April 18, 2018

negative-option
Negative Option Lawsuit

The Federal Trade Commission (“FTC”) entered into a settlement agreement this week with dozens of related entities and their individual owners in connection with a negative option marketing operation.  The FTC had commenced a lawsuit against the parties alleging that the individual owners operated nearly sixty (60) companies that sold personal care products, including tooth-whitening products, through myriad marketing websites on which trial offers associated with illegal negative option plans were available.  The FTC further alleged that the websites utilized both deceptive claims and misleading disclosures which caused consumers to provide billing information to pay for trial products only to incur recurring monthly fees without their knowledge or consent.

What are the Relevant Terms of the Settlement?

In addition to a judgment of approximately $100,000 (the amount charged to customers without their knowing consent), the companies and their owners agreed to the following future billing and advertising practice prohibitions:

  • Offering to sell or provide any product to a customer in which the customer’s failure to take affirmative action to reject the product or cancel the service is interpreted as acceptance or continuing acceptance of the offer;
  • Misrepresenting any material term of a transaction, including the need to cancel in order to avoid recurring charges; and
  • Failing to provide customers with simple mechanisms to stop the recurring charges.

Protect Yourself from Negative Option Billing Scrutiny

Recurring billing methods provide convenience to both businesses and consumers by doing away with the need to revisit the purchase/payment process each month for a product or service that the consumer plans to use for an extended period of time.  However, continuity billing must be structured and implemented consistent with the law.  The FTC’s settlement in this matter demonstrates that companies which fail to adequately inform their consumers of negative option billing practices are likely to come under regulatory scrutiny.  As such, businesses that either intend to implement, or are otherwise already utilizing, negative option billing practices must be mindful to work closely with experienced counsel to ensure that clear and conspicuous billing disclosures are provided to, and express consent obtained from, customers.

If you are interested in learning more about this topic or need to review your marketing and billing practices, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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