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Stop Scam Ads on Online Platforms

Full Title:
SCAM Act

Summary#

This bill would make it illegal for online platforms to display paid ads that are fraudulent or deceptive if the platform did not take reasonable steps to stop those ads. It sets specific requirements platforms must follow for advertiser verification, detection, investigation, and removal of suspicious ads. The Federal Trade Commission (FTC) would write rules, enforce the law, and platforms would lose one shield of immunity under Section 230 for these ad violations. The bill also lets states and harmed people sue, and it directs the FTC to study online payment-related scams.

  • Main change: Platforms that accept payment for ads must verify advertisers, run impersonation detection and ad-fraud systems, provide a user reporting tool, investigate reports within 72 hours, and remove violating ads quickly.
  • Enforcement: The FTC gets rulemaking and enforcement authority; violations are treated as unfair or deceptive acts under the FTC Act. States can sue on behalf of residents. Individuals may sue for damages and injunctions, with possible tripled damages for willful violations.
  • Section 230: The usual Section 230(c)(1) immunity for platforms will not apply to violations of this bill (but another Section 230 protection for content removal stays in place).
  • Definitions: “Online platform” means public-facing sites or apps that mainly host user-generated content (for example, social media). “Deceptive” is limited to misrepresentations likely to cause financial harm to a consumer.

What it means for you#

  • Consumers

    • If you see a paid ad that is a scam, platforms must offer a clear way to report it.
    • Platforms must investigate reported scam ads within 72 hours and tell the reporter the outcome within 24 hours after the investigation ends.
    • The law aims to reduce scams in paid ads, which could lower the chance you lose money to ad-based fraud.

  • Online platforms (social networks, apps, video sites that host user content)

    • Must verify advertisers’ identities and physical locations before showing paid ads.
    • Must use automated and human review systems to detect fraudulent ads and run an impersonation detection program.
    • Must show they actively enforce their detection program to get a presumption they took “reasonable steps.”
    • Could remove ads during investigations and must remove proven violative ads within 24 hours of a determination.
    • Lose Section 230(c)(1) immunity for violations of this law, so they face more direct legal risk for fraudulent paid ads.

  • Advertisers

    • Must provide verified legal name, physical location, and government ID or business documentation to buy ads.
    • Could face extra checks to prevent use of stolen or synthetic identities.

  • State attorneys general

    • May sue on behalf of state residents to stop violations, get damages, or secure other relief. They must notify the FTC before suing in most cases.
    • If the FTC has already sued a defendant, states generally cannot bring suits against that same defendant for the same alleged violations while the FTC’s case is pending.

  • Individual consumers and businesses harmed by scam ads

    • May bring private lawsuits seeking injunctions, actual damages, and other relief. Courts can award up to triple damages for willful violations and must award attorney fees to prevailing plaintiffs.
    • Lawsuits must start within 5 years after discovery of the violation.

  • FTC and federal regulators

    • Must issue implementing rules within one year and review them annually.
    • Must produce a report within 9 months assessing regulatory gaps related to online scams and payment fraud.

Expenses#

No publicly available information.

  • The bill itself does not include a fiscal note or cost estimates in the provided material.
  • This could increase platforms’ costs for identity verification, automated detection systems, and staffing for investigations and enforcement.
  • It could increase legal costs for platforms because of more lawsuits and reduced Section 230 defenses.
  • It could increase FTC administrative and enforcement costs, and state enforcement costs, but no dollar estimates are provided.

Proponents' View#

  • The bill appears intended to reduce consumer losses from scam and deceptive paid ads by holding platforms accountable when they accept payment.
  • A possible argument for the bill is that requiring advertiser verification and active detection systems would make it harder for fraudsters to buy ads and would speed removal of scam ads.
  • The bill could be seen as closing a gap where courts have allowed broad platform immunity that some lawmakers view as preventing accountability for paid ad scams.
  • Requiring the FTC to study online payment scams could lead to further rules or laws to reduce financial losses tied to ads.

Opponents' View#

  • One concern is that the bill does not provide a public fiscal estimate, so the costs to platforms (especially small ones) and to regulators are unclear.
  • One concern is that rigorous identity checks and verification could raise privacy issues or create burdens for legitimate small advertisers.
  • The bill does not fully define what counts as “reasonable steps” beyond listed requirements, which may create uncertainty about compliance and enforcement.
  • One concern is potential over-removal or chilling of lawful advertising if platforms choose to remove ads quickly to avoid liability.
  • Another concern is that removing Section 230(c)(1) protection for these violations could lead to more litigation and legal uncertainty for platforms; it may also lead to different requirements across states since the bill does not preempt state law.