In 2021, an e-commerce entity set up physical stores in select cities where customers could simply walk in, pick up groceries, and leave without queuing up at the cashier to pay for the goods. The claim was that the store was “AI-powered,” where the technology would detect the customer and the goods purchased, charge their account, and send them a receipt. Around the same time, an investment advising firm advertised to its customers that it uses data to make its AI smarter, helping it predict which companies and trends are about to make it big and invest in it before everyone else. What’s common in both these instances is that the claims about using AI were either false or exaggerated.
Story continues below this ad
Given the rise of AI, several companies have been found to make such claims. For instance, there have been reports alleging that AI chatbots that seek to automate tasks such as managing calendars, scheduling emails are actually operated by humans (and not by AI). While such claims have been refuted or clarifications have been issued, this issue adversely affects consumers, influencing their buying decisions. In this piece, we discuss how these advertisements are impacting consumers, what has been the response by authorities globally, and whether Indian laws have provisions that can address this issue.
These deceptive advertising practices, often referred to as “AI washing,” mislead consumers by exaggerating or falsely claiming the use of AI, similar to how “greenwashing” misrepresents environmental benefits.The greenwashing guidelines issued by the Department of Consumer Affairs, Government of India describe greenwashing as, “deceptive or misleading practice, which includes concealing, omitting, or hiding relevant information, by exaggerating, making vague, false, or unsubstantiated environmental claims.”
Misleading advertisements that exaggerate or make vague, false, and unsubstantiated claims about AI usage hamper consumer interest, while attempting to attract customers and investors amid the growing AI hype. Consumers increasingly prefer AI-driven solutions, as seen in a 2018 PwC Survey of business decision-makers and employees in India which found that 49 per cent of respondents were willing to pay extra for AI-driven customer service. Furthermore, growing AI investments may incentivise more claims that goods and services are AI-driven.
Story continues below this ad
Several regulators across the globe have taken note of this and penalised actors for using AI to mislead consumers. In March 2024, the US Securities and Exchange Commission settled charges against two investment advisers for misleading claims about the use of AI. The Commission found that how these two companies marketed the use of AI to their clients was false. In the UK, the Advertising Standards Authority ordered the removal of an ad claiming to enhance photos with AI. The Authority noted that the entity issuing the advertisement failed to provide evidence to demonstrate how the results (regarding enhancing images) could be achieved using their AI application. The Authority concluded that the claim exaggerated the performance of the app and was, therefore, misleading.
While similar cases have not come up in India, existing laws and regulations may be applied to take action on such cases. The core problem is not AI but the creation of misleading ads. AI is just a means to mislead customers. The Consumer Protection Act, 2019 prohibits misleading advertisements. Under the Act, entities who can file complaints relating to misleading ads also include the Central and State Governments.
The Guidelines for the Prevention of Misleading Advertisements (notified under the Act) outline specific responsibilities for manufacturers, service providers, advertisers, and advertising agencies. This includes ensuring that all descriptions, claims, and comparisons in advertisements related to objectively verifiable facts can be substantiated and that the necessary evidence to support such claims can be provided when required.
most read
For instance, in July 2024, the Central Consumer Protection Authority (CCPA) penalised a company with a Rs 10 lakh fine for misleading ads about its joint pain relief oil. The company falsely claimed it was the “world’s first hot stream joint pain relieving oil” with no equivalent worldwide and promised quick relief without surgery or physiotherapy. During the investigation, it was found that the company could not substantiate any of these claims
Lastly, as regulators and enforcement agencies enforce laws to mitigate AI-related harms including misleading ads, it is crucial to simultaneously enhance AI literacy of these bodies. The Draft Report on AI Governance released in January 2025 also underscores the need to bolster the capabilities of departments and regulators, ensuring they are equipped to understand AI-related risks and effectively apply relevant laws.
Mithal is associate research fellow, CeRAI (Associate Partner, Anand and Anand). Kumar is policy analyst, CeRAI (Centre for Responsible AI)
