When it gets 70,000+ complaints.
Back in 2016, the FTC settled with beauty product and nutritional supplement marketer, NutriClick. NutriClick was alleged to have automatically enrolled consumers in ongoing membership programs without their consent when they signed up for free product samples on the company website, violating the FTC Act and ROSCA. The settlement required the company to change its billing practices and to pay $350,000 in equitable monetary relief.
Four years later, the company was back in front of the FTC, accused of violating ROSCA, the FTC’s Telemarketing Sales Rule, and the previous court order, by failing to clearly and conspicuously disclose all material terms of their negative option sales offers. Once again, the company was alleged to have used a free sample program to lure consumers into costly membership programs without fully disclosing the terms or obtaining consumers’ affirmative consent. Specifically, the company failed to clearly and conspicuously state that consumers were required to call to cancel their enrollments at least one day before the end of their free trial period to avoid a monthly membership charge. That case resulted in settlement with the company agreeing to be banned from engaging in all negative option marketing and to pay over $1 million, an amount representing “100 percent of the consumer harm they caused, as well as the total revenue made through their allegedly deceptive conduct.”
The FTC has just issued a press release announcing that it is returning nearly all of that settlement amount to over 17,000 consumers. The checks are in the mail! (Let’s hope they get to their intended recipients and not waylaid by OTHER thieves.) The FTC also used the press release to comment on its now limited authority to get court-ordered consumer refunds because of the Supreme Court’s 2021 ruling in the AMG Capital case that the FTC lacks authority under Section 13(b) to seek monetary relief in federal court. The FTC is asking Congress to revive the FTC’s authority to seek such relief. In this case, the settlement agreement was entered into prior to the Supreme Court decision.
Certainly, this perhaps temporary roadblock for the FTC has not slowed down its focus on, and enforcement actions targeting, free trial, subscription, and other negative option plans. The clear guidance from the FTC continues to be: disclosures must be clear and conspicuous, including and especially as to the auto-renew features; consumers must provide unambiguous affirmative consent to be charged on an ongoing basis; and consumers must be able to cancel without hassle (including before a free trial auto-converts to a paid subscription). And don’t forget about specific state requirements for subscription programs (especially California’s!), and particularly for free trials.
Moreover, till Congress acts, if Congress acts, to codify the FTC’s authority to seek monetary relief for consumers in court under Section 13(b) of the FTC Act, the FTC will undoubtedly rely on its Notice of Penalty Offenses authority to extract substantial payments from companies violating the law.