What do golf and sex have in common? According to the old joke: They’re two things you don’t have to be good at to enjoy. Similarly, some men – ok, most men – tend to exaggerate their prowess at both. You can add one more common trait: The FTC scrutinizes online continuity offers for the accessories associated with both, as the FTC last week settled a case involving lingerie and we blogged previously about the FTC’s golf ball ROSCA case, which settled recently. One final note on the connectivity between golf and lingerie: Supermodel and actress Kelly Rohrbach appeared in lingerie on the AdoreMe site and played college golf.
On November 20th, the FTC filed suit in New York against an online seller of lingerie for violating the FTC Act and Section 5 of the Restore Online Shoppers’ Confidence Act (ROSCA). According to the complaint, AdoreMe generates most of its revenue from its “VIP members.” For $39.95 a month, VIP members receive discounted prices, but are not charged if they buy apparel within the first five days of each month or affirmatively click a button to skip that month. If a consumer forgets to click the button or buy something within the first five days, the amount becomes store credit that supposedly can be used at any time. However, according to the FTC, many consumers were surprised to learn that the store credit could not be used at any time. The FTC alleged that AdoreMe failed to disclose that if a consumer cancelled their VIP membership, their store credit would be forfeited. The FTC sought $1.3 million for the forfeited store credit.
The FTC also alleged that the company erected a veritable “chastity belt” of barriers that made it difficult to cancel and violated ROSCA’s requirement that there be a simple method of cancellation. The barriers included: for a period of time only allowing cancellations via telephone, and not on the website that consumers used to enroll; for those consumers that did call subjecting consumers to half-hour-long wait times; for those who tried to cancel online, requiring consumers to navigate through three VIP promotional webpages and a five-question “quiz” before accepting the cancellation; and declining to accept cancellations when an order was being processed.
A settlement was announced with the complaint. In addition to requiring the return of the forfeited funds, the settlement bans future misrepresentations regarding the use of store credit or the terms of any negative option program. Furthermore, the order requires a simple cancellation mechanism to be provided that is not difficult, costly, or time consuming for the consumer to: (1) avoid being charged; and (2) immediately stop recurring charges. Specifically, the order requires providing a consumer who entered an order on the Internet with a web-based method to cancel, and, similarly, a person who entered over the phone with a telephone number to cancel.
The cancellation provisions are noteworthy because of the requirement that the cancellation method match the enrollment method. Such a requirement was considered when ROSCA was enacted, but rejected. The FTC has been trying to work that provision into its settlements with mixed results. A marketer who doesn’t allow consumers to cancel via the same method in which she orders probably will have the burden of proving their method works “simply.”
It’s also worth noting that the FTC did not challenge in the complaint or address in the order the continuity disclosures or consent mechanism, which have been the focus of most of the FTC’s ROSCA cases. A review of the continuity disclosures used by AdoreMe and the disclosures challenged by the FTC in other cases leads to the conclusion that the FTC requires much more rigorous disclosures and consent mechanisms for offers marketed with a free trial that converts to a negative option program than on programs that are offered as subscription models from day one.
Determining whether you’ve complied with the “clear and conspicuous” disclosure requirements of ROSCA and provided a “simple” cancellation mechanism is a tricky and somewhat subjective business. For marketers in the continuity space, consulting with skilled counsel in this area is important to make sure you don’t get caught with your pants down…and your lingerie showing.