The FTC revealed the settlement on Tuesday morning.
The FTC also alleged that Lord & Taylor failed to disclose that it had pre-approved each post, required that the posts include the retailer's social media handle and hashtag, and that each poster had been given the dress -- as well as payment of up to $4,000 -- in exchange for their endorsements.
"So when consumers are looking at posts on Instagram, they have no idea," Mary Engle, FTC's associate director of advertising practices, told ABC News. "They think, this person whose fashion sense I really value likes this dress, and they don't know that it's there because Lord & Taylor paid the influencer."
"They reached out and said, 'We have this dress from design lab and we want to send it to 50 influencers and see how they all style it and promote it," Iwanyszyn told ABC News.
"They had us all post at the same time -- between 12 p.m. and 3 p.m. -- and then tagging @lordandtaylor," Lynch recalled.
According to the FTC, the influencers’ posts reached 11.4 million individual Instagram users over two days, leading to 328,000 brand engagements with Lord &Taylor’s own Instagram handle. The dress quickly sold out, the FTC said.
The proposed consent order prohibits Lord & Taylor from misrepresenting that paid commercial advertising is from an independent or objective source. It also prohibits the company from misrepresenting that any endorser is an independent or ordinary consumer, and requires that the company disclose any unexpected material connection between itself and any influencer or endorser.
It also establishes a monitoring and review program for the company’s endorsement campaigns.
Lord & Taylor told ABC News the department store "cooperated fully" with the FTC.
“Lord & Taylor is deeply committed to our customers. A year ago, when it came to our attention that there were potential issues, we took immediate action with the social media agencies that were supporting us on this campaign to ensure that clear disclosures were made," the statement read. "We cooperated fully with the FTC’s inquiry into this matter. The FTC has changed its guidelines since last year and we applaud the new guidelines that clarify the rules. In the consent order announced today, we have of course agreed to uphold the current version of the guidelines. There is no indication of wrongdoing whatsoever.”