United States: In Second ROSCA Case, FTC Finds Dating Site Too Clingy

Last Updated: November 4 2014
Article by Amy R. Mudge, Matthew R. Farley and Shahin O. Rothermel

Most of us are familiar with the pleasant experience of an arranged date or a blind date: dining under the romantic glow of the Golden Arches, learning about a day in the life of Muffin, her pure-bred Persian, or perhaps "going Dutch" on the check when all the fun finally ends.  Add to the mix online dating sites—virtual exchanges of love interests, complete with lists of mostly aspirational hobbies, and yes, user photos from ten years and twenty pounds ago.  When you sign up for an online dating service, you expect these subtle (or not so subtle) misrepresentations from other users.  What you don't expect is the dating service doing the same—for example, by sending flirtatious notes from made up profiles.  That's exactly what the FTC alleged last week in its second Restore Online Shopper's Confidence Act ("ROSCA") case ever, in which the FTC settled with a dating site for posting fake user profiles in an effort to persuade customers to sign up for premium services.

The FTC settlement with JDI Dating prohibits the site from convincing users to upgrade to paid memberships with made-up profiles called "Virtual Cupids."  The FTC's takes issue with these "Virtual Cupids" because they seem like real profiles, but it is not clear to consumers that they are actually advertisements.  If the recipient of one of these steamy messages is able to tear their eyes off their new suitor's photo, they would notice a "VC" symbol in the corner.  As you may have guessed, this stands for "Virtual Cupid," which was explained to the consumer in the Terms of Service that the Commission alleged users never read.  The overall message, according to the FTC, misrepresented to consumers that the message was from Mr. or Miss Right, rather than an advertising message from the dating service.  The Commission found this to be a violation of Section 5, which prohibits "unfair or deceptive acts or practices."

Additionally, and more interestingly, the FTC again honed in on ROSCA, a 2010 law that has been gaining traction in recent months.  Among other things, the FTC alleged that, much like users leave out certain details in their dating profiles, the defendants did not affirmatively tell subscribers that their memberships would be renewed automatically and they would continue to be charged until they cancelled.  According to the FTC, learning about the automatic renewal feature was harder to uncover than learning the well-hidden secrets of some dating site users, because the auto-renewal information was buried deep in multiple pages of text that customers could only see by clicking on a Terms and Conditions hyperlink (which we all know is a no-no in the FTC's book).  And even though it's common etiquette to give advanced notice before canceling a date, the FTC called foul on JDI's similar requirement of subscribers:  the site required members to cancel at least 48 hours before their subscriptions ended in order to avoid being charged for the next month.  These practices run afoul of ROSCA, the FTC said in its Complaint, which prohibits online marketers from using a negative option billing arrangement unless they clearly and conspicuously disclose the material terms of any offer, obtain express, informed consent from consumers prior to enrolling, and provide a simple way to stop recurring charges.

The settlement order requires JDI to clearly disclose to potential members that they will receive communications from virtual profiles who are not real people. The order also requires that, before obtaining consumers' billing information for a product with a negative-option feature, the defendants must clearly disclose a laundry list of information—the name of the seller, a product description and cost, the length of any trial period, the fact that charges will continue unless the consumer cancels, the deadline for canceling, and the mechanism to stop recurring charges. The order also imposes restrictions on refund and cancellation policies, and requires a cancellation mechanism that mirrors a consumer's method of enrolling in the service (e.g., online enrollees must be afforded an online cancellation option).

Although the settlement has implications for dating sites, it sheds much more light on the future of the Commission's enforcement of ROSCA violations.  This is the second ROSCA case that the FTC has brought in one month, despite the statute being in effect since 2010.  The FTC is clearly interested in developing ROSCA's negative option provision, and we are betting on more ROSCA cases in the near future.  As we mentioned before, ROSCA carries with it a broader range of remedial options than Section 5(a).  In this case, the FTC has added meat to the proverbial bones of ROSCA by way of a settlement, which arguably provides the FTC an opportunity to passively regulate whole industries in ways it might not otherwise be able to.  For example, ROSCA does not require a cancellation mechanism that mirrors the consumer's method of enrolling in a negative option program.  Such a requirement was considered and rejected in Congress.  Yet here it is, in the JDI order; this may be the first step to it becoming a gold standard for online marketers if FTC entrenches the requirement in consent orders, phases it into guidance, and then takes the position that it's the law.

For now, the message is clear:  if online retailers want to avoid being dumped, make sure you clearly disclose all essential terms of negative-option plans, obtain express informed consent before charging consumers, and provide a simple way to stop recurring charges.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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