Consumer Corner: It's FREE, FREE, FREE....until it's not.

By Alan Marx, AARP Tennessee Consumer Watchdog

How many times each year do you receive mail, email or telephone calls offering you free goods or services? The word “free” is used in advertising because it is highly likely to get your attention. The Federal Trade Commission (“FTC”) knows this, and it has filed two recent cases focusing on the tactics used with the promise of free goods to promote sales. Unfortunately, the promise of something “free” can be used to distract consumers from noticing the hidden hook in the offer.

WARNING! “Negative options” can be harmful to your wallet
The FTC cases dealt with the use of negative options in connection with the offer of free goods. The FTC defines a “negative option” as “an offer in which the seller treats a consumer’s silence – their failure to reject an offer or cancel an agreement - as consent to be charged for goods or services.”

Naylor, Robert B

In Federal Trade Commission v. AAFE Products Corp. et al, the FTC sued six interrelated companies and four individuals who owned or managed those companies for violations of the FTC Act and the Restore Online Shoppers’ Confidence Act (“ROSCA”). The FTC Act prohibits unfair or deceptive acts or practices in or affecting commerce. ROSCA prohibits the sale of goods or services on the internet through negative option marketing without meeting certain requirements to protect consumers. The six corporations are referred to collectively as the “AAFE Defendants.”

From 2010 forward, some of the AAFE Defendants sold golf-related products and since 2012 the AAFE Defendants sold cooking and golf-related products through negative option marketing. They used numerous websites, infomercials, internet advertising, and bulk email solicitations to make their sales. The Defendants used two types of negative option offers. The first type was described in the Complaint as continuity plans, in which the Defendants billed the customer’s credit card on a recurring basis until the customer cancelled the plan. The second type was the trial offer, where the customer received goods or services supposedly for free, or with just a small charge added for shipping and handling, for a trial period, with the Defendants charging the customer’s credit card when the trial period ended unless the customer returned the product or cancelled the plan. The Defendants reportedly combined the two types on numerous occasions, packaging multiple products in a single offer. They sometimes also included ongoing subscriptions for DVDs or online lessons without clearly informing consumers that by proceeding recurring charges would be incurred.

Customers signed up for the offers by clicking a button such as “Add to Cart” on the first web page. They then were directed to a series of linked pages, sometimes as many as 14, to the page where they were to submit their shipping and credit card billing information. The FTC alleged that the Defendants (1) failed to obtain express consent from consumers before charging their credit cards for goods and services; (2) misrepresented that the trial shipments were free or for a nominal shipping or handling fee and that no other consent was being given; (3) did not adequately disclose the terms of the offers; and (4) made it difficult to return trial products, cancel the continuity plans or obtain refunds.

The Defendants’ disclosures were worded and placed where consumers were unlikely to see them or, if they did, were unlikely to read or understand them. For example, disclosures were not placed close to the “Add to Cart” button and were below the portion of the web page the user could see without scrolling down the page, or were at the bottom of the last page of the online checkout process, beneath the “Submit” button for billing information.

Consumer protection attorneys refer to very small print as “mouse type,” because it is more difficult for consumers to see or read. The Complaint charged that these Defendants placed the disclosures in very small print at the bottom of a web page, in densely worded hyperlinked web pages addressing other issues, such as company privacy policies, product availability, and warranty terms, and surrounded by graphics or advertising.

In addition, the Defendants placed material terms of the offer, such as the length of the trial period, the initial shipping charge, and the charge for keeping the product after that period ended, “below the fold” of the first page and below the “Add to Cart” button. When a consumer clicked the “Add to Cart” button, the browser went to a new webpage to continue the checkout process. The FTC noted that consumers would not see the disclosure unless they scrolled to the bottom of the page before clicking the “Add to Cart” button.

Similarly, on the second page the Defendants placed the order form, followed by the “Submit” button. Below that button, in small print, was a statement that “Other terms, conditions, and modification may apply.” If the customer pushed the button before reading to the bottom of the page, the text would not be seen.
That “Submit” button took the consumer to the third page to provide billing information. That form asked, “What card would you prefer for the $.99 S&H today?” However, above the fold on that page, between graphics and advertising claims, the following statement appeared:
Try the TourZ balls FREE with $0.99 S&H for 30 days! Love it or you’ll never even be charged! Keep it and it’s just $9.95 with free S&H for the dozen premium balls!! You can cancel anytime and best of all each dozen balls has a 100%, 60 day money back guarantee!

The language and layout did not alert the consumer that by proceeding he or she has agreed to a negative option to receive the balls indefinitely and to pay $9.95 for each shipment. Did customers understand that the word “each” meant they could be billed for more than one shipment?

Page 5 contains a form for shipping information, followed by a “Submit” button. When the button was pressed, the consumer was taken to the AAFE Defendants’ website. Unless customers read the to the bottom of that page before pressing the button, they would not see the small print that says “You can cancel at any time by calling Customer Service at the number(S) listed below” and “Other terms, conditions, and restrictions may apply.” The Complaint alleged that the Defendants’ return policy was stated within “densely worded, hyperlinked web pages, which are typically over two pages long when printed,” and the hyperlink text was “buried in microprint at the very bottom of Defendants’ web pages.”

Neither the confirmation of purchase page nor the packing slips with products shipped to customers disclosed the name of the seller, the amount of the charge, when the consumer would be charged or the steps that the consumer must take to return the product, cancel a plan, or obtain a refund. The billing descriptions on credit card statements typically were unclear, often simply initials, making it difficult for consumers to connect the charges to their transactions with the Defendants. When consumers called the Customer Service number, representatives of the Defendants made multiple attempts to “save the sale,” making the process more complex and increasing the duration of the call. Finally, the Complaint alleged that in numerous instances, the customers did not learn until they called that if they wanted to return the products they received on a free trial basis they would have to pay substantial shipping costs.

On August 31, 2017, the U. S. District Court for the Southern District of California entered settlement orders against the Defendants. The corporate Defendants were prohibited from misrepresenting the costs of the goods and services they sold, claiming that consumers would get something just for a shipping and processing fee with no further obligations, and stating that the products or services were free. They were also ordered to clearly disclose any negative options and to offer a simple way for consumers to cancel.

The individual defendants were ordered to pay more than $2.5 million, secured by an interest in real estate and other assets.

Conclusions
Seniors often are disproportionately targeted by scammers. “Negative option” scams probably reach every age group, but seniors may be particularly vulnerable to these, in part because as we age many of us have more difficulty reading the fine and tiny print. Scammers certainly do their best to exploit this fact.

The FTC has offered common sense suggestions for avoiding these types of traps:

1. Research any company that offers you “free” goods before you proceed.
2. Carefully read the terms and conditions of the offer, including how to cancel and get your money back. If you cannot find or understand them, do not go ahead.
3. Read your charge card statements regularly. Dispute any questionable charges through your credit card company or your bank as soon as possible.
4. Report any improper charges you encounter for “free” offers to the FTC.