For $11 million and a promise to change their practices, Florists Transworld Delivery (better known as FTD) and Classmates Inc. reached a deal with the Attorneys General from 22 states over charges that they deceived consumers with auto renewal memberships and engaged in false advertising by knowingly sharing information, including credit account numbers, with third party marketers who offered discount buying club memberships and buying club programs without adequately disclosing that consumers would be charged monthly unless they opted out.
When customers made an online purchase with FTD or Classmates, Webloyalty and others, using the information provided by FTD or Classmates, made offers to consumers for travel rewards and discount buying club programs. While the offers purported to be free, the state regulators alleged that adequate disclosures were not made to consumers that they were enrolled in negative option programs.
Classmates engaged in further deceptive and unfair conduct regarding its own renewal and cancellations practices, the AGs said, by not adequately informing Classmates.com users that their subscription would renew automatically unless cancelled and that the method of cancellation “was difficult.”
“This is a suspect sales practice that often goes unnoticed by customers who end up paying for something they never wanted,” Brian E. Frosh, the AG for Maryland, who led the investigation with Kansas AG Derek Schmidt, said in a statement. Frosh noted that at one point in time, up to 89 percent of Classmates’ users were unknowingly paying for their memberships. “Consumers have a right to know what services they are signing up for and to be clearly informed about the cost of those services,” Schmidt noted in his press release.
Pursuant to the deal, the 22 states will split the $11 million payout with FTD chipping in $2,822,400 while Classmates will provide $5,177,600. Classmates will refund an additional $3 million to consumers, with any unclaimed funds reverting to the states. The companies—which did not admit to any wrongdoing—will also modify their practices.
Specifically, the companies cannot misrepresent the reason for requesting a consumer’s account information and they must provide clear notice to customers when they are redirected to a third-party offer. Classmates, FTD and their marketing partners are prohibited from using the words “free” or “risk free” if the subscriptions will later convert to a paid subscription.
Marketing partners are no longer allowed to use FTD’s or Classmates’ names or logos in conjunction with their membership programs so that consumers will understand that they are receiving “a separate and distinct offer” from a different entity. Classmates agreed to make better disclosures about its automatic subscription renewal and said it would make the cancellation process easier for users.
In addition to Kansas and Maryland, the states involved in the action included Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Maine, Michigan, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington, and Wisconsin.
To read the Maryland AG’s press release about the settlement, click here.
To read the Kansas AG’s press release, click here.
Why it matters: State regulators continue to take a close look at negative option marketing like that alleged by the 22 state AGs against FTD and Classmates. Be sure your disclosures and practices are in compliance with applicable laws.