FTC Cracks Down on Free Gift Card Offers12 Mar, 2013 By: Linda A. Goldstein
Direct response marketers have increasingly embraced the offering of “free” gift cards from major retailers like Wal-Mart, Best Buy and Target as a premium incentive to drive sale of core products and services. These gift card offers are often presented via affiliate marketers that use these offers as a means of driving traffic to the marketer’s website.
A series of complaints filed by the Federal Trade Commission (FTC) last week seeking temporary restraining orders and asset freezes against t affiliate marketers who promoted these offers through unsolicited text messages should cause direct response marketers to reevaluate this marketing strategy.
According to the FTC complaints filed against 29 affiliate marketers, the defendants sent more than 180 million text messages to consumers promising free gift cards to Wal-Mart, Target and Best Buy with links to websites through which the “free” gift cards supposedly could be redeemed.
While the FTC action was obviously prompted by the marketers’ sending of unwanted text messages, the FTC also expressed serious concern about the nature of the “free” offers themselves. For example, the website to which consumers were directed required consumers to disclose a substantial amount of highly personal and sensitive information including, in some cases, health information in order to be eligible to claim the gift card.
The affiliates allegedly represented that this information was needed in order to ship the gift cards. However, the information was then sold to third parties for other marketing purposes. In addition to having to provide personal and sensitive information, consumers in many cases were also required to sign up for additional offers – many of which involved recurring charges for which consumers were required to provide their credit card information. In other cases consumers were required to submit applications for credit that could impact their credit scores. Finally, even if consumers completed all of the offers, they were then often required to find three other people to complete all of the offers in order to qualify for their gift card.
The FTC viewed the representation that these offers were “free” as a clear violation of the FTC Act based on the fact that consumers were required to complete multiple additional offers to receive the gift card, many of which involved outright payments.
This case is yet another reminder of the increased attention and scrutiny the FTC is placing on the practices of affiliate marketers. While these enforcement actions appear – at this point – to be limited to these affiliate marketers, they are a strong reminder that direct response marketers must be careful to review and monitor the practices of affiliates that are directing traffic to their sites. For direct response marketers that are offering such gift cards directly, these cases serve as an important warning that use of the term “free” to describe any offer that has lots of conditions is likely to invite scrutiny
Linda Goldstein is chair of the Advertising, Marketing and Media division of Manatt, Phelps & Phillips LLP, based in the firm’s New York office. She can be reached at firstname.lastname@example.org.