Learn how the FTC Act applies to small businesses and freelancers: who is covered, deceptive ads, fake reviews, subscriptions and 2026 penalties, in slides.
Last reviewed October 29, 2026 · General information, not legal advice
General information only, not legal advice. CPA Tax Payroll and Accounting Corp is a CPA firm, not a law firm. Laws change: confirm with the official source or a licensed attorney before you act. Read the full notice.
The Federal Trade Commission Act, usually called the FTC Act, is a federal law first passed in 1914 that bans unfair or deceptive business practices. The Federal Trade Commission (FTC) enforces it, so most FTC Act questions come down to one issue: are your ads, reviews and sign-up pages honest and clear? This guide is for owners of small businesses, freelancers, nonprofits and professionals who advertise, collect reviews or sell subscriptions. The checklist page offers a short routine, the Seven-Window Claims Check, for reviewing a claim before it goes public.
Slide show: The FTC Act in seven slides
What it does
Section 5 bans unfair or deceptive acts or practices in or affecting commerce. The deception ban dates from 1938; the 1914 law began with unfair competition.
Who it covers
Persons, partnerships and corporations. The text has no small-business cutoff. Banks, federal credit unions and common carriers are carved out.
The core rule
A claim is deceptive if it is likely to mislead a reasonable consumer on a point that matters to the purchase.
Reviews and endorsements
The Reviews Rule bans fake reviews, bought sentiment, hidden insider reviews, review suppression and fake followers. The Endorsement Guides call for clear disclosure of gifts, pay and seller ties that viewers would not expect.
Dates to know
The Reviews Rule took effect 21 October 2024. The 2024 click-to-cancel rule was vacated on 8 July 2025.
The penalty
Up to $53,088 per knowing violation of an FTC rule. That 2025 amount continues through 2026.
Tip for tax preparers
Tax preparation firms fall under the FTC Safeguards Rule and need a written information security program.
Who is covered
Question
Answer
Size threshold
None in the statute text. Section 5 reaches persons, partnerships and corporations whose practices are in or affecting commerce.
Excluded from FTC authority
Banks, certain savings institutions, federal credit unions, common carriers, air carriers under federal aviation law, and businesses covered by the Packers and Stockyards Act.
Nonprofits
Unsettled. The law defines a covered corporation as one organized to carry on business for its own profit or its members' profit. The sources reviewed do not settle how far that reaches charities.
Reviews Rule
Mostly written for businesses, meaning anyone who sells products or services. Two provisions reach anyone.
Tax preparers
Listed by the FTC as financial institutions under its Safeguards Rule.
How it touches your taxes and payroll
Money paid to a government agency as a penalty or settlement for breaking a law is generally not deductible under Internal Revenue Code section 162(f). Amounts that are restitution or paid to come into compliance can be deductible only when the taxpayer shows it and the order or settlement identifies them as such. Reimbursed investigation or legal costs do not qualify. Our guide to business expense deductions covers the ordinary rules. Creators and sellers meet these advertising rules daily; see content creators and influencers and ecommerce and online sellers. The Safeguards Rule for firms that prepare returns is covered with GLBA and HIPAA.
