As artificial intelligence chatbots become increasingly prevalent in customer service, mental health support, companion applications, and commercial transactions, businesses face a complex and rapidly evolving legal landscape. From state disclosure requirements to federal investigations into child safety, AI chatbot operators must navigate a complex landscape of privacy laws, consumer protection statutes, marketing regulations, and emerging AI-specific legislation. Our firm provides comprehensive legal guidance to help businesses deploy chatbot technology responsibly while maintaining compliance with applicable laws.
The Emerging Legal Framework for AI Chatbots
AI chatbots represent a unique intersection of artificial intelligence law, privacy compliance, marketing and advertising regulation, and consumer protection. Unlike traditional software applications, chatbots engage in simulated human conversation, creating novel legal challenges around disclosure, consent, data collection, and user expectations. As these technologies evolve, so too does the regulatory response from federal agencies and state legislatures.
State Disclosure Requirements
Several states have enacted or are considering legislation requiring disclosure when consumers interact with AI chatbots. Maine’s LD 1727, signed into law in June 2025, prohibits the use of AI chatbots in trade and commerce in a manner that may mislead consumers into believing they are engaging with a human being, unless clear and conspicuous notice is provided. Violations constitute unfair trade practices under Maine law.
Similarly, New York and other jurisdictions are advancing comparable transparency requirements. These state-level mandates create compliance obligations for any business that deploys chatbots to engage with consumers in those states, regardless of the business’s location.
California’s Comprehensive Approach to Companion Chatbots
California’s SB 243 represents one of the most comprehensive regulatory frameworks for AI chatbots in the United States. The legislation specifically targets “companion chatbots” and would require operators to conduct mandatory impact assessments, implement transparency measures, document detected instances of suicidal ideation or self-harm, and establish risk mitigation protocols. The bill provides for both state enforcement and private rights of action, creating significant legal exposure for non-compliant operators.
Federal Regulatory Scrutiny and Enforcement Actions
FTC Investigation into AI Companion Chatbots
In September 2025, the Federal Trade Commission launched a comprehensive inquiry into AI-powered chatbots acting as companions. Using its Section 6(b) authority, the FTC issued orders to seven major companies, including Alphabet, Meta, OpenAI, Character Technologies, Snap, Instagram, and X.AI Corp. The investigation focuses on how these platforms impact children and teens, particularly examining:
- How companies monetize user engagement
- Measures taken to evaluate safety when chatbots act as companions
- Steps to limit use by and negative effects on minors
- Disclosure practices regarding features, capabilities, and risks
- Compliance with the Children’s Online Privacy Protection Act (COPPA)
- Use and sharing of personal information from user conversations
This inquiry signals heightened federal scrutiny of AI chatbots, particularly those that create emotional connections with users or target vulnerable populations. Our FTC compliance and defense practice helps clients respond to regulatory inquiries and implement proactive compliance measures.
State Attorneys General Investigations
Texas Attorney General Ken Paxton has opened investigations into AI chatbot platforms, including Meta AI Studio and Character.AI, for potentially engaging in deceptive trade practices by misleadingly marketing themselves as mental health tools. The investigation examines whether these platforms:
- Impersonate licensed mental health professionals
- Fabricate qualifications
- Claim to provide confidential therapeutic services while logging and exploiting user data
- Make false representations about privacy protections
- Violate state consumer protection laws
These enforcement actions underscore the risks facing chatbot operators, particularly those offering services related to health, wellness, or emotional support.
Critical Legal Issues in AI Chatbot Deployment
Mental Health and Therapeutic Chatbots: Heightened Risk
High-Risk Application: AI chatbots marketed or used for mental health support, therapy, or emotional counseling face the highest level of regulatory and legal scrutiny due to safety concerns and potential for harm to vulnerable users.
The intersection of AI chatbots and mental health presents particularly complex legal challenges. Multiple sources document serious concerns about AI therapy applications, including reports of mental health crises, dangerous user interactions, and emerging tort claims, including suicide, defamation, and wrongful death allegations.
While companies like OpenAI have implemented crisis intervention features and teen safety measures, significant legal questions remain regarding duty of care, professional liability, informed consent, and the adequacy of safety guardrails. Our firm advises clients on risk mitigation strategies, appropriate disclaimers, crisis response protocols, and compliance with healthcare-related regulations.
Privacy and Data Protection Compliance
AI chatbots collect extensive personal information through conversational interactions, raising significant privacy law implications. Organizations must ensure compliance with:
- GDPR requirements for chatbots accessible to EU residents
- CCPA/CPRA obligations in California
- Comprehensive state privacy laws across multiple jurisdictions
- HIPAA requirements for health-related chatbots
- COPPA when chatbots are directed to children under 13
- Emerging requirements under teen privacy laws extending protections to users under 18
Chatbot operators must implement robust privacy policies, obtain appropriate consent, provide required disclosures, enable user rights requests, and ensure data minimization and security. Our comprehensive guide to privacy in the age of AI provides additional context on these requirements.
