Last week, in an ironic twist of fate, the Federal Trade Commission (FTC) charged the operators of the Pact Mobile App, which paid consumers for keeping their fitness promises and charged consumers who missed their goals, for failing to honor its promises to consumers.
According to the FTC’s complaint, when consumers signed up for the Pact App (formerly GymPact), consumers provided the app with their payment card information and set a workout or fitness goal. When signing up, users specified an amount of money the app could deduct if the user missed a workout or fitness goal for the week. The charges ranged from $5 to $50 per missed activity. If, on the other hand, the user achieved the goal, Pact would pay them. To track consumers’ compliance with their goals, Pact required users to check in at gyms using their phones’ GPS. Pact also allowed consumers to set other goals, using the app’s VeggiePact and FoodLoggingPacts options.
According to the FTC, however, Pact failed to abide by its own promises made to consumers. In its complaint, the FTC alleged that Pact did not pay – and actually charged – many consumers who kept their pacts. For example, Pact did not recognize certain types of workouts, and penalized consumers for going outside to work out or visiting a Navy base gym.
Making matters worse, the app continued to charge many consumers who attempted to cancel the service. The FTC alleged that Pact had received tens of thousands of consumer complaints about unauthorized charges billed through the app, with many consumers reporting hundreds of dollars of unauthorized charges. This, according to the FTC, violated the representations Pact made when consumers signed up for the app (that users would never be charged if they kept their pact).
FTC’s three-count complaint alleged that Pact and two of its principals violated both the FTC Act and Section 4 of the Restore Online Shoppers Confidence Act (ROSCA) by failing to disclose how to stop recurring charges before obtaining billing information. Count one of the complaint alleges that Pact violated the FTC Act by deceiving consumers regarding the circumstances under which Pact would pay or charge the consumers. Count two alleges violations of the FTC Act for unauthorized billing when Pact continued to bill consumers who attempted to cancel the recurring charges.
Finally, count three of the complaint alleges that Pact violated ROSCA by failing to disclose all material terms of the offer, specifically the mechanism for consumers to stop recurring charges, before obtaining consumers’ billing information. Rather, to obtain information about how to cancel, consumers needed to click on a link to obtain the app’s Terms of Service and then scroll through 4,400 words of dense text to find the means to stop recurring charges. According to the FTC, the information was difficult for consumers to locate and access, confusing, and much less simple than the mechanism consumers used to sign up and initiate the recurring charge. As a result of the confusing terms, consumers who wanted to stop recurring charges could not figure out how to cancel.
The final order prohibits Pact from misleading consumers about the circumstances under which they will charge consumers, the circumstances under which consumers will receive any benefits, payments or rewards, and any other material fact concerning any app or software such as the total cost, material restrictions, limitations or conditions, or any material aspect of the app’s performance, efficacy, nature, or central characteristics. The order enjoins Pact from charging consumers without first receiving their express, informed consent. Further, Pact is required to comply with ROSCA, and must clearly and conspicuously – and in close proximity to the consumers’ provision of billing information – disclose that the consumer will be charged and the charges will be recurring unless the consumer timely takes steps to prevent or stop the charges; the amount or range of costs the consumer will be billed and the frequency of such charges unless the consumer takes steps to prevent or stop them; the deadline (by date or frequency) by which consumers must act in order to stop all recurring charges; the name of the seller of the good or service; a description of the good or service, and the mechanism by which to stop any recurring charges.
The order also includes a $1.5 million judgment that is partially suspended based on the defendants’ financial condition. The defendants are ordered to pay $948,788 back to injured consumers who were charged improperly or who earned, but have not yet received money for their pacts.
As many are aware, continuity plans are a recurring theme with the FTC and states, with a number of recent cases as well as California considering revising its automatic renewal law to impose stricter requirements. The lesson to marketers to be learned from Pact? Make sure you follow all aspects of ROSCA – including your promise to cancel the recurring charges.