We have written repeatedly about the FTC and various states’ efforts to clamp down on “negative option” offers to consumers (see blog posts here and here). Last week, consistent with a newly found focus on protecting small businesses, the FTC challenged negative option marketing aimed at business entities. The case underscores the FTC’s continued focus on negative option marketing as well as its new focus on protecting small businesses.
On May 13, 2020, the FTC brought a complaint in the Eastern District of Pennsylvania against American Future Systems, Inc. (“AFS”) and International Credit Recovery, Inc. (“IRC”) alleging that AFS would cold call businesses, speak to their employees, and offer free samples of books or newsletters to the organizations. If the employee agreed to accept the free sample, AFS allegedly enrolled the business, without its consent, into a negative option program for the publications, under which the businesses are automatically invoiced for annual subscriptions to the newsletters. The FTC alleged AFS would do this despite representations that AFS was not selling subscriptions, or without disclosing that the free sample offers were part of AFS’s attempts to sell such subscriptions.
According to the FTC, the defendants made matters worse by utilizing aggressive collection tactics. The FTC alleges that after six months, if business organizations did not pay the amounts invoiced for the subscriptions they never agreed to buy, AFS would then engage a third-party collection agency, IRC, to use false threats to collect the purported debt. IRC would tell consumers that failure to pay AFS’s bills would impact their credit rating or result in legal action. The FTC charged that such deceptive tactics violate the FTC Act and the Unordered Merchandise Statute.
Given the current economic disruptions caused by COVID-19, we can expect that the FTC will continue to attack both deception and improper debt collection aimed at small businesses. Sellers beware.