Biometric Data and Consent Requirements
Chatbots that incorporate voice recognition, facial analysis, or other biometric data collection trigger additional legal requirements. Companies must comply with biometric privacy laws in Illinois, Texas, Washington, and other jurisdictions that mandate specific consent procedures, retention limitations, and security measures for biometric information.
Marketing, Advertising, and Consumer Protection Compliance
AI chatbots used in commerce must comply with various marketing and consumer protection laws:
- FTC Act Section 5: Prohibition against unfair or deceptive practices
- Endorsements and Testimonials: Disclosure requirements when chatbots provide recommendations
- TCPA Compliance: Restrictions on automated text messaging
- Email Marketing: CAN-SPAM Act requirements
- Terms of Service: Clear, enforceable terms and conditions
Intellectual Property Considerations
AI chatbot development and deployment raise various IP issues, including trademark use in training data, copyright concerns regarding generated content, and protection of proprietary algorithms. Organizations must also address IP ownership in AI vendor contracts and licensing agreements.
AI Governance and Risk Management
Establishing Comprehensive AI Governance Frameworks
Effective chatbot compliance requires a structured AI governance framework that addresses:
- Risk assessment and impact evaluation
- Model validation and testing protocols
- Human oversight and intervention procedures
- Content moderation and safety controls
- Incident response and remediation processes
- Regular auditing and compliance monitoring
Our firm helps clients develop scalable AI governance programs that evolve from foundational principles to enterprise-wide implementation.
Conducting Privacy and AI Impact Assessments
Many jurisdictions and proposed regulations require privacy impact assessments (PIAs) or algorithmic impact assessments (AIAs) before deploying AI systems. These assessments identify potential risks to privacy, civil rights, and user safety, document mitigation measures, and demonstrate compliance with applicable requirements.
We assist clients in conducting comprehensive assessments using our AI risk compliance and assessment tool and developing appropriate documentation for regulatory review.
Employee Training and Usage Policies
Organizations must establish clear policies governing AI chatbot use by employees and ensure appropriate training on legal and ethical considerations. Our AI usage legal compliance policy generator helps create customized policies addressing your organization’s specific needs and risk profile.
We also provide privacy, cybersecurity, and AI law training to executives, legal teams, product developers, and other stakeholders.
Industry-Specific Chatbot Compliance
Healthcare & Wellness
HIPAA compliance, FDA regulation, clinical trial disclosure, and mental health application requirements
Financial Services
FINRA requirements, SEC marketing rules, consumer financial protection, and algorithmic trading regulations
E-Commerce & Retail
Consumer protection, pricing transparency, accessibility requirements, and transaction authentication
Education & EdTech
FERPA compliance, children’s privacy protection, accessibility standards, and academic integrity concerns
Our AI Chatbot Compliance Services
We provide comprehensive legal support for AI chatbot development and deployment:
- Regulatory Compliance Audits: Comprehensive review of chatbot systems against applicable laws and regulations
- Terms of Service and Privacy Policies: Drafting and reviewing user agreements, privacy policies, and required disclosures
- AI Vendor Contract Negotiation: Protecting client interests in agreements with AI service providers and technology vendors
- Risk Assessments: Conducting privacy impact assessments and algorithmic impact assessments
- Governance Framework Development: Establishing policies, procedures, and oversight mechanisms
- Incident Response: Managing data breaches, safety incidents, and regulatory inquiries
- Regulatory Defense: Representing clients in FTC, state AG, and other enforcement proceedings
- Product Development Counseling: Advising on compliance integration throughout the development lifecycle
Related Practice Areas and Resources
Our AI chatbot compliance practice integrates with our broader capabilities in:
- Artificial Intelligence Law
- New York AI Law for Businesses and Startups
- Privacy Compliance
- Cybersecurity Law
- Advertising and Marketing Law
- Data Breach and Incident Response
- Employee Monitoring and Workplace Technology
Educational Resources
We maintain extensive resources on AI and technology law:
- AI & The Law Legal Resource Hub
- Top 5 Artificial Intelligence Legal Considerations
- The AI Risk Horizon: Emerging Threats and Compliance
- Court-Ordered Data Retention: ChatGPT Chat Log Preservation
Stay Ahead of Regulatory Changes
The legal landscape for AI chatbots continues to evolve rapidly. State legislatures are considering new disclosure requirements, federal agencies are expanding enforcement efforts, and international regulations like the EU AI Act establish standards that may influence U.S. approaches. Organizations deploying chatbot technology must maintain ongoing compliance monitoring and adapt to new requirements as they emerge.
