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DoNotPay faced action from the US Federal Trade Commission (FTC) after allegedly claiming its AI-powered tool could “sue anyone with the click of a button”.

The FTC said the company had claimed it would “replace the $200 billion legal industry with artificial intelligence” but had not conducted any testing to confirm whether the output of its ChatGPT-based tool was legally sound.

Under a settlement agreed with no admission of liability, DoNotPay will pay $193,000 to the FTC.

The business will provide a notice to customers who subscribed between 2021 and 2023, warning them about the limitations of law-related features on the service.

DoNotPay is also now prohibited from making claims about its ability to substitute for any professional service without evidence to back it up.

The settlement was revealed last week as the FTC announced a crackdown on AI companies making deceptive claims.

FTC chair Lina M. Khan said: “Using AI tools to trick, mislead, or defraud people is illegal. The FTC’s enforcement actions make clear that there is no AI exemption from the laws on the books.

“By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected.”