Beauty product marketer, F9 Advertising, LLC, several related entities, and their individual owner, have been sued by the Federal Trade Commission (“FTC”) for allegedly fraudulent continuity billing practices. The FTC alleges that the non-compliant continuity billing practices and related marketing violate the Restore Online Shoppers’ Confidence Act (“ROSCA”).
How do the entities’ policies violate continuity billing regulations?
The web of related entities and their owner are alleged to have lured consumers into expensive recurring monthly billing through use of a combination of inconspicuous disclosures and misleading purchase flows. Specifically, the defendants’ websites urged consumers to claim a free trial and then redirected those customers to a checkout page purporting that the only cost would be a nominal shipping and handling fee. However, buried at the bottom of each website was a link to Terms and Conditions which obligated consumers to cancel their free trials within 14-days to avoid being charged the full price of more than $90 on a monthly recurring basis until cancelled. According to the FTC, because the disclosures were so inconspicuous, “consumers who ordered a trial skin care product did so without realizing that [the companies] would charge them the full price of the trial product and enroll them in an autoship program with monthly charges of more than $90.” Ultimately, the practices alleged by the FTC are said to have caused tens of millions of dollars in damages to consumers and have exposed the companies’ owner to significant personal liability.
Protect Your Business from Continuity Billing-Related Liability
The need to clearly and conspicuously disclose material offer terms generally, and automatic renewal terms specifically, is illustrated plainly by this FTC lawsuit. When implemented properly, recurring billing methods (such as continuity plans) provide conveniences to both businesses and their respective customers alike. However, in order to comply with applicable law, all details of the program terms must be disclosed clearly and conspicuously, and consumers must expressly agree to automatic renewal plans prior to billing. In this regulatory environment, it is important for businesses to work closely with experienced counsel to ensure that disclosures relating to continuity billing and associated recurring fees are prominently presented to consumers at the time of sign up.