When AI “Help” Hurts: The Risk of Invented Policies and the Illusion of Trust

What happens when your AI support bot makes up a policy—and your users believe it? You lose more than trust. You risk brand integrity, legal exposure, and a whole lot of unwanted headlines. 📉💥

In a cautionary tale from Ars Technica, productivity startup Cursor learned this the hard way when their AI-powered support bot fabricated a policy about user data deletion. It falsely told a customer their project had been permanently wiped due to inactivity—and there was no recovery. Spoiler: that wasn’t true. 😬

The bot hallucinated. The user panicked. And the internet noticed.

🛑 Hallucinations Aren’t Harmless—They’re Governance Failures

Cursor’s AI assistant didn’t just get it wrong. It confidently cited a non-existent “auto-delete policy,” offering a fake rationale with real-world consequences. While Cursor quickly acknowledged the mistake, the damage was done—users now questioned whether they could trust anything the AI bot said.

This is a governance issue, not just a technical bug.

And it raises serious questions:

• Who owns the output of AI support agents?
• What safeguards prevent the creation of phantom policies?
• How do you redress harm when users act on bad AI advice?

⚖️ For Legal and Product Teams: Hallucination ≠ Harmless

This incident underscores why AI outputs in customer-facing settings must be treated like official communications. If a human rep made up a policy and applied it to customer accounts, it would be a fireable offense—so why do we accept it from a bot?

Key takeaways for enterprise teams:

• Implement human-in-the-loop escalation for sensitive topics like data deletion, billing, or compliance.
• Use structured prompts + retrieval augmentation to ground responses in verified documentation.
• Train legal and support teams to identify AI-induced harm quickly and respond with transparency.

When AI interfaces stand between your company and your customer, you’re not just deploying tech. You’re delegating trust.

🔗 Full article: Ars Technica – AI Support Bot Invents Fake Policy and Triggers User Uproar

Comment, connect and follow for more commentary on product counseling and emerging technologies. 👇