On August 7, 2017, the FTC announced that it obtained a court order temporarily halting an online marketing scheme that deceptively lured shoppers into expensive negative option plans. The FTC alleged in its complaint that defendants used initial low-cost “trial” offers to hook consumers into expensive monthly shipments for tooth-whitening products without properly disclosing the terms and conditions of the deal or properly obtaining their consent.
In its July 24, 2017 complaint, the FTC states that defendants enticed consumers to fill out customer satisfaction surveys for products purchased from trusted merchants by offering low-cost rewards – such as tooth-whitening products – for completing the survey. Once consumers accepted this reward, they were directed to “back-door” versions of defendants’ websites offering the trial product for $1.03 plus shipping. However, in violation of the FTC Act (15 U.S.C. §45(a)) and the Restore Online Shoppers’ Confidence Act (15 U.S.C. §§ 8401 et seq.), the FTC argues that defendants failed to properly disclose to consumers that they were enrolling into defendants’ First Class Whitening Club that made monthly shipments of defendants’ tooth whitening kit for a recurring fee of $94.31.
As outlined in the FTC’s complaint, the terms and conditions of this offer were misleadingly broken into two separate parts that were difficult to understand. The first part was a block of fine print found below the button consumers clicked to submit their order. Buried in the middle of this text was a statement that “[b]y participating in the Risk Free Trial, you are getting the rate of $94.31…and you will be responsible for taking affirmative action during the Risk Free Trial period to avoid further charges outlined in How the Offer Works.”
The second key part was found in a popup screen available only if the consumer clicked on a link titled, “How the Offer Works.” The popup explained that the consumer was enrolling in the monthly First Class Whitening Club and disclosed that the consumer would be charged the full price of $94.31 eight days from the date of the order, unless the consumer decided to take action to cancel the membership.
Finally, the FTC targeted defendants’ use of an “Upsell Offer” that appeared after a consumer completed the checkout process. After clicking “Complete Checkout,” consumers were directed to another page that showed their original order, a coupon for additional whitening products, the same box of gray text as they saw on the previous page, and then another “Complete Checkout” button in yellow. If consumers clicked on this second “Complete Checkout” button, their monthly order would be doubled and their recurring monthly charge to approximately $200. The FTC contended that nothing about this second “Complete Checkout” button alerted consumers that clicking it would initiate a second order.
As of August 3, 2017, the United States District Court for the District of Nevada had frozen defendants’ assets and extended the temporary restraining order. A hearing on the FTC’s motion for a preliminary injunction is pending.
Are you compliant with the FTC’s negative option guidelines?
In 2009, the FTC outlined five principles retailers should keep in mind in making online negative option offers. These principles include:
- Disclose material terms of offers in an understandable manner. The total cost to consumers should be clear and understandable.
- Make the appearance of disclosures clear and conspicuous. Disclosures should be placed where consumers are likely to see them (as opposed to after the complete order button) and labeled to convey their importance and relevance, in easy-to-read text (avoid nondescript fine print).
- Disclose the offer’s material terms before consumers pay or incur a financial obligation.
- Obtain consumers’ affirmative consent to the offer. The FTC suggests that marketers should avoid using pre-checked boxes and make consumers take the affirmative step of clicking “I Agree.”
- Marketers must not impede the effective operation of promised cancellation procedures. The FTC requires marketers to honor cancellation requests that comply with the procedures that are put in place in their terms and conditions.
The FTC’s recent case serves as a good reminder that retailers should follow these guidelines in designing compliant negative option offers.