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The great AI deregulation

The great AI deregulation

Rule Changes
By Newzino Staff | |

Trump's FTC reverses enforcement action, signals new era for AI oversight

December 22nd, 2025: FTC Reverses Rytr Enforcement

Overview

The FTC just tore up its own rulebook. On December 22, 2025, the agency voted 2-0 to reverse a year-old enforcement action against Rytr, an AI writing tool accused of enabling fake reviews. The reason? The original case 'unduly burdens AI innovation' and violates Trump's AI Action Plan. Yet on the same day, the agency sent warning letters to 10 companies for suspected fake review violations, threatening civil penalties up to $53,088 per violation.

This marks the first time the FTC has revoked a settled AI case—and reveals the contradictions in Ferguson's approach. The new chair promises not to 'regulate AI until problems arise,' yet continues enforcing rules against specific violations. Meanwhile, Trump's December 11 executive order created a DOJ task force to sue states over AI laws, with Colorado's algorithmic discrimination statute explicitly targeted as 'probably the most excessive.'

Key Indicators

First
FTC consent order ever reversed for AI policy reasons
Unprecedented regulatory reversal citing innovation concerns
10
Companies warned about fake reviews on same day as Rytr reversal
FTC sent warning letters December 22, signaling selective enforcement
$53,088
Civil penalty per violation under fake review rule
Updated penalty amount for 2025, threatening companies in warning letters
90 days
Deadline for DOJ to identify state laws for legal challenge
Commerce must publish evaluation by March 11, 2026

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Debate Arena

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People Involved

Lina Khan
Lina Khan
Former FTC Chair (Resigned January 21, 2025)
Andrew N. Ferguson
Andrew N. Ferguson
FTC Chairman (Appointed January 20, 2025)
Christopher Mufarrige
Christopher Mufarrige
Director, Bureau of Consumer Protection (Appointed February 2025)
Melissa Holyoak
Melissa Holyoak
Former FTC Commissioner (Appointed Interim US Attorney for District of Utah, November 2025)
David Sacks
David Sacks
White House AI and Crypto Czar (Appointed December 2024)

Organizations Involved

Federal Trade Commission (FTC)
Federal Trade Commission (FTC)
Federal Agency
Status: Undergoing major policy shift on AI regulation

The FTC enforces consumer protection and antitrust laws.

Rytr LLC
Rytr LLC
AI Software Company
Status: Consent order vacated, free to operate

Rytr provides an AI writing assistant that can generate various content types.

Timeline

  1. FTC Reverses Rytr Enforcement

    Legal

    FTC voted 2-0 to reopen and set aside Rytr order, citing Trump AI Action Plan. First AI settlement reversal.

  2. FTC Sends Warning Letters on Fake Reviews

    Enforcement

    Same day as Rytr reversal, FTC warned 10 companies of potential Consumer Review Rule violations, requiring compliance plans within 5 days.

  3. Trump Signs State Preemption Order

    Executive Action

    Executive order directing DOJ to challenge state AI laws, sparking legal threats from Colorado and California.

  4. Colorado Delays AI Act to June 2026

    Regulation

    Governor Polis signed bill postponing Colorado AI Act implementation from February 1 to June 30, 2026, amid legislative deadlock on reforms.

  5. Trump Releases AI Action Plan

    Policy

    White House released America's AI Action Plan prioritizing deregulation, infrastructure, and US AI dominance.

  6. Ferguson Testifies on AI Regulation Philosophy

    Policy

    FTC Chair told House Appropriations Committee the agency won't regulate AI ahead of abuses: 'We see how things go and then we address problems as they arise.'

  7. DoNotPay Final Order Requires $193K Payment

    Enforcement

    FTC finalized order against DoNotPay requiring $193,000 in monetary relief and consumer notification for deceptive 'AI lawyer' claims from Operation AI Comply.

  8. Lina Khan Resigns

    Departure

    Khan resigned as FTC chair day after Trump inauguration, leaving agency split 2-2 on party lines.

  9. Trump Inaugurated, Revokes Biden AI Order

    Executive Action

    On his first day, Trump revoked Biden's AI executive order and designated Ferguson as FTC chair.

  10. Rytr Consent Order Finalized

    Legal

    FTC approved final order banning Rytr from providing AI services generating consumer reviews or testimonials.

  11. Trump Names Ferguson FTC Chair

    Appointment

    President-elect Trump designated Andrew Ferguson, who dissented from Rytr case, as next FTC chairman.

  12. Operation AI Comply Launched

    Enforcement

    FTC announced enforcement sweep against five companies, including Rytr. Khan: 'There is no AI exemption from the laws on the books.'

  13. FTC Bans Fake AI-Generated Reviews

    Regulation

    Agency announced final rule prohibiting fake reviews and testimonials, including AI-generated content. Rule took effect October 21, 2024.

  14. FTC Launches AI Investment Inquiry

    Investigation

    Khan's FTC announced inquiry into generative AI investments and partnerships involving major tech companies.

