The Federal Trade Commission (FTC) recently reached a proposed settlement with Green Millionaire LLC and others based on the defendants’ practice of offering a free product, then using a negative option plan to sign consumers up for an online magazine that they never ordered. Specifically, the defendants were accused of advertising The Green Millionaire Book as a limited time “free” book that the defendants falsely claimed would provide consumers with valuable knowledge such as how to “get free gas for life” or how to power their homes and vehicles at no cost. Television commercials and the website offering the book had bold language regarding the “free” offer. However, the FTC alleged that consumers were not provided with the material terms of the offer. Specifically, the FTC claimed that consumers were not notified that they would be billed for the Green Wealth e-Magazine upon signing up for the book.

The FTC claimed that the defendants requested consumer credit card information at the time the consumer signed up so that the consumer could pay for the shipping and handling fees. Instead, according to the complaint, the defendants used the credit card information to charge consumers $29.95 for a two month subscription or as much as $89.95 for a one year subscription unless the consumers canceled the subscription during a cancellation period that was typically 14 days.

Based on these actions, the FTC charged the defendants with violating the FTC Act by failing to disclose the subscription program and the cancellation procedures. Additionally, the defendants were charged with debiting consumer accounts without consent and making misrepresentations regarding the content of the advertised book. In the settlement, the defendants are required to provide a check box disclosing critical terms of any negative option program. They are also banned from misrepresenting products and services, including falsely making claims that something is “free,” “trial, “no obligation,” or “discounted.” The defendants must also refrain from billing consumers without consent, must dispose of customers’ personal information, and must surrender their assets to satisfy a suspended $5.7 million judgment against them.

This case is another example of the FTC’s crack down on online marketing fraud, poorly disclosed negative option plans, and false advertising including the use of the terms “free” and “trial.” Businesses engaged in online marketing and sales must ensure that they have adequate disclosures to avoid consumer deception.

Arent Fox is continuing to monitor FTC actions involving advertising and proper disclosures. Please contact Anthony Lupo, Sarah Bruno, Matthew Mills, or Eva Pulliam with questions.