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Read the case of a skin cream company that duped consumers. Federal Trade Commission banned it from future free trial offers and fined it $34 million.
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- Randy Hutchinson is president & CEO Better Business Bureau of the Mid-South.
The Federal Trade Commission’s Telemarking Sales Rule defines a “negative option” feature as a provision in an offer or agreement to sell or provide any goods or services “under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.”
The FTC says negative option marketing is widespread in the marketplace and can provide substantial benefits for sellers and consumers. It’s a common tactic associated with free trial offers of products.
The FTC, however, regularly lands on companies that don’t adequately disclose the terms of a free trial offer, bill consumers without their consent, and/or make cancellation difficult or impossible. In October, it settled a case against Gopalkrishna Pai and eight companies he owned that marketed a number of skin creams online. They advertised a free trial offer, typically $4.99 or less for shipping and handling, with pitches such as “CLAIM YOUR FREE TRIAL” and “WAIT, You Qualify for a Risk Free Trial.” They took in tens of millions of dollars.
More Better Business Bureau advice: Seven tips for choosing a trustworthy auto mechanic and avoid getting scammed
Consumers of ‘free trial offer’ were confused and duped
But the FTC said they failed to disclose that consumers would automatically be charged the full price of the products (over $90 per month) unless they canceled the order within 14-15 days. Consumers could only find the terms by clicking on a small hyperlink in the ads and then scrolling through a pop-up window.
The complaint further alleges that the companies enrolled consumers in auto-ship programs without their consent or used a confusing checkout process to dupe them into unintentionally signing up for products they didn’t want.
The FTC said they made it very difficult for consumers to cancel the continuing shipments, even when consumers returned the free-trial product unopened.
Finally, the companies allegedly used more than 100 shell companies with straw owners to obtain merchant processing accounts in order to accept credit and debit card payments and to evade detection of their deceptive practices by credit card companies and law enforcement.
A proposed settlement with the FTC includes a lifetime ban on negative option marketing and a monetary judgment of $34 million, most of it suspended because of the defendants’ inability to pay it.
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Tips to protect yourself again free trial offers
The FTC and BBB offer these tips for taking advantage of a free trial offer:
- Find the terms and conditions for the offer. They should tell you exactly what you’re agreeing to, the length of the trial period, and how and when to cancel if you don’t want to continue after the trial period.
- If you can’t find this information or can’t understand exactly what you’re agreeing to, don’t sign up.
- Check out the company with the BBB and research it online using the words “scam” or “complaints.” See what other people are saying about its free trial offers.
- Watch out for pre-checked boxes. If you sign up for a free trial online, look for boxes that are already checked for you. That checkmark may give the company permission to continue charging you past the free trial, sign you up for more products that you have to pay for, or share your information with others. Make sure to uncheck a box if you don’t agree with what it says.
Randy Hutchinson is president & CEO Better Business Bureau of the Mid-South.
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