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Financial Services Law Insights and Observations


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  • CFPB: Negative option marketing practices could violate the CFPA

    Federal Issues

    On January 19, the CFPB released Circular 2023-01 to reiterate that companies offering “negative option” subscription services are required to comply with federal consumer financial protection laws. According to the Circular, “‘negative option’ [marketing] refers to a term or condition under which a seller may interpret a consumer’s silence, failure to take an affirmative action to reject a product or service, or failure to cancel an agreement as acceptance or continued acceptance of the offer.” The Bureau clarified that negative option marketing practices could violate the CFPA where a seller: (i) misrepresents or fails to clearly and conspicuously disclose the material terms of a negative option program; (ii) fails to obtain consumers’ informed consent; or (iii) misleads consumers who want to cancel, erects unreasonable barriers to cancellation, or fails to honor cancellation requests that comply with its promised cancellation procedures.

    The Bureau described receiving consumer complaints from older consumers about being repeatedly charged for services they did not intend to buy or no longer wanted to continue purchasing. Other consumers reported being enrolled in subscriptions without knowledge of the program or the costs. Consumers also submitted complaints regarding the difficulty of cancelling subscription-based services and about charges on their credit card or bank account after they requested cancellation.

    The Bureau also warned that negative option programs can be particularly harmful when paired with dark patterns. The Circular noted that the Bureau and the FTC have taken action to combat the rise of digital dark patterns, which can be used to deceive, steer, or manipulate users into behavior that is profitable for a company, but often harmful to users or contrary to their intent. The Bureau noted that consumers could be misled into purchasing subscriptions and other services with recurring charges and be unable to cancel the unwanted products and services or avoid their charges.

    Federal Issues CFPB Consumer Finance Dark Patterns Negative Option

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  • DOJ, FTC ban firm and CEO from negative option marketing

    Federal Issues

    On December 16, the DOJ and the FTC announced that a brokerage firm and its CEO (collectively, “defendants”) must pay $21 million in consumer redress and are permanently banned from engaging in deceptive negative option marketing for allegedly violating, among other things, the FCRA, TSR, and the Restore Online Shoppers’ Confidence Act (ROSCA). According to the FTC’s complaint filed by the DOJ, the defendants claimed that the company’s background reports on certain individuals had particular criminal records, even when they did not include such information, to mislead consumers into signing up for auto-renewing, premium subscriptions. The FTC claimed consumers who allegedly searched the firm’s website for an individual’s background report were shown search results that often falsely implied that the subject of the search may have records of criminal or sexual offenses, which could only be viewed by purchasing a subscription from the firm. The complaint alleged that the firm’s misleading statements resulted in some consumers believing that they, or other individuals, had arrest or criminal records. The complaint further alleged that the firm operated as a consumer reporting agency and violated the FCRA by, among other things, failing to maintain verifiable, reasonable procedures on how its reports would be utilized to ensure the information was accurate and to ensure that the information it sold would be used for legal purposes. Additionally, the defendants allegedly violated the TSR by misrepresenting its refund and cancellation policies. The complaint also alleged that the defendants’ misleading billing practices violated ROSCA by, among other things, failing to clearly disclose upfront charges.

    Under the terms of the settlement, the defendants agreed to separate judgments, which total approximately $33.9 million. The settlement also banned the defendants from engaging in deceptive negative option marketing. The CEO is ordered to pay a total of $5 million, and the firm is ordered to pay a partially suspended judgment of $16 million due to the company’s inability to pay the full amount. Together, the money will be used to provide refunds to consumers. The firm is required to pay the full remaining amount of the judgment if the company is found to have misrepresented its finances and must implement a monitoring program to ensure the company is complying with the FCRA.

    Federal Issues FTC Enforcement DOJ FCRA Telemarketing Sales Rule ROSCA Negative Option

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  • Supplement marketer again settles with FTC over negative option marketing

    Federal Issues

    On September 22, the FTC announced a $1.04 million settlement with a supplement marketer and its two officers (collectively, “defendants”), resolving allegations that the defendants engaged in deceptive sales and billing practices, in violation of the Restore Online Shoppers’ Confidence Act (ROSCA), the Telemarketing Sales Rule (TSR), and a previous court order. Previously, in 2016, the marketer entered into a settlement with the FTC covering allegations that the company engaged in negative option marketing by enrolling consumers in a membership program that billed up to $79.99 monthly unless the consumers canceled within an 18-day trial period. The 2016 settlement barred the company from, among other things, (i) obtaining consumers’ billing information without first disclosing they would be charged, that the charge would increase after a certain period, or that the charge would be reoccurring; (ii) obtaining payment from consumers without express written authorization; and (iii) failing to provide a simple way for consumers to cancel.

    According to the FTC’s new complaint, from 2016 to 2019, the defendants violated the previous consent order, ROSCA, and TSR by failing to clearly and conspicuously disclose that in order to cancel, consumers must contact the company “at least one day before the end of the advertised Free Trial Period to avoid being charged for the monthly membership program.” The agreed-upon proposed contempt order requires the defendants to pay nearly $1.04 million to be used for equitable relief, including consumer redress.

    Federal Issues FTC ROSCA Disclosures Negative Option Enforcement Telemarketing Sales Rule

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  • FTC seeks $10 million settlement for negative option billing

    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.

    Federal Issues FTC FTC Act ROSCA Disclosures Negative Option

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  • FTC files action against Puerto Rican defendants for negative option marketing


    On February 28, the FTC announced it filed a complaint in the U.S. District Court for the District of Puerto Rico alleging a business owner and the companies he operates (defendants) violated the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by allegedly offering deceptive online “free-trial” offers that mislead consumers into enrolling into negative option plans. According to the complaint, the defendants sold skin care products online between February 2016 and August 2017 and marketed a free trial for the products for the cost of around $4.99 in shipping. The complaint alleges consumers who ordered the free trial (i) were charged more than $90 and then subsequently enrolled into a monthly auto-ship program; (ii) were charged for additional products without their consent; and (iii) had a difficult time canceling their enrollment in the auto-ship plan. Moreover, the FTC argues that the defendants avoided detection by using shell companies to obtain merchant processing accounts and fake and real websites in order to avoid detection by credit card companies and law enforcement. The FTC is seeking monetary and injunctive relief against the defendants.

    Courts FTC Marketing FTC Act Advertisement Negative Option

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