The Federal Trade Commission (FTC) recently reached a settlement with several defendants that were accused of marketing “free” trial offers for free credit reports, health and beauty products, work-at-home schemes, access to government grants, and more. Instead of being free, the offers typically cost consumers $79.95 per month with an additional monthly fee for what the defendants referred to as “bonus” offers. These offers targeted consumers in the United States and abroad.

As part of their scheme, the defendants contracted with third parties, commonly referred to as “affiliate marketers,” to advertise their products and services using techniques such as banner ads, pop-ups, and sponsored search terms. Some of the advertisements claimed that the defendants’ products were endorsed or approved by celebrities such as Oprah Winfrey and Rachael Ray when that allegedly was not the case. When consumers clicked on the advertisements, they would be redirected to one of the defendants’ landing pages. There, the defendants made offers for “free” and “risk free” trials that were only available for a “limited time.” According to the FTC, these claims were false and/or misleading because the offers were not “risk free” and were not available for a limited time. While the defendants did have “terms” displayed on the page of the offer, the FTC claimed that they had used pale colors, small font, or other tactics to make the terms less apparent. In addition, the FTC claimed that the defendants were lumping additional products and services with the products and services that a consumer requested. Further, the consumers were charged, according to the FTC complaint. It appears that consumers were charged recurring monthly fees for unrequested services if they failed to cancel and, while the cancellation and refund procedures were included in the terms the FTC claimed that they were—at times—difficult to complete. After processing charges, the FTC claimed that the defendants failed to provide consumers with confirmation of their purchase agreements or copies of their written authorization to be charged.

Based on these actions, the FTC brought charges under the FTC Act, which prohibits unfair and deceptive practices, as well as the Electronic Funds Transfer Act (EFTA), which has specific requirements for credit and debit card transactions, including the requirement that consumers be provided with a copy of their written authorization to be charged. In response to these charges, the defendants agreed to settle. Among other restrictions, the terms of the settlement prohibit the defendants from doing any of the following:

• Ever marketing negative option features;
  
  
• Misrepresenting material facts, including facts regarding “free,” “trial,” and “risk free” offers, or failing to clearly and conspicuously disclose material terms before accepting payment;
  
  
• Failing to comply with the Endorsement Guides, which prohibit false and misleading advertisements featuring endorsements, including those in which the true status of endorsers is not disclosed; and
  
  
• Using affiliate marketers to do acts that the defendants are now prohibited from doing, including a requirement that all affiliates be provided a copy of the settlement order and agree to undergo routine monitoring and review.

In addition to the above, the defendants are also required to stop collecting monies owed to them and must not use their customers lists. They must also surrender bank accounts and proceeds from the sale of their assets, including homes, cars and other personal property. As with other FTC settlements, the defendants must also undergo compliance monitoring and reporting. This is yet another case demonstrating the FTC’s focus on negative option features and push to “stamp out online marketing fraud.”

Arent Fox is continuing to monitor FTC actions involving unfair and deceptive trade practices and misleading advertisements. Please contact the attorneys listed at right with questions.