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Financial Services Law Insights and Observations

FTC seeks $10 million settlement for negative option billing

Federal Issues FTC FTC Act ROSCA Disclosures Negative Option

Federal Issues

On September 2, the FTC announced a proposed $10 million settlement with an online education company, resolving allegations the company engaged in negative option marketing and deceptive billing practices in violation of the FTC Act and the Restore Online Shoppers’ Confidence Act. According to the complaint, filed by the FTC in the U.S. District Court for the Central District of California, from 2015 through at least 2018, the company “failed to adequately disclose key terms of memberships to access online education content for children.” Specifically, the company failed to disclose that memberships automatically renewed indefinitely and kept the “ongoing nature of these term memberships only in separately hyperlinked terms and conditions,” with the automatic renewal “buried” in “dense text, in small font and in single-spaced type.” Moreover, the company allegedly created a difficult cancelation process, notwithstanding the promise of “easy cancellation” written in “bold, red text.”

Under the proposed settlement, the FTC is seeking $10 million in monetary relief and seeks to ban the company from making negative option misrepresentations. Additionally, the proposal would require the company to, among other things, clearly disclose terms of membership and obtain consumers’ informed consent before enrolling them in an automatic billing program.

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