FTC v. AdoreMe
Proposed Order – AdoreMe allegedly ran a “VIP Membership” subscription (negative option) program, and often enticed users to join under the guise of ‘free trials.’ As part of the program, a member would be charged $39.95 per month, unless the member either purchased apparel or pressed a ‘skip’ button during the first five days of that month. A customer’s credit cards would be billed and ‘credits’ for later purchases were added to a customer’s account.
The FTC alleged AdoreMe would not reverse these ‘credit’ charges, and any ‘credit’ balance would be forfeited when a consumer closed an account. The FTC claimed information about these practices was hidden, 1000 words deep in online terms and conditions, and not sufficiently disclosed to customers at the time of signup. The FTC further alleged that AdoreMe made it unnecessarily difficult for consumers to close accounts would restrict the channels through which an account could be cancelled (e.g., phone only), understaffed resources able to close accounts, and prevented accounts with certain statuses from being closed (e.g., order in process).
Under the Order, AdoreMe is prohibited from misrepresenting, expressly or by implication:
- That a consumer can use store credit at any time to purchase any good or service;
- Any cost to the consumer to purchase, receive, use, or return the initial good or service;
- That the consumer will not be Charged for any good or service;
- That a good or service is offered on a “free,” “trial,” “sample,” “bonus,” “gift,” “no obligation,” “discounted” basis, or words of similar import, denoting or implying the absence of an obligation on the part of the recipient of the offer to affirmatively act in order to avoid Charges, including where a Charge will be assessed pursuant to the offer unless the consumer takes affirmative steps to prevent or stop such a Charge;
- That the consumer can obtain a good or service for a processing, service, shipping, handling, or administrative fee with no further obligation;
- The purpose(s) for which the consumer’s Billing Information will be used;
- The date by which the consumer will incur any obligation or be Charged unless the consumer takes an affirmative action on the Negative Option Feature;
- That a transaction has been authorized by the consumer; or
- Any material aspect of the nature or terms of a refund, cancellation, exchange, purchase policy, store credit policy, forfeiture policy, or repurchase policy for the good or service
AdoreMe must also provide a simple cancellation mechanism though the channel from which an order was received (i.e., web based for online orders, telephone number for oral purchases)
Additionally, AdoreMe must clearly and conspicuously disclose, in close proximity to any free or trial offer:
• actions a consumer must take to avoid charges
• total costs and frequency of charges
• deadline dates by which a consumer must take action
For consent to process an order, the above must be disclosed in close proximity to a check box (or substantially similar method of affirmative consent), or read as part of a telemarketing script. Oral consents must be documented through unedited call recordings, and kept for three years.
The above must also be included in an Order Confirmation, to be sent immediately after an online purchase, via email, along with:
• name of the party that will bill for the goods/services
• simple cancellation mechanism
• charges associated with cancellations/returns
The confirmation may not contain any upsell or other marketing content.
AdoreMe must also maintain the following records for the next 20 years (and keep each for 5 years):
• copies of all advertising/marketing materials
• revenue accounting
• personnel records
• consumer complaints
• requested refunds
• all records necessary to demonstrate compliance with the order
AdoreMe must provide compliance reports on demand, for the next 20 years, within 14 days of an FTC request.
Finally, the order requires AdoreMe to refund consumers some $1,378,654 in in forfeited credits and denied refunds.
jbho: the requirements are essentially the same as those in FTC v. AAFE Products (below). A reminder to obtain a valid express consent for subscription programs, based on clear and conspicuous disclosures of all terms (i.e., follow the dotcom disclosure guidelines).
Note that AdoreMe was the target of litigation for similar claims, most recently in Lira-v-AdoreMe (C.D. CA; 8:16-cv-01858), where an undisclosed settlement was reached.
FTC Goes After Online Seller For Negative Option Upsells
FTC v. AAFE Products
Complaint – Defendants allegedly sold golf and cooking products, under various names, through websites making negative option offers. All websites allegedly had similar layouts, flows, and disclosures, as well as checkout processes that required consumers to navigate through multiple ‘upsell’ pages before completing a purchase. Consumers allegedly were often unware of purchases or subscription enrollments until charges appeared on their accounts.
The FTC claimed ‘free’ or ‘no risk’ trial offers were qualified, but material terms — length of the trial period, product return requirements, refund limitations, shipping charges, how to avoid being charged, or rights of cancellation — were not presented in proximity to selection or checkout buttons. Material terms were allegedly displayed below the fold, at the bottom of the page in small print. Disclosures presented allegedly lacked clarity, stating only “(o)ther terms, conditions, and modifications may apply.”
