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FTC Blocks Swish's Shot, Wins Court Case Against Affiliate Marketer

8 Sep, 2011 By: Gregory J. Sater

A federal judge in California has entered a $4.8 million judgment in favor of the Federal Trade Commission (FTC) and against an online affiliate known as Swish Marketing, which operated websites that persuaded people to input personal and financial information (such as bank account information) in order to apply for short-term loans, also known as “payday” loans. According to the FTC, these sites focused entirely on the loans, conveying the impression that consumers who agreed to input their information simply would be applying for such a loan when, in fact, what really was happening was that they also were going to be charged for activation of a debit card.

According to the FTC, Swish was little more than an online affiliate for the marketer of the debit card, a company called VirtualWorks. Prior to the court entering the judgment against Swish, VirtualWorks had already settled with the FTC. In other words, Swish was not just taking applications for loans; it was obtaining banking information in order to send it to VirtualWorks so that the latter could charge those loan applicants for the debit card (an activation fee of about $55).

According to the FTC, Swish’s websites barely mentioned the debit cards or, if they did, made them look as if they were add-ons that weren’t necessarily tied to the payday loan applications. One way Swish was able to do this was by referring to the debit cards as a “bonus,” implying they were free. Another way was to present consumers with a Web page offering them four different additional offers beyond just applying for a loan, each with a “Yes/No” button beside it. The FTC alleged that three of the four boxes were pre-checked “No” with one being pre-checked for “Yes” – something most consumers probably wouldn’t notice. The “Yes” box was the one that offered the debit card.

The FTC alleged that hundreds of thousands of people were charged for a debit card they didn’t realize they would be charged for, or didn’t even know existed if they didn’t notice it on the site. Even on the sites where the card was mentioned, people would not be able to figure out that they were going to be charged unless they scrolled down beyond the “submit button.”

In addition to the $4.8 million, the judgment contains injunctive provisions providing that Swish can never again solicit any application by misrepresenting the consequences of someone submitting an application, can never again offer anything as a “bonus,” and can never again offer anything of any kind on a negative-option basis. In addition, Swish is barred – among other things – from obtaining billing information from any customer for any product or service without first obtaining the customer’s assent to being billed for that specific product or service from that specific account (by clicking a button specifically labeled to convey that assent).

Two major takeaways from the Swish decision are to obtain your customer’s informed consent prior to using his or her information for any purpose than the original purpose that he or she had in mind when he or she gave the information to you, and that the FTC doesn’t like pre-checked “Yes” boxes because a customer’s failure to reject an offer by un-checking a “Yes” box isn’t the same thing as the customer giving you an acceptance of your offer.

Gregory J. Sater is a partner at Los Angeles-based Rutter Hobbs & Davidoff. He can be reached at or (310) 286-1700.

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