On July 12, 2019, the Federal Trade Commission ("FTC") filed a complaint against AH Media Group, LLC, and its owners, Henry Block and Alan Schill (collectively, "Defendants"), for allegedly violating certain free trial laws as codified in Section 5(a) of the FTC Act, Section 4 of the Restore Online Shoppers' Confidence Act ("ROSCA"), Section 907(a) of the Electronic Funds Transfer Act ("EFTA"), and Section 1005.10(b) of Regulation E, respectively. The Defendants have agreed to a preliminary injunction, barring them from continuing to run negative option plans tied to "free" trial offers.
How did the Defendants' "free" trial offers allegedly violate free trial law?
Negative Option Programs
According to the FTC's complaint, the Defendants operated an elaborate online subscription program that defrauded more than 100,000 consumers out of more than $35 million through illegal credit and debit card charges. Specifically, the Defendants offered consumers "free" trial offers of cosmetics and dietary supplements for the cost of a nominal shipping and handling charge. In reality, the FTC alleges, Defendants were enrolling consumers in a continuity plan without their knowledge or consent. It seems that approximately two weeks after enrollment, consumers were charged the entire amount for the advertised products on a monthly basis, until the applicable continuity plan was cancelled. Unfortunately, the Defendants made it exceedingly difficult to cancel subscriptions by requiring consumers to call customer service, frustrating consumers by placing them on hold for long periods of time, and refusing refunds because of untimely requests. In other instances, where consumers attempted to obtain refunds through their credit card companies, the Defendants challenged the refunds by directing the processors to fraudulent versions of their websites in order to refute the consumers' claims.
Free Trial Law Obligations
Recently, we blogged about another free trial law investigation that resulted in a permanent injunction, restitution, disgorgement and costs. Over the years, the FTC has consistently investigated advertisers who engage in misleading and/or deceptive marketing practices. Advertisers can avoid violating free trial laws and becoming the subject of FTC investigations by clearly and conspicuously disclosing (and obtaining consumer consent to) the terms and conditions of the subject free trial and/or negative option programs prior to billing. In order to do so, businesses should include clear and conspicuous disclosures as part of their respective purchasing processes, including: 1) notice of when consumers will be charged if they do not cancel the trial offer within a certain period of time; 2) the cost of the products/services; 3) the terms of any continuity plan that the consumer will be enrolled in; and 4) the cancellation method that consumers can use to stop recurring billing. Additionally, advertisers should obtain express consent to the program terms through an affirmative consumer action, such as through checking an unpopulated checkbox.
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