Who Regulates Affiliate Marketing? What Every Affiliate Needs To Know

April 18, 2021

Kenneth Holland

Who regulates affiliate marketing? Shady business practices litter the internet so it pays to know the legal side of your affiliate online business.

As with any industry, affiliate marketing has its ups and downs. While plenty of people are selling reputable products and services through affiliate networks, some bad actors are trying to make a quick buck by promoting "scammy" items.

Because there's a lot of information about affiliate marketing, some people may be wary of entering the industry. Fortunately, I'm here to put those fears and doubts to rest. This article will discuss rules and regulations, specifically who regulates affiliate marketing and what it takes to become an affiliate legally. Here is everything you need to know...

Who Regulates Affiliate Marketing?

FTC (Federal Trade Commission)

On a macro scale, no one entity is in charge of overseeing this industry. Instead, it falls to each country to regulate businesses and marketers online, whether they're affiliates or not. For advertising in the United States, the Federal Trade Commission (FTC) is in charge of regulating affiliate marketing.

However, since the internet connects people from everywhere, marketers must recognize that their customers may come from different parts of the globe.

Overall, as a marketer, your responsibility is to follow FTC rules and guidelines for promoting your product links from the merchant. Thankfully, you don't have to be well-versed in e-commerce laws from every country, so don't worry too much if your visitors come from the U.S. or elsewhere.

Instead, that responsibility falls to the vendors since they're the ones selling the actual products. That said, you do have to follow some strict regulations, which we'll discuss later on.

Is Affiliate Marketing a Pyramid Scheme?

The simple answer is no, but we're not going to dive too much into this question here. Instead, you can read this article about why affiliate marketing is not a pyramid scheme. Basically, since you don't have to pay into an affiliate program, nor are you actively recruiting new members, this business model is fully legit. Again, some bad actors can taint the industry's image, but the foundations of affiliate marketing are strong...and legal.

Why Affiliate Marketers Should Care About FTC Rules

The FTC does have a few rules that affiliate marketers have to follow. If you don't, you could get shut down and hit with a fine. The primary rule all marketers must follow is disclosure, meaning that you have to tell readers that you are being compensated for your recommendation.

All affiliate marketers have to disclose their relationship with vendors - no exceptions. The FTC breaks down this law into various parts, including:

  • What Qualifies as Compensation? - Almost any reward can qualify, including store credit, discounts, and favors. Basically, if a vendor is giving you anything (except a pat on the back) for recommending their product, you have to disclose it. That said, you DO have some rights to privacy and you don't have to be super specific about your compensation to your audience. But you have to let them know that you're getting something.
  • When Do You Disclose? - Any post or email you create that can lead to an affiliate link must include a disclaimer. Whether it's a social media ad, an email, a blog post, or something else, you have to include a disclosure.
  • How Do You Disclose? - The FTC says that all disclosures must be "clear and conspicuous." While these terms are somewhat vague, the idea is to avoid potential loopholes. Overall, you have to be upfront about your payments and make the disclosure easy to find. If the FTC thinks that you're hiding a disclosure or making it seem like something else, the Commission will likely penalize you.
  • Where Do You Disclose? - While the FTC doesn't have specific rulings on the placement and text of a disclosure (again, to avoid loopholes), they recommend placing it as close to the link as possible. While you may not get fined for putting a disclosure at the bottom of a blog post, the FTC may warn you to place it at the top to make it more "clear and conspicuous."
  • Who Has to Disclose? - Everyone receiving compensation has to disclose it, even if they are not an affiliate marketer.
  • Do You Need to Register as an Affiliate?

    While you may have to set up an account on a platform with an affiliate network to make money as a marketer, you do not need to register yourself or your business (i.e., website) with a government agency. There is no "affiliate registry" or anything.

    Similarly, if you work directly with vendors and avoid affiliate programs, you still don't have to register anywhere to earn money legally.

    Can Affiliates Be Sued if They Break the Law?

    The answer to this question depends on a few factors. Let's break them down:

  • Contracts - Typically, affiliate marketers will sign a contract with either a network or a vendor directly. If you breach this contract, you can get sued by the other party, and vice versa if they break it.
  • Misleading Language - One of the best practices as an affiliate marketer is to be authentic with your ads. If you're making unsubstantiated claims in your promotions, your audience may get upset with you and file a complaint. However, since you're not the one selling the actual product, you can't get sued if the item doesn't live up to the hype. However, the FTC can shut you down and issue a fine if they think you were intentionally misleading your readers.
  • Faulty Products - As with misleading language, you're not responsible for the products themselves. However, if you discover that the items are defective, you probably want to stop working with that vendor or network.
  • How to Stay Compliant on Social Media

    The same FTC rules apply for social media posts as they do for emails and blogs. The best way to disclose your relationship is to put it in the post itself. While you may be able to get away with placing the hashtag "#ad" and nothing else, you should go beyond a single tag since they can be easy to miss.

    Some other factors to consider with disclosures include:

  • Personal and Family Relationships - Even if you're not receiving financial compensation, you need to indicate that you're related or have a close personal relationship with the vendor.
  • Untested Products - If you're hyping up a product you haven't used in order to incentivize clicks, the FTC may claim that you're misleading your audience. This piece is hard to prove, but it's generally best to test your affiliate products whenever possible.
  • Untrue Statements - If you hate a product or know it doesn't work, you can't claim otherwise. This rule is another reason to test the items before endorsing them.
  • What Qualifies as an "Endorsement?"

    Technically speaking, any public declaration regarding a specific product or service qualifies as an endorsement. However, if you're endorsing something without receiving compensation (or having a close relationship with the vendor), you don't need to disclose anything. You also don't have to announce that you aren't getting paid on a purchase, either.

    Do You Need a Business License to Be an Affiliate?

    If you're working with an affiliate network that connects you to various vendors, you do not need a business license. However, if you're contracting with vendors directly and earning money from them, you have to get a license. Realistically, you will register as a sole proprietor, but you could choose to license your affiliate marketing business as an LLC or corporation if you plan on expanding and hiring more people.

    Bottom Line: Affiliate Marketing is a Smart and Safe Business Model

    Affiliate marketing is an excellent way to earn a passive income stream, and the bigger your business, the easier it is. Although some bad actors may use unscrupulous tactics, they do not represent the internet marketing industry as a whole. Since the FTC is who regulates affiliate marketing, just follow their guidelines and promote products authentically, and you don't have to worry.