In September, the Federal Trade Commission (FTC) announced what may be remembered as the most ironic enforcement action of 2017. The Commission alleged that the Pact mobile app, which claimed to pay consumers for keeping their fitness promises and charge consumers who missed their goals, for failing to honor its promises to consumers. The final order in the case gives marketers more than a million reasons to honor the promises they make to consumers.
When signing up for Pact, consumers provided payment card information and set a workout or fitness goal. Users specified an amount of money the app could deduct if the user missed a workout or fitness goal for the week, with charges ranging from $5 to $50 per missed activity. However, if the user achieved the goal, Pact promised to pay the user.
In its complaint, the FTC alleged that Pact did not pay – and actually charged – many consumers who met their fitness goals. Making matters worse, the app continued to charge many consumers who attempted to cancel the service.
The three-count complaint alleged that Pact and two of its principals violated both the FTC Act and Section 4 of the Restore Online Shoppers Confidence Act (ROSCA) by failing to disclose how to stop recurring charges before obtaining consumers’ billing information.
Count one alleged that Pact violated the FTC Act by deceiving consumers regarding the circumstances under which the company would pay or charge the consumers.
Count two alleged violations of the FTC Act for unauthorized billing when Pact continued to bill consumers who attempted to cancel the recurring charges.
Finally, count three of the complaint alleged that Pact violated ROSCA by failing to disclose all material terms of the offer, specifically the mechanism for consumers to stop recurring charges, before obtaining consumers’ billing information. Instead, according to the FTC, consumers seeking to cancel were forced to click a link to the app’s Terms of Service and then scroll through 4,400 words of dense text to find the means to stop recurring charges. The FTC called the information difficult for consumers to locate and access, confusing, and much less simple than the mechanism consumers used to sign up and initiate the recurring charge.
The FTC’s final order includes a $1.5 million judgment that is partially suspended based on the defendants’ financial condition. However, the defendants must pay $948,788 back to injured consumers who were charged improperly or who earned, but have not yet received money, for their pacts. The order also prohibits Pact from misleading consumers about the circumstances under which they will charge consumers, the circumstances under which consumers will receive any benefits, and any other material fact concerning any app or software. It also enjoins Pact from charging consumers without first receiving their express, informed consent.
Lastly, Pact is required to comply with ROSCA, and must clearly and conspicuously – and in close proximity to the consumers’ provision of billing information – disclose that the consumer will be charged and the charges will be recurring unless the consumer takes timely steps to prevent or stop the charges.
Continuity plans are a recurring enforcement theme for the FTC and state attorneys general. All marketers – especially those marketing continuity-based offers – should be careful to keep the promises they make to consumers and ensure their operations comply with all aspects of ROSCA.