying to sell something which is not exactly as it is being portrayed in the ad. While it has been ably handled in the conventional media — which is TV, print and radio, the social and digital media platforms are turning out to be different ball game,” Singh said