Allegedly “free” offers of weight-loss pills, teeth whiteners and health supplements will cost an individual defendant and his companies $359 million in a settlement with the Federal Trade Commission.
Jesse Willms and his companies used “free” product offers to lure consumers and then relied upon a negative option marketing scheme to charge them for other products and services they did not agree to purchase, according to the agency.
According to the complaint, a typical claim read, “Your risk-free trial is almost ready to ship. Simply use this 100% secure order form to tell us how to bill the small cost to ship you your trial. Oh and don’t worry, today you are only being charged for the small shipping charge, and nothing more.” However, consumers’ credit card information was then used for a monthly recurring fee of $79.95 and additional fees for various “bonus” offers, the FTC said.
Affiliate marketers used banner ads, pop-ups, sponsored search terms, and unsolicited e‑mails that led consumers to the defendants’ sites and were paid for each consumer whose credit or debit card was charged, the agency alleged.
The settlement order permanently banned the defendants from the use of negative option marketing and imposed a $359 million judgment that will be suspended upon the surrender of various assets by Willms. The defendants are also prohibited from misrepresenting the terms of offers using claims such as “free,” “risk-free,” or “trial offer,” as well as using false or deceptive endorsements and testimonials.
All terms and conditions of an offer—including refund terms—must be disclosed by the defendants prior to requesting a consumer’s payment information. In addition, the settlement requires the monitoring of affiliates and affiliate networks involved in any of the defendants’ marketing, and the defendants are prohibited from making misleading or unsubstantiated health-related, weight-loss, or disease prevention claims.
An additional five individual defendants also entered into settlements with the FTC; the agency alleged that they aided Willms in providing banks with false or misleading information to obtain merchant accounts that were used to charge consumers’ cards.
To read the stipulated final order in FTC v. Willms, click here.
Why it matters: Online marketers should ensure that all material terms related to billing are clearly disclosed to consumers, especially in light of the FTC’s “ongoing efforts to stamp out online marketing fraud.” “The fact that almost four million consumers fell prey to the lure of these ‘free trial’ offers is a stark reminder that ‘free’ offers can come at a huge price,” David Vladeck, Director of the FTC’s Bureau of Consumer Protection, said in a press release about the settlement. “The FTC has stopped about $1 billion in online marketing fraud during the past two years by shutting down operations like this. But consumers still need to beware, because scam artists are constantly coming up with new ways to deceive people online.”