Caught in the Middle: When State AI Laws and Federal Consumer Protection Law Collide

Short summary

The FTC's July 2026 proposed policy statement warns AI companies that altering model outputs to comply with state laws may constitute deception under Section 5 of the FTC Act. The agency argues that consumers expect AI systems to produce accurate, neutral results, and secretly steering outputs to satisfy state regulators like Colorado's AI Act violates that expectation. This creates a compliance dilemma where companies face potential liability from both state and federal regulators simultaneously.

• •FTC proposes that altering AI outputs for state law compliance may violate Section 5 deception rules
• •Colorado's AI Act incentivizes equity-over-accuracy tradeoffs without disclosure, creating FTC exposure
• •No state-law safe harbor exists under the FTC Act, leaving AI companies caught between conflicting obligations

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