Army of defendants accused of enrolling consumers in bogus trial offer plan

Negative Option

A recent Federal Trade Commission (FTC) lawsuit filed in the District of Nevada targets a baffling array of defendants: more than 50 limited liability corporations scattered across Nevada, Colorado, Indiana, Wyoming and Arizona.

The common denominator? It is the founder and CEO of several of these companies, Blair McNea, who, along with two other executives, is accused by the FTC of using this massive array of companies to engage in shady activity.

The McNea-directed companies created websites that charged visitors small fees for supposed one-time trial offers of a tooth-whitening product, but which wound up enrolling consumers in a negative option scheme whereby consumers would be charged monthly fees thereafter unless they canceled. While the sample prices could be as low as $1.03, the monthly fees could reach $100 until the consumer affirmatively canceled the plan. In addition, the websites would often double-enroll customers in two separate negative option schemes. Required disclosures of the terms of the agreements were often posted in tiny, grayed-out text on the bottom of the sales web pages.

Positive Response

The FTC is charging the company with misrepresentation of the product price and illegal negative option marketing under the Restore Online Shoppers Confidence Act (ROSCA). ROSCA prohibits negative option features without clear and conspicuous disclosure, express informed consent, and a simple mechanism that allows the customer to cancel the recurring charges. The complaint was followed within a day by a temporary restraining order and asset freeze.

The Takeaway

The FTC is seeking a permanent injunction requiring the companies to cease further violations of the FTC Act and ROSCA, award relief to injured consumers and pay incurred court costs. Negative options and continuity plans are not necessarily illegal; however, marketers need to closely adhere to federal and state laws regarding sufficiency of notices and ease of cancellation to ensure their compliance.