The FTC also claimed products were bundled without consumer knowledge or consent. For example, a free trial for golf DVDs was bundled with a paid subscription to online golf lessons.
Finally, the FTC alleged the upsell pages were designed to unfairly encourage consumers to purchase additional items, as consumers had to click either a large font “YES!” button, or a small “No thanks” text link to continue.
UPDATE: 12Sept2017 – $2.5 million settlement reached. Highlights include:
- Prohibited from misrepresenting:
- any charges for goods or services – including recurring costs
- any costs associated with returns
- any consumer obligations (or lack thereof) attached to a purchase or trial
- dates on which a consumer will be charged
- Must clearly and conspicuously disclose, prior to obtaining billing information, before obtaining consent, and in purchase confirmations:
- actions to avoid charges, including deadline dates
- total costs and frequency of charges
- name of the party that will bill for the goods/services
- a simple cancellation mechanism
- web based for online orders
- telephone number for oral or written purchases
- charges associated with cancellations/returns
- Confirmation must be sent:
- immediately after an online purchase, via email
- within 2 days of an order by mail, via email or first class post
- Must cease billing customers first charged before March 1, 2016 (until re-obtaining consent of those subscription customers)
- Prohibited from selling or otherwise benefiting from consumer personal information it possess, and must dispose of any consumer information properly
- Must pay the following:
- $1,869,690 assessed against defendants Brian and Joshua Bernheim
- $632,304 assessed against defendant Koch
The typical recordkeeping and compliance reporting obligations apply as well. The order remains in effect for 10 years.
[S.D. CA; 3:17-cv-00575]
jbho: yet another reminder to clearly and conspicuously disclose all material terms of any subscription program, make sure to get appropriate (express informed) consent before charging consumers, and provide a simple mechanism to stop future charges.
Per the complaint, the material disclosures should have included:
• The fact the consumer is being enrolled
• The fact the consumer must affirmatively cancel before the end of a trial period to avoid additional charges
• The fact the consumer’s account will be charged on a periodic basis
• Extraneous costs associated with the subscription (e.g., shipping)
• How to cancel the subscription (and avoid additional charges)
• Costs associated with cancellation (e.g., return shipping)
The complaint also provides exhibits detailing how NOT to disclose the above.
$20 Million Settlement for Proactiv-ly Charging Credit Cards (California)
Habelito v. Guthy-Renker
Preliminary settlement approved – Guthy-Renker allegedly automatically enrolled consumers who purchased Proactiv skin products in a subscription renewal purchase program without consumers’ knowledge or consent. The subscription terms were allegedly presented only in a small font and obscured from view, said nothing about automatic renewal or future charges, and no check box was presented to indicate consumer consent. Plaintiff further alleged a single, one-time purchase was not offered, so any consumers who purchased a Proactive product were automatically enrolled in a Proactiv subscription. Confirmation emails and printed receipts also allegedly failed to adequately disclose renewal terms, and subscriptions allegedly could not be cancelled on the Proactiv website. Finally, plaintiff alleged she had to pay to return any unwanted products ordered through the (unrequested) subscription program.
• Up to $15,220,100 for class members
– $20 – $75 in cash, depending on number of claims filed
– $75 in products to current subscribers who fail to file a claim
– $75 gift certificates to non-subscribers who fail to file a claim
• $10,000 for class representative
• $5,150,000 for class counsel
Unclaimed funds will revert to Guthy-Renker. However, the settlement establishes a minimum $2,500,000 cash floor payment to class members or court approved cy pres charities.
[L.A. Co. Super. Ct.; BC499558]
jbho: clearly and conspicuously disclose all material terms of any subscription program, and make sure to get appropriate (express informed) consent before charging consumer credit cards.
FYI – claims can be filed at http://www.proactivclassaction.com/
Class For Caffeinated Charges (California)
Castillo v. Peet’s (Caribou)
Class complaint – Caribou allegedly automatically processed subscription charges to plaintiff’s credit card:
• without clear and conspicuous disclosure of automatic renewal terms in visual proximity to consent requests
• without affirmative consent of consumers to the automatic renewal terms
• without a consumer retainable cancellation policy
[S.F. Co. Super. Ct.; CGC-17-556926]
jbho: A reminder to make sure your checkout flows contain all the statutorily required disclosures, and they are clearly & prominently displayed.
On its face, this looks like it could be a case of a bare, procedural violation. Plaintiff admits he signed up for a subscription to be renewed every 4 weeks, and his card was billed at 28 day intervals. He was also able to cancel his subscription. It will be interesting to see how this one unfolds. I guess since CA law provides a private right of action for these ROSCA-type violations, it’s not surprising to see a case like this.
