The Federal Trade Commission (“FTC”) will refund over $973,000 to consumers who were enrolled in continuity plans with NutraClick, LLC (“NutraClick”). The settlement fund comes from $1.04 million that NutraClick agreed to pay to settle a lawsuit brought by the FTC. In the lawsuit, the FTC alleged that NutraClick violated federal law by misleading consumers about their negative option plans. Approximately 70,000 consumers complained that they were unfairly billed anywhere from $29.99 to $79.99 every month following a trial period. Failure to clearly disclose to consumers that they would be automatically billed if they did not cancel within a trial period, the FTC claimed, was a clear violation of federal continuity plan laws.
Federal Continuity Plan Law
The FTC’s complaint against NutraClick alleged violations of Section 5(a) of 15 U.S.C. 45(a)(1), the FTC Act, and 15 U.S.C. 8401-8405, the Restore Online Shopper’s Confidence Act (“ROSCA”). Section 5(a) of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting commerce.” In past guidance, the FTC has set forth five basic continuity plan law requirements:
1) Businesses must disclose the material terms of negative option offers including, at a minimum, the following key terms: a) the existence of the negative option offer; b) the offer’s total cost; c) the transfer of a consumer’s billing information to a third party, if applicable; and d) how to cancel;
2) Disclosures must be clear and conspicuous;
3) Businesses must disclose the material terms of the negative option offer before consumers agree to the purchase;
4) Businesses must obtain consumer express consent to the negative option offer; and
5) Businesses must not impede the effective operation of promised cancellation procedures, and should honor cancellation requests that comply with such procedures.
In 2010, Congress passed ROSCA to address, among other issues, the proliferation of online continuity plan offers. To comply with ROSCA, continuity plans must:
1) Clearly and conspicuously disclose the material terms of the transaction before obtaining billing information;
2) Obtain express informed consent before charging consumers; and
3) Provide a “simple mechanism” for consumers to stop recurring charges.
The FTC accused NutraClick of violating the FTC Act and ROSCA for conduct that occurred over the Internet. In addition to the FTC Act, businesses offering continuity plans over the phone must comply with the Telemarketing Sales Rule. The FTC’s Telemarketing Sales Rule (“TSR”) applies to virtually all “telemarketing” activities. One of its primary goals is to ensure that telemarketers obtain consumer authorization before billing or collecting payment. TSR Section 310.3, titled Deceptive Telemarketing Acts or Practices, sets forth certain requirements for businesses offering continuity plans:
If the offer includes a negative option feature, all material terms and conditions of the negative option feature, including, but not limited to, the fact that the customer’s account will be charged unless the customer takes an affirmative action to avoid the charge(s), the date(s) the charge(s) will be submitted for payment, and the specific steps the customer must take to avoid the charge(s) [must be prominently provided to the customer in advance of collecting payment information].
Experienced Marketing Attorneys Can Help Ensure Compliance with Federal Continuity Laws
Businesses that offer continuity plans are subject to a variety of federal and state laws. Each law has its own set of requirements that can trigger civil liability for businesses if not met. The FTC has made it well-known that they consider regulation of negative marketing option to be a top priority, and regularly update their continuity plan requirements. Hiring experienced counsel can ease the burden of keeping up with the long list of ever-changing regulations. The attorneys at Klein Moynihan Turco have significant experience in both defending businesses for alleged continuity plan law violations, and ensuring compliance so that future claims may be prevented.
If you require assistance with continuity plan law compliance or related litigation defense, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for information 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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