There's No Such Thing as a "Free" Sample: FTC Provides Guidance on Advertising "Free" Samples Combined with Recurring Charges
On Tuesday (September 20, 2016), the FTC and Nutraclick entered into a consent order concerning Nutraclick's online offer for "free" samples of supplements and beauty products. The FTC alleged that Nutraclick failed to clearly disclose to people who requested the samples that they would be enrolled in a membership program and billed up to $79.99 per month, unless they canceled within an 18-day trial period. While this promotional offer may have netted significant profits, its success was short-lived when at least 70,000 filed complaints prompting the FTC investigation.
The FTC alleged violations of the FTC Act's prohibition against unfair or deceptive acts or practices (15 U.S.C. §45(a)) and the Restore Online Shoppers' Confidence Act, which pertains to selling online through a negative option feature, i.e., where a consumer's silence is interpreted as an acceptance of the offer. 15 U.S.C. §8403.
The Promotion (According to the FTC Complaint):
- Nutraclick's ads and emails encouraged consumers to "CLICK HERE TO GET YOUR FREE SAMPLE"
- When you "click here" you go to a landing page with a brightly-colored button stating "FREE SAMPLE".
- When you click this button, you go to a page to type in your personal information.
- You are then directed to a page to provide your shipping information and "answer a few questions." This page states "FREE SAMPLE, PAY ONLY SHIPPING AND HANDLING."
- You are then directed to a page to enter your credit card information, stating "Just pay for shipping and handling."
- The payment page had in the lower left corner a long paragraph in small type that describes the "Terms & Conditions." Half-way through, the recurring charges and cancellation process is described.
- Later, Nutraclick added two disclosures to its payment page: (i) a description of the cancelation method mixed with information regarding shipping and product satisfaction and next to a large seal stating "Money-Back Guarantee" and (ii) a check box below the payment information agreeing to the terms and conditions (without a hyperlink).
According to the Consent Order, Nutraclick must disclose "clearly and conspicuously" and in "close proximity" to the billing information, the following:
- That a consumer will be charged and incur recurring charges.
- The amount and frequency of such charges.
- The deadline for a consumer to act to stop incurring charges.
- The seller of the products.
- A description of the products.
- The mechanism for stopping any recurring charges.
In addition, Nutraclick must send by email or mail written confirmation of the transaction to the consumer within 10 days of the sale which must (i) clearly and conspicuously identify the purpose of the mailing and (ii) contain the above disclosures.
Specifically, with regard to the negative option feature (i.e., where a consumer is required to take affirmative steps to stop recurring billing), Nutraclick must:
- Obtain a consumer's express consent through a check box, signature or other similar method.
- Clearly and conspicuously disclose in close proximity to such check box/signature line:
- That the consumer will be charged unless the consumer takes steps to stop;
- The amount of such charges;
- The deadline for the consumer to act to stop recurring charges.
Further, the method to stop recurring charges must be a "simple mechanism" which is not "difficult, costly, confusing or time consuming" and "at least as simple as the mechanism the consumer used to initiate the recurring charge."
For reference, the term "clearly and conspicuously," generally, means "difficult to miss (i.e, easily noticeable) and easily understandable by ordinary consumers." And the term "close proximity" means "immediately adjacent to the triggering representation."
The bottom line, as always, make sure when you disclose something as "free" that any qualifiers are clearly disclosed. And if you have a negative option feature be particularly vigilant that the consumers are well-aware of what they are getting into and how they can get out of it. Don't forget you are dealing with an FTC "Consumer Protection Act" and "Restore Online Shopper's Confidence Act" – the names alone tell you who gets the benefit of the doubt.