A recent FTC court settlement names a vast network of online marketers and the three people behind it liable for $179 million for using unsubstantiated health claims, fake magazine and news sites, bogus celebrity endorsements, and phony consumer testimonials as well as improper charges in auto renewing programs to sell more than 40 weight-loss, muscle-building, and wrinkle-reduction products to consumers.
The FTC alleged that the defendants used deceptive offers of “free” and “risk-free” trials, and automatically enrolled consumers without their consent in negative option auto-ship programs with additional monthly charges.
Consumers were generally offered “risk free” trials and were told that, in exchange for $4.95 to cover shipping and handling, they would receive samples of the defendants’ products. The websites failed to adequately disclose that consumers who signed up for the supposedly free trial offers would be enrolled in negative option continuity programs, through which they would be charged for the initial supply of the products if they did not cancel within a short period of time, and then be billed about $87 every month thereafter.
In addition, although the websites promised that the trial offers were “risk free” and “guaranteed 100% satisfaction,” the complaint alleges that the websites did not clearly disclose the steps consumers needed to take to cancel their orders and avoid being charged.
The defendants also allegedly created different versions of websites for their products, in an apparent effort to conceal their deception from banks and payment processors. The decoy websites featured more-prominent disclosures, and the defendants shared these with banks and processors as part of their applications for merchant accounts that would allow the defendants to process payments for online purchases by consumers. They maintained alternative sets of webpages with inadequate disclosures, or in some instances no disclosures at all, and took steps to ensure that these were the versions of the websites that most consumers would encounter when purchasing the products.
The court ordered judgment of $179 million represents the amount that the FTC alleges consumers nationwide paid the defendants over a period of more than five years. Due to the nature of the defendants’ financial position, that amount will be suspended after the defendants pay approximately $6.4 million to the Commission.
Takeaway: Using affiliate marketers will not give you a pass in creating offers that comply with the law in any negative option sales and the FTC is going after large settlements to ensure all marketers in the “food chain” as well as advertisers are compliant.