The Federal Trade Commission (“FTC”) filed a complaint alleging that Lifewatch, Inc., violated various telemarketing laws by sending consumers misleading robocalls. The FTC claimed that consumers, especially older Americans, were “tricked into paying for supposedly free in-home medical alert devices.” Pursuant to the Lifewatch FTC telemarketing law settlement, the Lifewatch defendants were banned from engaging in future telemarketing operations and ordered to return almost $2 million to consumers.
Alleged FTC Telemarketing Law Violations
The FTC alleged that Lifewatch violated various telemarketing laws by bombarding consumers with over a billion unsolicited pre-recorded calls offering “free” medical alert systems. What were described as illegal and deceptive robocalls purported to falsely tell consumers that a Lifewatch medical alert system had been purchased for them and offered the system “at no cost whatsoever.” However, the FTC explained that when interested consumers pressed the designated number to speak with a live operator, Lifewatch telemarketers failed to mention that consumers would be responsible for paying for monthly monitoring fees.
Consumers were eventually told that, after activating the system, they would be charged such fees and were required to provide billing information. However, if consumers elected to cancel their subscriptions before or after activating the system, the FTC alleged that they were forced to pay to return the system or pay a $400 penalty.
This type of subscription service is a form of “Negative Option Marketing,” which is heavily regulated under various state and FTC telemarketing laws.
FTC Telemarketing Requirements for Negative Option Marketing
Sellers engage in negative option marketing when they treat consumers’ failure to take an affirmative action (ex., canceling an agreement) as assent to be charged for future goods or services. Common negative option marketing plans include automatic renewals, continuity plans, and free-to-pay conversions. Recently, the FTC released new guidelines applicable to negative option marketing. With the release of these guidelines, the FTC again warned businesses against using deceptive sign-up tactics and/or illegal dark patterns that may trap consumers into subscription services.
Under its continuity plan guidelines, a business’s sign-up process for its subscription services must: “(1) be clear and up-front, (2) obtain consumers’ informed consent, and (3) be easy to cancel.” Of note, a business must clearly and conspicuously disclose all charges for its services and deadlines to cancel such charges in print (where advertising online) or over the phone (when the sale occurs via telemarketing). Before charging a consumer, a business must obtain the consumer’s informed, affirmative consent (ex., check an unpopulated box or say “yes” after a telemarketing sales call prompt). Additionally, a business’s cancellation process must be as easy or easier to use than its sign-up mechanism. Businesses will be subject to legal action, such as potential civil penalties, if they fail to comply with any of these requirements.
For a more detailed breakdown of the FTC guidelines, read our blog on “FTC Guidelines On Negative Option Marketing Released.”
If you are interested in learning more about this topic or require assistance with negative option marketing programs or FTC telemarketing law compliance, please email us 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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