March 10, 2015
Last week, the Federal Trade Commission (the “FTC” or “Commission”) announced its $7.5 million settlement with Allstar Marketing Group, LLC following allegations of Telemarketing Sales Rule (“TSR”) violations and unfair or deceptive business practices. The FTC’s investigation was conducted in conjunction with the New York State Office of the Attorney General, which has also settled its deceptive advertising and sales practice claims against Allstar for $500,000.
How did Allstar find itself in the middle of a regulatory investigation of its marketing practices?
Buy One, Get One (Not So) Free
Allstar sells Snuggies and other “as-seen-on-TV” products in retail outlets, by automated telephone system and online through various websites. According to the FTC, Allstar typically offered a “buy-one-get-one-free” offer to consumers without additional costs disclosed. The Commission’s complaint, however, alleges that steep processing and handling fees were often added to the advertised price. Additionally, Allstar’s automated websites and phone systems purportedly bombarded prospective purchasers with upsell offers – additional goods or services sold by the direct marketer or third parties – without disclosing their associated total costs.
The FTC alleged that many consumers were confused by Allstar’s sales pitch and ultimately bought more items than they actually wanted. In some instances, the Commission alleges, Allstar even charged those consumers who hung up mid-call, not intending to complete a sale.
TSR, Deceptive Practices Investigation and Settlement
In its complaint, the FTC alleges that Allstar committed unfair or deceptive acts or practices by:
(1) Causing billing information to be submitted for payment without having obtained consumers’ express informed consent; and
(2) Presenting consumers with buy-one-get-one-free opportunities without disclosing the total number of products being ordered, associated processing and handling costs and the total cost of the subject orders.
Further, the FTC charged Allstar with violating the TSR by:
(1) Failing to disclose material information about the purpose of its telemarketing calls;
(2) Failing to disclose the total costs of each sale; and
(3) Billing consumers without their consent.
The New York Attorney General’s Consumer Frauds Bureau brought similar claims under the laws of the State of New York for the same marketing and billing practices.
Under the terms of the state and federal settlement agreements, Allstar will return millions of dollars to affected consumers that it collected in undisclosed fees and misleading merchandise sales. Additionally, before billing consumers in the future, Allstar must: (1) obtain their written consent; (2) disclose the total number of products being sold; and (3) notify consumers of any related fees and material conditions.
Finally, the terms of the FTC settlement include strict TSR-related requirements, including that Allstar must disclose the true costs of sales, the identity of the seller and the commercial purpose of each telemarketing call, as well as obtain consumers’ express authorization before billing.
Protect Yourself
As evidenced by the terms of this settlement, the FTC and state attorneys general take a strong stance against direct marketers that are non-compliant with sales and marketing regulations. To make sure that your practices and procedures comply with current regulations, contact experienced marketing counsel at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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