May 1, 2012

Green Millionaire to Pay Millions: FTC Settles With Marketer Over Negative Option Program

Seller Beware: Consumer Protection Insights for Industry

"FREE!" shouted advertisements for the Green Millionaire Book. "This free offer won't last," so you'd better "GET YOUR FREE BOOK TODAY!"

Reasonable people might conclude that the book in question was free. Not so free, according to the FTC, which charged Green Millionaire, LLC and its co-defendants with failing to disclose adequately the true cost of the offer before enrolling consumers who accepted the offer in a negative option program. In a negative option, sellers interpret consumers' silence or inaction as permission to continue charging them for goods or services. In this case, the FTC alleged that consumers who ordered the "free" book were enrolled in a paid subscription to Green Wealth e-Magazine unless they cancelled during the trial period. According to the FTC, this fact was not disclosed adequately, but was buried in fine print on the Green Millionaire website. In addition, the FTC alleged that the defendants induced consumers to order the book by falsely claiming that the book would show them "how to get free gas for life," "how to put solar panels on your roof for free," and "how to make your electricity meter go backwards paying you." As a result, the FTC filed a Complaint earlier this month against Green Millionaire and affiliated entities and individuals for violations of the Federal Trade Commission Act.

Under the proposed consent order, prior to using a consumer's billing information for a negative option purchase, sellers must acquire the express informed consent of the consumer. They must disclose all fees and costs, the amount and frequency of any subsequent charges, the material terms of any refund or cancellation policy, and how to cancel or obtain a refund. To complete a purchase, consumers must sign, check a box, or otherwise affirmatively accept the negative option feature, and all costs associated with the negative option must be disclosed immediately adjacent to the signature line or check box. Following any transaction, prior to any renewal of six months or more, and with any shipment, the defendants must send written confirmation, including procedures for canceling the order or obtaining a refund. These procedures must be cost-free and "as simple to use and effective" as the mechanism for purchase. The order also imposes a judgment totaling nearly $6 million for consumer redress, all but $2 million of which is suspended unless a defendant is found to have misrepresented its financial condition.

In 2010, Congress passed and the President signed the Restore Online Shopper's Confidence Act (ROSCA). Section 4 (15 U.S.C. § 8403) requires that a seller marketing a negative option over the Internet:

  1. Clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer's billing information;
  2. Obtain a consumer's express informed consent before charging the consumer's credit card, debit card, bank account, or other financial account; and
  3. Provide simple mechanisms to stop recurring charges.

The FTC has enforcement authority under ROSCA, but we are not aware of any enforcement activity so far. The Green Millionaire case wasn't brought under ROSCA either (presumably because the conduct at issue occurred before enactment), but it may provide guidance as to how the FTC will interpret and apply the Act in the future.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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