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July 03, 2018

FTC Action on Deceptive Offers a Reminder: Clearly State Terms

WASHINGTON – The Federal Trade Commission announced today that a federal district court has granted the FTC’s request to stop a group of internet-based marketers from “deceptively advertising free trial offers and not only charging consumers full-price for the trial product, but also enrolling them in expensive, ongoing continuity plans without their knowledge or consent.”

While the marketers in question were not selling porn, the FTC’s action and the court’s approval of it stand as a strong reminder to online adult companies of the need to clearly disclose their terms on trial offers, particularly those which make use of the word “free.”

“Consumers who click on these advertisements are taken to the defendants’ websites, which, the complaint alleges, claim to offer trials of these products for just the cost of shipping, which is typically $4.95 or less,” the FTC noted in a press release announcing the court’s grant of a temporary restraining order against the defendants. “The complaint states, however, that consumers who order the free trial wind up being charged as much as $98.71 for the trial shipment, and are also enrolled in a negative-option continuity plan without their consent under which they receive an additional shipment each month and are charged full price for each shipment.”

In its complaint, the FTC charged Triangle Media Corp., Jasper Rain Marketing, Hardwire Interactive Inc. and Brian Phillips (who is alleged to own Triangle Media Corp.) with violating the Restore Online Shopper’s Confidence Act (“ROSCA”) and the Electronic Fund Transfer Act.

Within these statutes, one aspect with which adult merchants should be familiar is the definition of “negative option feature,” a term which is highly relevant to any site or product which makes use of subscription billing or any manner of automated rebilling.

Under ROSCA, a negative option feature is defined as “in an offer or agreement to sell or provide any goods or services, a provision under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.”

In § 310.3(a)(1)(vii) of ROSCA, the law states if an offer “includes a negative option feature, all material terms and conditions of the negative option feature, including, but not limited to, the fact that the customer’s account will be charged unless the customer takes an affirmative action to avoid the charge(s), the date(s) the charge(s) will be submitted for payment, and the specific steps the customer must take to avoid the charge(s).”

In other words, you can make use of a negative option feature, but you must be mindful of the need to disclose every aspect of the agreement into which the consumer is entering. This may sound like simple common sense, but in the early days of affiliate programs and their offers of aggressively-billed “free” trial offers, it’s fair to say such disclosures were often lacking.

The FTC’s action took aim at another common practice among adult merchants – something commonly referred to as “cross sales” within the industry.

“In addition, the FTC alleges the defendants use deceptive order confirmation pages to trick consumers into ordering additional products, for which the defendants similarly charge consumers full price and enroll them in negative-option plans,” the FTC said in its statement. “The defendants then make it difficult to cancel the continuity plan, stop or avoid the recurring charges, or obtain a refund.”

In terms of repercussions, it’s important to note that while the FTC hasn’t obtained a conviction against the companies charged in this action, it has already effectively crippled the company’s operation. To wit, the temporary restraining order issued by the court appoints a temporary receiver over the companies involved, freezes their assets, grants the receiver immediate access to the defendants’ business premises and permits the FTC and the receiver to undertake expedited discovery in the case.

If you’re currently running subscription sites or offering any products which make use of a negative option feature, most likely you’re doing it in a way which conforms to the laws at issue in this FTC action. Given the severity of the potential penalties and the lasting damage even an unsuccessful FTC action can do to your company, however, it’s a good idea to review your various trial plans, cross-sale options and other offers on occasion, just to assure you’re handling everything by the book.

Image of FTC Commissioner Maureen K. Ohlhausen is Public Domain

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