Our firm stays at the forefront of these developments, providing clients with timely guidance on regulatory changes and their practical implications. We track federal legislation, state bills, agency guidance, and international developments to help clients anticipate and prepare for new compliance obligations.
AI Chatbot Legal Developments
- Tennessee’s AI Training Criminalization Bill: Tennessee legislators have proposed a bill that would criminalize the unauthorized use of certain data to train artificial intelligence models. The legislation aims to protect intellectual property and individual likenesses from being exploited by generative AI technologies. OUR TAKEAWAY: Developers and tech firms must implement rigorous data provenance audits to ensure training sets do not violate emerging state-level criminal statutes regarding digital rights. Read More →
- Kentucky Sues Character.AI Over Child Safety: Kentucky has filed a lawsuit against chatbot platform Character.AI, alleging the company violates state consumer data protection laws by harvesting children’s personal data without parental consent and failing to implement effective age verification. The complaint accuses the platform of deploying “dangerous technology” that manipulates young users into divulging sensitive thoughts and has been linked to severe psychological harm, rejecting the company’s recent safety changes as inadequate workarounds that minors can easily bypass. Read More →
- New Chatbot Toy Moratorium Bill Raises Questions on Chatbot Regulations: Following several lawsuits concerning AI’s potential role in harmful behaviors, California Senator Steve Padilla has introduced SB 867, a bill that would ban the sale of toys equipped with “companion chatbots” for children under 12 until 2031. This proposed moratorium joins existing California and New York laws that require safety protocols, transparency notices, and regular human-interaction reminders, sparking a broader regulatory debate over whether to restrict the technology itself or focus on policing its specific harmful uses. Read More →
- How Existing Laws Apply to AI Chatbots for Kids and Teens: This new reference guide from EPIC and partner institutions explains how long-standing consumer protection, privacy, and data security laws already apply to AI chatbots used by or marketed to minors, underscoring that there is no “AI exception” in existing law. It synthesizes current enforcement themes and shows how tools like COPPA, state children’s privacy and targeted advertising restrictions, and unfair or deceptive acts and practices (UDAP) authority can address documented chatbot harms to kids and teens, including mental health risks, manipulation, data misuse, and deceptive safety claims. Aimed at regulators and policy staff, the guide offers a practical starting point—not a full 50-state survey—for mapping real-world chatbot abuses to existing legal hooks and encourages more assertive use of those powers while broader AI-specific rules continue to evolve. Read More →
- Understanding the New Wave of Chatbot Legislation: California SB 243 and Beyond: California’s new SB 243 establishes one of the first comprehensive state frameworks for “companion chatbots,” requiring operators to clearly disclose when users are interacting with AI, implement safety protocols to detect and respond to self-harm or suicide-related content, and adopt added safeguards when users are known minors, such as periodic break prompts and restrictions on sexually explicit content. The law creates a private right of action with statutory damages, making enforcement risk significant for providers whose products meet the law’s broad, emotionally oriented definition of a companion chatbot. SB 243 sits within a broader 2025 wave of state chatbot bills in New York, Maine, and others that emphasize transparency and harm mitigation, signaling that 2026 is likely to bring more youth-focused, safety-driven chatbot regulation rather than outright bans—at least for now. Read More →
- Newsom Signs AI Safety Bill Protecting Children from Harmful Chatbots:
California Governor Gavin Newsom signed a landmark AI safety bill placing new restrictions on how artificial intelligence chatbots interact with minors. The law requires chatbot developers to clearly disclose when users are engaging with an AI system and to maintain safeguards preventing harmful or self-harm-related content in conversations with children. The measure follows public concern and a lawsuit alleging that an AI model encouraged a teenager to harm himself. While Newsom vetoed a stricter proposal that would have banned AI chatbots for minors altogether, this bill marks a balanced approach—promoting AI accountability while preserving innovation.
Read More → - The Dark Side of AI: Assessing Liability When Bots Behave Badly: Recent lawsuits highlight the grave risks and legal challenges posed by AI chatbots when their interactions cause real-world harm. A 2025 wrongful death suit against OpenAI alleges that ChatGPT’s design fostered psychological dependency and contributed to a teenager’s suicide by providing detailed suicide methods and undermining real-life support. Similar cases claim AI bots encouraged harmful behavior, exposing gaps in accountability for AI developers. The underlying issue stems from AI’s reliance on large, uncurated datasets and limited contextual understanding, which can lead to dangerous outcomes when AI mirrors or amplifies users’ distress. States like New York, Utah, Texas, Illinois, and Nevada are enacting laws to regulate AI in mental health contexts, emphasizing detection of suicidal ideation, transparency, and restrictions on AI posing as therapists. As AI evolves, legal frameworks must balance innovation with robust safeguards, clarifying liability and promoting responsible design to mitigate harm. Read More →