The Federal Trade Commission ("FTC") recently filed another case in a series of recent enforcement actions targeting allegedly deceptive online "free-trial" offers that tricked consumers into enrolling in negative option plans.
The FTC charged Gopalkrishna Pai and eight (8) companies he owns and operates as a common enterprise with violating the FTC Act and the Restore Online Shoppers' Confidence Act ("ROSCA") and defrauding consumers tens of millions of dollars. According to the FTC's complaint, the defendants advertised free trial skin care products for a nominal shipping and handling charge, typically $4.99 or less. The online ads prominently touted "Risk Free" trial offers, with common pitches in the ads stating "RUSH MY FREE TRIAL," "WAIT, You Qualify for a Risk Free Trial," and "CLAIM YOUR FREE TRIAL."
The FTC alleges that the defendants failed to disclose that consumers would be automatically charged full price for the products, as well as for monthly auto-shipments, unless they cancelled their orders within 14-15 days. Only by clicking the disguised small "Terms and Conditions" hyperlink in the ad and then scrolling through a pop-up window could consumers find this information. The defendants then charged consumers who ordered the "Risk Free" trial more than $90 and enrolled them in auto-shipment programs that cost over $90 per month. Further, without consumers' consent, the defendants frequently charged consumers for additional products, enrolled them in additional auto-shipment programs and used an intentionally confusing check-out process that led consumers to unintentionally sign up for products they did not want. Finally, the defendants made it unduly difficult for consumers to cancel their enrollment in the auto-shipment programs, making it difficult for consumers to reach a customer service representative and, when successful in doing so, not allowing consumers to cancel their enrollment or get a refund.
Takeaway: As we have previously blogged, negative option plans continue to be an enforcement priority for the FTC, with strict guidelines for how they may be operated fairly and transparently for consumers. With both federal and state regulators continuing to pay attention to these hot areas, marketers considering negative option sales strategies should continue to be careful to follow all applicable rules.
This article is presented for informational purposes only and is not intended to constitute legal advice.