The Federal Trade Commission ("FTC") recently announced that it would issue 41,934 checks, totaling more than $1.1 million, to consumers in connection with a free trial marketing campaign investigation.
In August 2017, defendants were sued following an investigation by the FTC. The suit alleged that defendants "used deceptive claims, hidden disclosures, and confusing terms to trick people into providing their billing information" as part of a free trial, automatic renewal marketing campaign. According to the FTC, while consumers believed that they were being charged a nominal fee for a free trial of a teeth whitening product, they were actually signing up for $200 in monthly recurring charges for a continuity plan.
The FTC filed the complaint because it had "reason to believe" that defendants had violated Section 17 5(a) of the FTC Act, 15 U.S.C. § 45(a) and Section 4 of the Restore Online Shoppers' Confidence 14 Act ("ROSCA"), 15 U.S.C. § 8403. A settlement was reached in April 2018, whereby defendants agreed to provide refunds to harmed consumers.
Penalties Associated with Free-Trial Marketing
Under the FTC Act, "[t]he Commission may commence a civil action to recover a civil penalty in a district court" for any violation of a rule relating to unfair or deceptive acts or practices. Those charged face up to $10,000 per violation. Additionally, a party can be fined up to $10,000 for violating an order after it becomes final.
It is well-known that state attorneys general and the FTC frequently investigate campaigns involving free trial marketing offers and automatic renewal programs. As seen in this case, misleading marketing and insufficient disclosures place businesses at high risk of being investigated by regulators. In addition to the FTC Act, businesses are subject to numerous other federal and state laws that can trigger civil liability and hefty monetary fines when violated.
This decision comes on the heels of the FTC's proposed new "click to cancel" rule, which would make cancelling subscriptions for consumers "as easy . . . as it was to sign up." The Notice of Proposed Rulemaking is part of the FTC's ongoing review of its 1973 Negative Option Rule, which is used to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs. This further illustrates the FTC's dedication to correcting what it deems to be unfair or deceptive practices.
Businesses should hire experienced counsel prior to launching any advertising campaign to ensure compliance. The attorneys at Klein Moynihan Turco have significant experience in both defending businesses that are the subject of free trial marketing investigations, and ensuring compliance so that future claims may be prevented.
Related Blog Posts:
FTC Settles Another Free Trial Law Investigation
NutraClick Penalized $1.04 Million for Continuity Plan Law Violations
Compliance with California's Continuity Laws
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