Double Opt-In For Online Subscriptions?
Unsubscribe Act of 2017 – The proposed bill would build on ROSCA and require:
- Disclose of any terms and conditions regarding any free (or reduce rate) introductory period, and any increase in charge after the introductory period
- Obtain express informed consent to charges and increases before collecting billing information
- Re-obtain consent before converting from a free trial (or reduce rate trial) to full price paid subscription (i.e., a ‘double opt-in’ before rolling to full subscription)
- Provide consumers the ability to opt-out of subscription payments via the same mechanism used to sign up
- Notify consumers of terms on a quarterly basis (while subscription remains in effect)
- Notify consumers 30 days before automatically renewing a subscription
The bill delegates rulemaking to the FTC, and would be enforceable by the FTC or state AGs. No private right of action is included.
jbho: not sure this will go anywhere, but interesting nonetheless. While Negative Option related complaints ranked towards the bottom of the list in the FTC’s 2016 complaint report https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-january-december-2016/csn_cy-2016_data_book.pdf, they still accounted for almost 8000 complaints received in 2016, and the FTC has investigated, as you can see in the summaries below.
The bill was referred to the House Committee on Energy and Commerce on 15 Feb 2017.
$350,000 Settlement For Negative Options
FTC v. NutraClick
Order for permanent injunction and monetary judgment – NutraClick (f/k/a Hungry Fish Media) allegedly used ‘free’ offers to encourage customers to unknowingly enroll in subscription programs – subscription programs consumers were required to affirmatively cancel. Disclosures failed to clearly and conspicuously inform consumer about recurring charges, or how to cancel subscriptions.
NutraClick later added an unchecked tickbox with the language “I understand and agree to the terms and conditions to the left.” However, the FTC felt there still was no information about the recurring charges.
In addition to the $350,000 fine, the Order requires NutraClick to not misrepresent any the nature of any ‘free,’ ‘trial,’ ‘sample,’ ‘bonus,’ ‘gift,’ or ‘no obligation,’ type offer. Additionally the terms of any such offer must be clearly and conspicuously communicated, including:
- That the consumer will be Charged for the good or service, or that those Charges will increase after the trial period ends, and, if applicable, that the Charges will be on a recurring basis, unless the consumer timely takes steps to prevent or stop such Charges;
- The amount (or range of costs) the consumer will be Charged or billed and, if applicable, the frequency of such Charges unless the consumer timely takes steps to prevent or stop them;
- The deadline (by date or frequency) by which the consumer must act in order to stop all recurring Charges;
- The name of the seller or provider of the good or service
- A description of the good or service; and
- The mechanism to stop any recurring Charges.
Furthermore, NutraClick must obtain a consumers Express Informed Consent before billing a consumer. The consent mechanism must use a tickbox (or similar method) and Clearly and Conspicuously disclose, in Close Proximity to the tickbox:
- That the consumer will be Charged for the good or service, or that those Charges will increase, after the trial period ends, and, if applicable, that the Charges will be on a recurring basis, unless the consumer timely takes steps to prevent or stop such Charges;
- The amount (or range of costs) the consumer will be Charged or billed and, if applicable, the frequency of such Charges unless the consumer timely takes steps to prevent or stop them; and
- The deadline (by date or frequency) by which the consumer must act in order to stop all recurring Charges.
Finally, Nutraclick must provide a simple mechanism to opt-out of any recurring charges.
Nutraclick must submit a compliance report on the order within one year, and on demand for the next 15 years.
[C.D. CA; 2:16-cv-06819]
jbho: clearly and conspicuously disclose all material terms of any subscription program, and make sure to get appropriate (express informed) consent before charging consumer credit cards.
Another case the provides examples of how the FTC expects material terms to be disclosed, and the importance of following the DotCom Disclosures guidance. The complaint outlines numerous alleged failures, and the exhibits attached provide for great teaching examples.
FTC Seeks To Recoup $72,692,812 In Alleged Ill-Gotten Gains From Common Enterprise
FTC v. Bunzai
Orders – 19 companies and their offers/principals allegedly offered deceptive ‘risk-free’ offers on common skincare products. The offers allegedly failed to adequately disclose actual costs, negative option features, and onerous return policies. For example, banner ads contained no disclosures:
Additionally, the FTC alleged payment terms were inadequately disclosed at checkout. For example, 10 days after receiving consumers’ billing information, defendants would charge consumers the full costs of the products included in the ‘risk-free’ trials – usually $97.88 per month. And the 10 day clock started on the day the product was ordered.
