FTC Establishes "Dual Approach" to AI Enforcement: Rescinding Tech Restrictions While Cracking Down on "AI Washing"
Under the second Trump administration, the Federal Trade Commission (FTC) has undergone a major strategic pivot, establishing a "dual approach" to artificial intelligence enforcement. Following executive-branch directives to reduce regulatory burdens on technology developers, the FTC has rolled back enforcement actions targeting the underlying capabilities of AI products. However, the Commission has simultaneously doubled down on classic Section 5 consumer protection enforcement, aggressively prosecuting "AI washing," fraudulent earnings claims, and unsubstantiated performance metrics.
The Rytr Set-Aside: Protecting AI Innovation from "Means and Instrumentalities" Liability
In a historic and highly unusual regulatory reversal on December 22, 2025, the FTC voted to reopen and set aside its final consent order against Rytr LLC, an AI-powered writing assistant. In September 2024, the Biden-era FTC had sued Rytr under a "means and instrumentalities" theory of liability, alleging that Rytr's service allowed users to generate fake, deceptive customer reviews.
The December 2025 set-aside order represents a complete rejection of that theory, with the FTC stating that the original order "unduly burdens" AI innovation and that treating generative AI as categorically illegal due to the potential for misuse is counterproductive:
"Treating as categorically illegal a generative AI tool merely because of the possibility that someone might use it for fraud . . . threatens to turn honest innovators into lawbreakers and risks strangling a potentially revolutionary technology in its cradle." — FTC December 2025 Set-Aside Order (quoting Chairman Andrew N. Ferguson's prior dissent)
The Commission's decision directly aligned with the Trump administration's July 2025 AI Action Plan, which instructed federal agencies to "identify" and "suspend, revise, or rescind" regulatory actions that thwart AI innovation. Under Chairman Ferguson, the FTC has largely ceased bringing enforcement actions against AI developers for the inherent capabilities or potential misuses of their software.
The Consumer Protection Crackdown: Aggressive Prosecution of "AI Washing"
While the FTC has backed off from regulating the design of AI tools, it remains highly aggressive in prosecuting companies that make false, misleading, or unsubstantiated claims about their AI products. Under Section 5 of the FTC Act, the FTC continues to enforce truth-in-advertising standards through several high-profile enforcement actions in 2025 and 2026:
- Click Profit (August 2025): The FTC secured over $20 million in judgments against Click Profit's founders. The company marketed an "automated, AI-powered system" that promised to generate thousands of dollars in passive income through e-commerce storefronts. In reality, 20% of customers earned nothing, and a third earned under $2,500 after fees.
- Workado (August 2025): The FTC approved a final consent order settling claims against Workado for falsely advertising that its AI-detection software was 98% accurate. The FTC's investigation revealed the actual accuracy rate was only 53%—essentially a coin flip. Workado was required to cease marketing the false metrics, notify affected consumers, and submit to compliance monitoring.
- accessiBe (April 2025): The FTC settled a $1 million action against accessiBe over allegations that the company misrepresented the capability of its AI-powered tools to make client websites compliant with Americans with Disabilities Act (ADA) accessibility guidelines.
- Air AI (Pending): The FTC filed a complaint seeking to enjoin Air AI from making deceptive claims that its AI customer service software can fully replace human representatives and generate tens of thousands of dollars in revenue for small businesses within days.
Implications for Enterprise Risk and Legal Teams
For enterprise risk officers and corporate legal departments, the FTC’s dual approach clarifies the regulatory risk landscape:
- Developer Relief: Developers of generative AI models face a significantly lower risk of federal regulatory interventions targeting the "means and instrumentalities" of their software, as long as they do not actively participate in consumer deception.
- Substantiation Mandate: Any enterprise utilizing AI in its marketing, or selling AI-enabled products, must treat "AI" as a compliance red flag. Every claim regarding AI performance, efficacy, accuracy, or financial return must be backed by rigorous, documented empirical evidence.