Last month, the Federal Trade Commission (“FTC”) announced settlements with operators of a worldwide negative option scam, in which online marketers deceptively advertised “risk free” trial offers of its products, but charged consumers full price for the trial products and automatically enrolled them in negative-option continuity plans without their knowledge or consent.
As we previously wrote about here, the defendants engaged in allegedly deceptive practices in the marketing and sale of skincare products, electronic cigarettes, and dietary supplements. While the defendants claimed to offer free trials of their products for $4.95 or less, in actuality, consumers who accepted the trial offers were charged as much as $98.71 for a single shipment and enrolled in continuity plans. The FTC alleged that these deceptive sales practices violated Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act (“ROSCA”) and the Electronic Fund Transfer Act (“EFTA”).
The FTC’s orders (1) prohibit the defendants from advertising “risk free” trial offers when in actuality consumers will be charged full purchase prices and enrolled in continuity plans; (2) require that the defendants provide clear and conspicuous disclosures to consumers and obtain their express informed consent before charging them for a transaction that includes a negative option feature; (3) require the companies to provide consumers with a simple mechanism for cancelling the product or service; and (4) require that the defendants receive written authorization from consumers before making any electronic fund transfers. Lastly, the orders impose $48.1 million and $123.1 million judgments respectively against the defendants, which will be partially suspended upon reduced payments to the Commission.
Takeaway: Negative option plans continue to be an enforcement priority for the Commission and this case serves as an important reminder that this FTC will be looking to obtain real money damages against advertisers.