On June 16, the Federal Trade Commission (FTC) filed a case in Los Angeles against online marketers of anti-aging skincare products that could signal the start of a government crackdown on marketers who offer online risk-free trials without making very detailed, very clear, and very conspicuous disclosures up front — of all the material terms and conditions that apply.
In court, the FTC obtained an ex parte (meaning without prior notice to the defendants) restraining order and asset freeze. In doing so, the FTC alleged that, as a result of unclear and inadequate pre-enrollment disclosures set forth in allegedly small print on the defendants' websites, consumers were enrolling in risk-free trials on those sites and then, just 10 days later (since the risk-free trial period was only 10 days long) were being charged $97.88.
According to the FTC, many such consumers had not even received the product yet (let alone had time to try it and see if it worked) by the time the 10 days had expired. (Note that, in this case, the 10-day trial period ran from the date of the consumers' initial online order; it did not run from the date that the consumers actually received the skincare products from the marketer.) Also on the 10th day, the consumers would be enrolled in a continuity program for future shipments, all without realizing, as a result of the allegedly inadequate disclosures, that any of this would be happening to them.
The complaint, which can be found on FTC.gov by searching for the lead defendant's name, "Bunzai," is worth reading because, in it, the FTC included a screen shot of the order page. Although the FTC alleges that the disclosure on that order page was not clear and conspicuous because it was in a "significantly smaller print than the rest" and it was "obscured by graphics and other texts," you should judge for yourself whether you agree, by looking at the screen shot. I bet you've seen countless online disclosures that are far less visible to the consumer than this one is.
What the FTC seems to have focused on is that the disclosure, even if it was visible, failed to clearly articulate the material terms. For example, it merely said that there was a "10-day trial period." It did not disclose that the 10 days would begin on the day the product was ordered. Nor did it disclose that, in order to avoid being charged $97.88, you would have to return the product prior to the expiration of the 10-day period. Instead, it just said: "If you find this product is not for you, cancel within the 10-day trial period to avoid being billed."
Nor did it warn you that you could not get a refund if you had opened the product. Nor did it disclose that, if somehow someone did manage to return the product in time, there would be a restocking fee. To get these terms, according to the complaint, the consumer would need to go to "a separate, multi-page terms and conditions webpage that is accessible by [a] hyperlink [that] can only be found by scrolling to the bottom of the website and clicking on a hyperlink labeled 'T&C.'" This, the FTC found to be inadequate.
But wait, there's more. After consumers had signed up, they would receive an e-mail that would "reinforce the false impression that they will receive a free shipment." This is because the e-mail would "show no charges for the 'risk-free' trial other than the nominal shipping and handling fees" without mentioning that, after 10 days, those consumers soon would be charged the full cost of the product, $97.88, and would be enrolled in the continuity program. Nor did the e-mail say how consumers could avoid being charged.
According to the FTC, many consumers then experienced "difficulty contacting defendants' customer service representatives, despite calling ... numerous times," and, even after they managed to cancel, still often continued to receive shipments and unauthorized charges.
The case was filed not only under the FTC Act, which prohibits unfair or deceptive practices, but also ROSCA, the Restore Online Shoppers' Confidence Act. It also cites the EFTA and Regulation E.
In case you're wondering, the stated reason for the ex parte nature of the asset freeze was that, "In the FTC's law enforcement experience, defendants who receive notice of filing of an action by the FTC often attempt to immediately dissipate assets or destroy documents." This is why the court granted the relief sought by the FTC ex parte.
It might be a good time for everyone in the trial space to review their pre-enrollment disclosures, the fairness of their terms and conditions, and their back-end customer service.
Previously published in DRMA Voice on July 7, 2015
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