We have written previously about the FTC’s vigorous enforcement efforts relating to negative option marketing and its crackdown on alleged wrongdoing seeking to exploit the difficulties presented by COVID-19 (see blog posts here and here). Recently, the FTC continued its efforts with a complaint and settlement concerning negative option marketing to parents seeking online educational resources for their children.
On September 1, 2020, the FTC brought a complaint against online children’s education company Age of Learning, Inc., d/b/a as ABCmouse, alleging that it operated a deceptive negative option program between 2015 and 2018. The FTC alleged that ABCmouse’s actions violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by (1) failing to adequately disclose that its 12-month memberships would automatically renew indefinitely; (2) failing to disclose that extensions on 30-day free trial memberships at reduced rates would automatically renew indefinitely; (3) advertising “easy cancellation,” but creating a myriad of procedural hurdles to prevent cancellation; and (4) embedding pitfalls in the cancellation process to mislead customers into extending their memberships, as opposed to cancelling them. Furthermore, in some instances, even if a customer successfully navigated the cancellation process, ABCmouse would still charge for the cancelled services.
The FTC and Age of Learning entered into a proposed settlement order, on the same day, imposing a $10 million judgment and requiring ABCmouse to disclose important information to consumers when it offered negative option plans. ABCmouse is required to make such disclosers clearly, conspicuously, and immediately adjacent to any representation that a negative option feature is being offered on a free, trial, no obligation, or similar basis. These disclosures include (1) what affirmative steps a consumer must take to avoid additional charges; (2) the total charges or frequency of charges unless a customer takes affirmative action; and (3) the deadline by which such action must be taken. Additionally, anywhere ABCmouse is attempting to obtain billing information, it must also disclose (a) the name of the seller of the product; (b) a product description; (c) any charge associated with cancellation; and (d) a simple cancellation mechanism to stop recurring charges. ABCmouse must also immediately send a written confirmation of any online order by email repeating all of the above disclosures, or send the same by mail within two days of telephone or mail-in orders.
The proposed settlement also requires that ABCmouse put in place specific informed consent procedures for any negative option offers. These procedures include, for all written offers, obtaining consent through a check box, signature, or similar method, which requires a consumer to expressly accept any negative option feature. This consent mechanism must also appear immediately adjacent to clear and conspicuous disclosures as outlined above. For oral offers, such disclosures must be made prior to obtaining billing information. Any consumers must further consent by providing the last four digits of the billing account number and affirming their understanding of the negative option feature, including steps to stop further charges. To prove compliance, ABCmouse is required to maintain unedited voice recordings of the entire transaction for three years.
The complaint and order here provide the ABCs regarding what the FTC believes is necessary to lawfully market negative option offers. Marketers would be wise to go to school on these issues.