Scenarios

1

FTC Dismantles Khan's AI Enforcement Legacy

Discussed by: Legal analysts at Reed Smith, Gibson Dunn, and consumer protection advocates

The Rytr reversal is just the beginning. Ferguson systematically unwinds Khan-era AI cases, abandoning the 'means and instrumentalities' liability theory that held companies responsible when tools enable deception. The FTC's fake review rule remains on the books but goes largely unenforced. State attorneys general step into the void, creating the exact patchwork regulation Trump's executive order aimed to prevent. AI companies operate with minimal federal oversight while navigating conflicting state requirements.

2

Federal Courts Strike Down State AI Laws

Discussed by: Constitutional law experts, state officials warning of lawsuits

The DOJ's AI Litigation Task Force successfully challenges Colorado and California AI laws in federal court, establishing broad preemption doctrine. The Supreme Court, with its conservative majority, rules that AI regulation is exclusively federal domain. States lose ability to protect consumers from AI harms, leaving enforcement to an FTC that's already signaled reluctance to act. Silicon Valley gets the uniform regulatory framework it wanted: minimal restrictions, maximum innovation.

3

AI Consumer Harm Crisis Forces Reversal

Discussed by: Consumer advocates, some tech policy analysts at TechPolicy.Press

Deregulation unleashes wave of AI-enabled fraud. Fake review pollution becomes so severe that consumers can't trust online ratings. Deepfake scams proliferate. A high-profile AI-related consumer harm generates public outcry. Congress passes bipartisan AI consumer protection legislation that gives the FTC clear authority and mandatory enforcement requirements. Ferguson's FTC is forced to reverse course, but the new chair lacks Khan's aggressive instincts.

4

Industry Self-Regulation Fills Vacuum

Discussed by: Tech industry advocates, libertarian policy groups

With federal enforcement minimal and state laws preempted, major AI companies create industry standards to avoid worse regulation. Tech platforms like Amazon and Google crack down on AI-generated fake reviews to protect their marketplaces. Industry consortium develops authentication standards for AI content. Market forces and reputation concerns drive better behavior than regulation ever could, vindicating the deregulation approach.

5

Colorado Becomes Legal Battlefield Over AI Preemption

Discussed by: Colorado Attorney General Phil Weiser, constitutional law scholars

DOJ sues Colorado in March 2026 to block the state's algorithmic discrimination law before its June 30 implementation. The case becomes the Supreme Court test for federal AI preemption. Colorado argues the statute addresses civil rights, traditionally a state domain, while DOJ claims exclusive federal jurisdiction over interstate commerce. The outcome determines whether states retain any power to regulate AI harms or if Silicon Valley achieves complete federal regulatory capture.

Historical Context

Reagan Deregulation (1980s)

1981-1989

What Happened

President Reagan launched aggressive deregulation agenda focused on economic efficiency. His administration successfully deregulated airlines, trucking, railroads, and oil and gas industries. However, efforts to roll back health and safety regulations faced legal obstacles and public backlash.

Outcome

Short Term

Economic deregulation largely succeeded; social regulation rollbacks mostly failed in court.

Long Term

Created legal precedent requiring same rigorous process to repeal rules as to create them, which ironically hampers Trump's deregulation efforts today.

Why It's Relevant Today

Trump's AI deregulation follows Reagan's playbook but faces similar obstacles. The Rytr reversal sidesteps court challenges by claiming the original case was legally flawed rather than defending deregulation on policy merits.

AT&T Consent Decree Modification (1982-1984)

1982-1984

What Happened

The Justice Department and AT&T modified a 1956 consent decree, leading to the breakup of the Bell System. The modification fundamentally changed telecommunications regulation and split AT&T into regional companies. It showed consent decrees can be reopened, but typically requires mutual agreement and court approval.

Outcome

Short Term

Bell System broken up into seven regional companies, transforming telecom industry.

Long Term

Enabled competition and innovation in telecommunications; established precedent for major consent decree modifications.

Why It's Relevant Today

Demonstrates that consent decrees, while designed for finality, can be modified. But the AT&T case involved both parties agreeing to changes. The Rytr reversal is unusual because the FTC unilaterally determined its own complaint was flawed.

Trump First-Term Deregulation Record (2017-2021)

2017-2021

What Happened

Trump's first administration promised historic deregulation but faced legal obstacles. Agencies attempted to repeal Obama-era rules but achieved less than 25% success rate in court because they failed to satisfy the demanding 'arbitrary and capricious' standard established in Reagan-era precedent. Deregulation rhetoric far exceeded actual results.

Outcome

Short Term

Some high-profile regulatory rollbacks announced but many struck down by courts.

Long Term

Demonstrated that administrative law constrains presidential deregulation power more than political rhetoric suggests.

Why It's Relevant Today

The Rytr reversal uses a different strategy than failed first-term approaches. Instead of defending deregulation on policy grounds, Ferguson claims the original Khan-era complaint was legally deficient. This may avoid the judicial scrutiny that doomed first-term rollbacks.

18 Sources:
+12
Federal Trade Commission MLex Bloomberg Law The White House CNN Law360 The Washington Post The Record Baker Botts NPR Paul Hastings LLP Colorado Politics Federal Trade Commission Federal Trade Commission Federal Trade Commission Federal Trade Commission Federal Trade Commission Federal Trade Commission