A free trial of a weight loss pill is the best of both worlds, right? Not according to the FTC, which recently brought its first Restore Online Shoppers’ Confidence Act (ROSCA) case against a group of marketers who advertised exactly that.
Weight loss substantiation is old territory for the Commission. ROSCA, however, is not. The FTC’s first ROSCA case, filed in Nevada district court, alleges that health companies made unsubstantiated claims that their dietary supplements would lead to weight loss, muscle building, virility, and improved skin. More significantly, however, are the allegations surrounding the marketers’ “free trial” and “buy-one-get-one free” offers. According to the FTC, the companies collected customers’ debit and credit card information in order to enroll customers in a negative option (subscription) program. While there is certainly nothing wrong with subscription programs on their face, the FTC alleges that the companies here inadequately disclosed the nature of the program – they never clearly told customers their accounts would be charged each month. ROSCA prohibits marketers from charging customers in an Internet transaction unless the marketer has clearly disclosed all of the material terms of the transaction and obtained customers’ express informed consent. In this case, according to the FTC, the marketers did not provide the required disclosures for a negative-option program before accepting payment; failed to disclose material facts about their refund and cancellation policy, among other facts; and didn’t give customers a simple, effective way to stop the automatic charges.
ROSCA in large part echoes Section 5 guidance for online negative option marketers. However, ROSCA affords the FTC a renewed opportunity to develop more nuanced standards, and it carries a big stick – Congress authorized civil penalties of $16,000 per violation. In addition, States are authorized to use ROSCA, and some states have filed cases alleging ROSCA violations. And so, while it may have taken a few years (ROSCA passed in 2010), state and federal regulators are warming up to ROSCA.
What can be done to avoid scrutiny from these agencies and regulators?
For starters, get back to basics. Weed out potential false or misleading advertising statements, with particular focus on full and conspicuous disclosure of material terms of any negative option offers. Fine print buried in the gutter of a webpage is risky, to say the least.
Take a close look at the online order path progression and disclosures made during enrollment and ordering to verify that all appropriate disclosures are made to satisfy ROSCA’s pre-transaction “express informed consent” requirement. All material features of the offer should be disclosed, including (but not limited to) the manner and means of cancelling, the billing descriptor that will be used, and the exact cost and duration of the offer.
Finally, cancellation or alteration of services must be simple and easy. Online cancellation is one possibility. If a call center is used, it should be easy to connect, and high-pressure or back-handed sales tactics are sure to draw attention.
Failure to get educated on ROSCA can have serious consequences. The judge in the weight loss pill case has entered a temporary restraining order against the companies. We will wait to see whether the FTC wins its battle to permanently stop the defendants’ conduct, but the bigger implications of the case are clear: if you are selling products online, you’d better watch what you say – and what you don’t.
The FTC’s Complaint in FTC v. Health Formulas, LLC, No. 2:14-cv-01649-JAD-GWF (D. Nev. filed Oct. 7, 2014), can be found here and the Court’s Order granting the FTC’s Motion for Temporary Restraining Order is here.