$9.9 Million Judgment In FTC Rebill Crackdown
There has been a steady flow of enforcement actions from the FTC over the last few months. We asked Internet attorney, Richard B. Newman, to review one of the latest cases involving negative-option billing and payday loan programs.
A consent judgment recently entered in the United States District Court for the District of Nevada has, once again, called attention to the issue of high-risk financial verticals that bind consumers to a monthly continuity. Clearly, regulatory authorities scrutinize rebill plans and do not exactly look favorably upon them. Regulatory compliance, including conspicuous price and billing disclosures, a description of cancellation policies, as well as the implementation of solid customer service policies, are of critical importance.
The myriad of recent actions initiated by the Federal Trade Commission (“FTC”) have undoubtedly provided everyone with more than enough information of what will and will not be tolerated at the regulatory level. The most recent action, filed in March 2011, involved the operator of a business enterprise that allegedly billed consumers without their consent.
In its complaint, the FTC alleged that the defendants' acts or practices violated FTC Act §5. Section 5 prohibits entities from engaging in unfair or deceptive acts or practices in interstate commerce. Specifically, the FTC alleged that the scheme targeted payday loan seekers, obtained consumers' personal information from websites that claimed to match consumers with payday lenders, and enrolled consumers in virtually worthless negative option programs without the consent.
The negative option programs, which required consumers to contact the defendants to cancel, charged an initial fee of up to $49.99 plus recurring fees until a consumer canceled. According to the FTC, although the defendants promised refunds, none were actually provided.
The settlement addresses the alleged conduct by imposing a judgment in excess of $9.9 million, requires the defendants to surrender cash and bank accounts, and bans the defendants from marketing secured loan products. The consent judgment imposes a permanent prohibition against: obtaining consumers' account information from third parties; charging consumers without clearly disclosing all material terms before consumers provide account information; charging consumers without their consent; disclosing consumers' account information for any commercial purpose other than the transaction for which it was obtained; and failing to disclose clearly the seller's name, a product/service description, the fact that the consumer will be charged and the amount, the terms of any refund or cancellation policy, and all material terms of any loan, credit, or credit improvement product.
The consent judgment also bars the defendants from making various misrepresentations, including: that the defendants will use consumers' authorizations to further consumers' payday loan applications; the purpose for which consumers' account information will be used; any material aspect of any refund or cancellation policy, including that consumers provided their consent to buy something and would pay, that consumers are entitled to a refund only if they ask for a refund during a trial period, and that the defendants will provide a refund; the benefits of a product or service unless substantiated; that the consumer has contacted a third-party customer service, call center, or consumer rights organization; any affiliation with a bank or bank processing center or with a customer of a financial institution; the status of any user or endorser of a product or service; any material terms of a credit-related good or service, or that a loan or credit-related good or service will increase a consumer's credit score or credit worthiness; and other material facts, including the total costs, the timing or manner of any charge, any restrictions or limitations, or any material aspects of a product's benefits.
The perils awaiting those who throw common-sense out the window are significant. The math will ultimately not sway in favor of marketers and retailers who blatantly thumb their noses at federal and state legislation. Clearly explain the terms of programs that involve recurring charges or data-sharing. Provide cancellation details. Request billing information only after compliant disclosures have been provided and consent obtained. Provide consumers with copies of charge authorizations, and retain them. Obtain authorization for the renewal terms and provide written notice of all material changes to the program. Be sure to quickly address consumer complaints. If you are uncertain of how to interpret federal and state legislation, contact an experienced regulatory compliance and investigation attorney to review your business methods.
Information conveyed in this article is provided for informational purposes only and does not constitute, nor should it be relied upon as legal advice. This article is not intended to substitute for obtaining legal advice from an experienced attorney. No person should act or rely on any information in this article without seeking the advice of an attorney.
