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Paul Zimmerman
pzimmerman@mrllp.com
(310) 564.2670

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Direct Response Marketers Beware

A word of caution to the direct response marketing industry: the Federal Trade Commission (FTC) remains on high alert for deceptive sales practices. Exhibit A: a lawsuit initiated late last month against a group of online marketers stemming from purported violations of the Restore Online Shoppers’ Confidence Act (“Confidence Act”).

In Federal Trade Commission v. AAFE Products Corp. et al., filed in a California federal court, the FTC claims defendants misled consumers into signing up for “free” cooking gadgets and golf equipment without adequately disclosing the terms of these supposedly “no risk” or “free” offers. The FTC alleges the offers were not free at all.  Rather, consumers that provided credit card information to pay for shipping and handling were ultimately charged for products after they failed to take affirmative steps to cancel the transactions, running afoul of the FTC’s negative option rules.

The FTC claims defendants employed prohibited “free-to-pay conversion” and “negative option marketing” tactics by advertising trial offers in various websites, TV infomercials and emails without clearly stating that consumers would be charged if they failed to timely cancel or return the products. The FTC further claimed defendants made cancelling a purchase unduly burdensome, requiring consumers to click through more than a dozen pages to do so.

The Confidence Act prohibits such “negative option” marketing unless (1) all material terms are disclosed in a clear and conspicuous manner before a consumer provides billing information; (2) the consumer provides express and informed consent to be charged for products or services; and (3) a simple mechanism exists by which consumers can stop recurring charges – in other words, no clicking through multiple pages.

The lesson to be learned: Following the Confidence Act might require a change in procedures in the short term, but doing so is likely to save time, resources and money in the long run by avoiding FTC enforcement and private actions.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.