On July 1, the Federal Trade Commission (FTC) published a proposed policy statement addressing whether AI companies that steer their systems’ outputs toward undisclosed ideological objectives, rather than toward the objectives that consumers request or reasonably expect, may be engaging in deceptive acts or practices in violation of § 5 of the FTC Act. The public comment period closes July 31, 2026.

Link to Background Background

The proposed statement was issued pursuant to Executive Order 14365, signed by President Trump on December 11, 2025, which directed the FTC to clarify how § 5 of the FTC Act applies to AI models and, in particular, to address how state laws requiring alterations to the accurate outputs of AI models can conflict with federal law. The proposed statement also reflects the Administration’s broader goal of establishing a national AI regulatory framework that preempts state-by-state regulation.

Link to The FTC’s Position The FTC’s Position

The proposed policy statement takes the position that AI companies have made both explicit and implicit representations to consumers that their systems are designed to produce the best, most accurate, and most faithful output possible within their technological and resource constraints. Because consumers rely on those representations, and, according to the statement, accept AI outputs without independent fact-checking more than 90% of the time, the FTC believes consumers have a reasonable expectation that AI systems are not secretly designed to pursue undisclosed objectives that distort those outputs.

Under the FTC’s three-part deception framework, conduct is deceptive if there is a representation, omission, or practice that is likely to mislead a reasonable consumer in a material way. The proposed statement concludes that an AI company that trains or configures its model to pursue undisclosed ideological objectives, whether of its own volition or in response to a state law requirement, may be deceiving consumers in violation of § 5, regardless of the motivation for doing so.

The statement draws a distinction between intentional ideological steering and AI “hallucinations,” noting that the latter arise from technological and resource limitations rather than design decisions and do not, by themselves, raise § 5 concerns.

Link to State Law Preemption State Law Preemption

A significant feature of the proposed statement is its treatment of state AI laws. The statement singles out Colorado’s Artificial Intelligence Act, discussed here, as an example of a state law that may pressure AI companies to suppress output accuracy in order to avoid disparate impact liability and concludes that such a state law is impliedly preempted to the extent it conflicts with the federal regulatory scheme established by § 5 of the FTC Act. The statement takes the position that a state law that effectively requires an AI company to deceive its consumers conflicts with § 5’s express purpose of protecting consumers from deceptive conduct.

Link to The Disclosure Safe Harbor The Disclosure Safe Harbor

The proposed statement acknowledges that an AI company can avoid § 5 liability by making clear, conspicuous, and adequate disclosures that its system is designed to prioritize certain objectives over what users request or would otherwise expect. However, the statement sets a high bar for such disclosures. A disclaimer buried in terms of service would not suffice. The disclosure would need to be sufficiently prominent and persistent to actually shift the reasonable consumer expectations created by the company’s broader marketing and the inherent nature of AI as a problem-solving tool. The statement notes that the more a disclosure cuts against consumers’ reasonable expectations established in other contexts, the more prominent and persistent that disclosure must be.

Link to Practical Implications Practical Implications

The proposed statement has several practical implications for AI developers and companies that deploy AI-powered products and services:

  • Product design and marketing. Companies that market AI systems as accurate, neutral, or objective problem-solving tools should assess whether their systems’ actual design and outputs are consistent with those representations, and whether any intentional constraints on output are adequately and prominently disclosed.
  • State law compliance. Companies subject to state AI laws, including Colorado’s revised Artificial Intelligence Act, will need to carefully evaluate whether steps taken to comply with those laws could be characterized as intentional output suppression that conflicts with consumers’ reasonable expectations and, in turn, with § 5.
  • Disclosure practices. Companies that do configure their systems to prioritize objectives beyond those users would otherwise expect should review whether existing disclosures, including in terms of service, product descriptions, and onboarding flows, are sufficiently prominent to satisfy the standard the proposed statement describes.