Allstar Marketing Group, LLC (Allstar), a direct marketing company that uses TV commercials to sell its “as-seen-on-TV” products like Snuggies, Magic Mesh, Cat’s Meow, Roto Punch, Perfect Tortilla, and Forever Comfy, recently settled charges brought by the Federal Trade Commission (FTC) and New York Attorney General that Allstar failed to disclose additional costs associated with its “buy-one-get-one” offers and engaged in other deceptive telemarketing practices.
The FTC alleged that the company failed to adequately disclose significant processing and handling fees – sometimes up to 80% of the cost for each product – and induced consumers into purchasing more “sets” of products than they actually wanted by using confusing sales tactics. For example, consumers were led to believe that they would be getting two products valued at $19.95 for “less than $10 each," but the $7.95 “processing and handling” fee, which applied to each product, was not disclosed. The addition of these fees meant that consumers who thought they would get two products for $19.95 ended up paying $35.85 for a set.
Further, Allstar upsold consumers on additional products with confusing automated voice prompts that consumers could only decline by saying nothing. Due to the confusing upsells, the FTC alleged that consumers were never ultimately told how many products they had purchased or the total amount they would be billed by Allstar. In addition to the alleged violations of the FTC Act, the FTC alleged violations of the Telemarketing Sales Rule arising out of the upsells, which, according to the federal regulations, constitute separate transactions and are not considered a continuation of the initial consumer-initiated transaction. The terms of settlement require Allstar to pay $7.5 million to the FTC and $500,000 to the New York Attorney General.
TIP: Any and all material terms of a “free” offer, including any shipping and handling or other fees, must be clearly and conspicuously disclosed at the outset of the offer. Direct marketers accepting calls from consumers in response to an advertisement will be subject to the federal Telemarketing Sales Rule if they engage in an “upsell,” which is defined as the solicitation of the purchase of goods or services following an initial transaction during a single telephone call. The Telemarketing Sales Rule requires, among other things, that express informed consent be obtained before billing a customer.