Negative option marketing cost one company $1 million in a recent deal with the Attorneys General of New York, Pennsylvania and Washington.
According to the complaint filed by the Washington Attorney General against Internet Order LLC, the company made consumers a "Risk Free," "100% Money Back Guaranteed" offer of audio courses to learn foreign languages for only $9.95 using the Pimsleur Approach. But consumers who signed up for the offer were automatically enrolled without their knowledge to receive additional courses at a cost of $256 each, with some individuals paying as much as $1,024, the complaint alleged.
Only if consumers cancelled their acceptances within a 30-day window—and paid return shipping and a potential 25% restocking fee—did consumers avoid the charges, the complaint alleged. Consumers that refused to pay the additional charges were threatened with collection agency action and "hounded" with letters.
In addition to violating the Restore Online Shoppers' Confidence Act, the complaint alleged that Internet Order and owner Dan Roitman ran afoul of state consumer protection laws by failing to clearly disclose the terms of the negative option sales program, by failing to obtain consumer consent to sign up for the program, by failing to provide a simple means of cancellation, by making material advertising misrepresentations, and by engaging in unfair collection practices.
Going forward, the company must remedy these failures. Specifically, Internet Order promised to clearly disclose the terms of any negative option sale and repeatedly notify consumers of the terms of the sale and the negative option plan in clear and easy-to-read notices at many stages of the transaction. The company must obtain express consent from consumers to enroll in a negative option plan prior to being obligated to the terms of the sale—and a pre-checked box will not suffice.
Further, consumers must be provided with an easy and effective means of cancelling an ongoing subscription. The company agreed not to charge any fees for the return of items during a free trial period and agreed to limitations on charges for consumers who return items after the free trial period. The company must train relevant employees on how to comply with the consent order and discipline those who do not comply.
In addition, the company must pay just over $1 million in restitution to consumers nationwide and additional damages to New York, Pennsylvania, and Washington based on the company's future profits made from sales between July 2016 and June 2019.
To read the complaint in Washington v. Internet Order, click here.
To read the consent decree, click here.
Why it matters: The complaints—filed separately by the Attorneys General of Pennsylvania, New York, and Washington—were some of the first filed under the Restore Online Shoppers' Confidence Act, which took effect in December 2010. The consent decrees offer a compliance road map and demonstrate the importance of obtaining prior, express consent from consumers before enrolling them in a negative option program.