By: Linda L. Goodman
In 2016 a nutraceutical company, NutraClick, ran a very successful campaign using “free” samples of supplements and beauty products. The only problem with this campaign is that NutraClick charged the consumers who took them up on a “free” sample with recurring monthly fee between $29.99 and $79.99 for continuous “not free” products – without the consumers consent.
According to the FTC’s complaint, NutraClick did not clearly disclose that people who ordered sample products would be enrolled in a “membership program” unless they canceled within an 18-day “trial period” which ran from the date the “free” sample was sent. Thus, consumers who were expecting a “free” product got a continuous replenishment of that sample without their consent or order. At least 70,000 people filed complaints about the operation. The company netted tens of millions of dollars from the unauthorized recurring charges.
Not unexpectedly, Federal Trade Commission (FTC) stepped in to stop the practice. NutriClick was gifted very favorable treatment by the FTC. They entered into a stipulated order requiring NutraClick to change its billing practices, notify consumers of any continuing obligation upfront. Specifically, the stipulated order prohibited the company from misrepresenting the cost of a product or service and falsely implying that offers are free when consumers will be charged. Regarding sales with a negative-option feature, NutraClick was barred from:
- obtaining consumers’ billing information without first disclosing that there will be a charge, or that the charge will increase after a trial period, and, if applicable, that charges will be on a recurring basis unless consumers cancel, as well as the cost or range of costs and the deadline and method for cancelling;
- failing to send consumers, within 10 days, confirmation of a sales transaction with clear disclosures required in the court order;
- using consumers’ billing information to obtain payment unless it has first gotten consumers express written authorization; and
- failing to provide a simple way for consumers to avoid being charged and to cancel.
The order also prohibited the company from violating the Restore Online Shoppers’ Confidence Act (which is the statutory version of the FTC negative option rule. The gift was that order required disgorgement of only $350,000 in ill-gotten gains.
Boston-based supplement marketer NutraClick LLC and its two officers have agreed to pay $1.04 million and be banned from negative option marketing in order to settle Federal Trade Commission allegations that the company’s deceptive sales and billing practices violated federal law and a 2016 federal court order from a prior FTC case.
Fast forward to 2020, NutriClick admitted to violating the Restore Online Shoppers’ Confidence Act, the FTC’s Telemarketing Sales Rule, and the previous court order, by again failing to clearly and conspicuously disclose all material terms of their negative option sales offers.
The $1.04 million that NutriClick will pay under the settlement represents 100 percent of the consumer harm they caused, as well as the total revenue made through their allegedly deceptive conduct. The FTC has said they “may” use it to provide refunds to consumers billed by NutraClick on the last day of the trial period.
“Hiding the true deadline for canceling a free trial offer isn’t just bad business – it’s illegal,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “And that’s why NutraClick will be permanently banned from using negative options in the future.”
They had one shot – now they are done.
For more information, see here: https://www.cliclaw.com/library/ftc-v-nutraclick-llc-et-al-supplement-advertising
______________________________________________________________________
This article was originally posted on Cliclaw.com as part of my ongoing efforts to share valuable legal insights. I regularly contribute guest blogs to leading websites in the field of internet compliance. In these posts, I cover a range of topics to help businesses stay compliant in the ever-evolving digital world. You can read my latest guest contributions on Cliclaw.com.
This article is a publication of The Goodman Law Firm and is intended to provide information on recent legal developments. This article does not create an attorney-client relationship, nor should it be construed as legal advice or an opinion on specific situations. This may constitute “Attorney Advertising” under the Rules of Professional Conduct and under the law of other jurisdictions.
Linda L. Goodman is the founder of The Goodman Law Firm, concentrating its practice in internet business and law. Her firm’s clients include Advertisers, Affiliates, Affiliate Networks, and ISP’s.
© 2020 TGLF, A.P.C.