Charges were allegedly made without express informed consent, and defendants allegedly failed to offer a simple opt-out mechanism. Additionally, The FTC stated defendants falsely claimed to be “A-” rated by the Better Business Bureau.
Under the terms of the Orders, defendants are prohibited from future ‘negative option’ selling, and prohibited from misrepresenting future ‘free’ offers. Furthermore each defendant must:
- Disclose fully, clearly and conspicuously all material terms before charging a consumer, including terms and conditions of any refund/cancellation
- Obtain express informed consent before charging a consumer
- Maintain records of compliance with the Orders for 15 years, including:
- personnel records
- consumer complaint handling
- all ads/marketing copy
Financial penalties totaled $73,326,054, approximately $100,000 of which was due within 7 days. The remainder of the judgments are suspended, subject to validation of financial statements provided by defendants. The Orders also require defendants to surrender some $2.7 million in assets to the FTC.
Litigation continues against 4 defendants (Secured Merchants, Kristopher Bond (a.k.a. Ray Ibbot, Alan Argaman, and Chargeback Armor)
jbho: a reminder of the importance of clear and conspicuous disclosures.
The FTC appears to be ramping up its ROSCA enforcement. This is the third action I’ve seen in the past few months – the NutraClick settlement above, and the complaint filed in FTC v. DirecTV below. Again, these complaints provide good example of how the FTC expects material terms to be disclosed, and the importance of following the DotCom Disclosures guidance (and the 4Ps – presentation, proximity, prominence, and placement).
Negative Option Class Action In California
Lira v. AdoreMe
Class complaint – AdoreMe allegedly enticed plaintiff to join a “VIP Membership” subscription program under the guise of a ‘free trial,’ but charged her credit card anyway. Plaintiff claimed AdoreMe failed to:
• disclose offer terms in a clear and conspicuous manner
• disclose offer terms in visual proximity to the request for affirmative consent
• obtain affirmative consent for the automatic renewal offer terms
• provide a cancellation policy or information on how to cancel that could be retained by the consumer
Plaintiff seeks an injunction against AdoreMe, full restitution under California’s Automatic Renewal Law (ARL) and Unfair Competition Law (UCL), as well as attorneys’ fees and costs.
UPDATE: 9Feb2017 – the case was voluntarily dismissed under undisclosed settlement (Doc#18)
[C.D. CA; 8:16-cv-1858]
jbho: yet another reminder to clearly and conspicuously disclose all material terms of any subscription program, and make sure to get appropriate (express informed) consent before charging consumers.
Interesting that there appears to be a back-door private right of action for ROSCA violations – at least in California.
BTW: Truth In Advertising has put together a piece that seems to support the complaint:
Note also that in Nov 2017, The FTC took action against AdoreMe for similar violations.
Hyperlinks and Info-Hovers Aren’t Enough To Fully Disclose
FTC v. DirecTV
Defendant’s MSJ denied – DirecTV allegedly engaged in deceptive marketing practices by inadequately disclosing qualifying conditions of its special offers. Additionally, DirecTV allegedly advertised three months free access to premium channels, but then required consumers to affirmatively cancel these premium channels at the end of the three month period – when consumers were automatically converted to paid subscriptions. This so called negative-option required express informed consent before billing under the Restore Online Shoppers’ Confidence Act (ROSCA).
DirecTV argued the necessary disclosures were made through hyperlinks and info-hovers. The FTC countered that links/hovers were not immediately identifiable and used non-descriptive terms. Moreover, consumers would only see those disclosures if they clicked on the links or moved their cursors above the info-hovers, which meant consumers could navigate through the website and checkout without ever seeing any of the disclosures.
The court found that there was no dispute as to the evidence produced by the FTC – the actual advertisements and signup flow from the DirecTV website. For example, the Package Selection Page stated certain channels were free for three months, but did not plainly disclose subsequent costs or how to cancel the package.
Thus, there remained issues of fact as to whether disclosures were sufficiently clear and conspicuous as a matter of law, and summary judgment was inappropriate.
UPDATE 6 Mar 2017: A bench trial was cancelled the day it was supposed to begin, after the satellite TV provider reached a settlement in principle with the FTC. A status conference was set 90 days later, pending confirmation of settlement (DOC #314).
[N.D. CA; 3:15-cv-01129]
jbho: good example of how the FTC expects material terms to be disclosed, and the importance of following the DotCom Disclosures guidance (and the 4Ps – presentation, proximity, prominence, and placement). The complaint outlines numerous alleged failures, and the exhibits attached provide for great teaching examples.