Roughly 227,000 consumers will receive an average of $43 each in an effort by the Federal Trade Commission (FTC) to send refunds to purchasers of dietary supplement products sold by Health Formulas LLC.
The $9.8 million total refund is the result of a 2016 settlement with the company, its owners, and related companies, such as Simple Pure Nutrition. The FTC had alleged in 2014 that Health Formulas LLC had violated the Restore Online Shoppers’ Confidence Act (ROSCA), which prohibits marketers from charging consumers in an Internet transaction, unless the marketer has clearly disclosed all material terms of the transaction and obtained the consumers’ express informed consent. The company, which also made misleading claims about its weight loss products, allegedly used fake “free trials,” misled consumers into disclosing their credit and debit card information, and enrolled them in negative-option membership programs without their permission, causing them to be charged for monthly shipments. Consumers were unable to stop the automatic charges.
The charges for weight-loss supplements, with names like Pure Green Coffee Bean Plus and RKG Extreme ranged from $60 to $210 per month. Advertisements for the products made claims including “Burn fat without diet or exercise” and “Extreme weight loss!”
The enforcement action against Health Formulas LLC was the first that the FTC brought alleging violations of ROSCA. The Commission has used the law a number of times since then to challenge negative option arrangements and other deceptive billing practices. We covered a recent settlement here.
Takeaway: Companies should be cautious when using “free trials” and negative options to market their products. While the diet supplement industry has been a particular focus of the FTC’s scrutiny, the Commission is paying attention to all marketers that use these tactics without proper disclosures.