On Nov. 20, the Federal Trade Commission (FTC) filed suit in New York against an online seller of lingerie for violating the FTC Act and Section 5 of the Restore Online Shoppers’ Confidence Act (ROSCA). According to the complaint, Adore Me generates most of its revenue from its “VIP members.” For $39.95 a month, VIP members receive discounted prices, but are not charged if they buy apparel within the first five days of each month or affirmatively click a button to skip that month. If a consumer forgets to click the button or buy something within the first five days, the amount becomes store credit that supposedly can be used at any time.
However, according to the FTC, many consumers were surprised to learn that the store credit could not be used at any time. The FTC alleged that Adore Me failed to disclose that if a consumer cancelled their VIP membership, their store credit would be forfeited. The FTC sought $1.3 million for the forfeited store credit.
The FTC also alleged that the company erected a veritable “chastity belt” of barriers that made it difficult to cancel and violated ROSCA’s requirement that there be a simple method of cancellation. For a time, Adore Me only allowed cancellations via telephone, instead of via the website that consumers used to enroll. Consumers who did call to cancel were subjected to wait times of half-hour or more.
Once the marketer began accepting online cancellations, consumers who tried to cancel online were required to navigate through three VIP promotional webpages and a five-question “quiz” before Adore Me would accept the cancellation. In addition, the company and declined to accept cancellations when an order was being processed.
The FTC announced its settlement with Adore Me at the same time the Commission released its complaint in the case. In addition to requiring Adore Me to return to consumers $1.3 million in funds the company maintained that consumers had forfeited, the settlement bans future misrepresentations regarding the use of store credit or the terms of any negative option program.
Furthermore, the order requires Adore Me to provide a simple cancellation mechanism that is not difficult, costly, or time consuming for the consumer to: (1) avoid being charged; and (2) immediately stop recurring charges. Specifically, the order requires that the company provide consumers who enter an order on the internet with a web-based method to cancel, and that it provide consumers who order over the phone with a telephone number to cancel.
The cancellation provisions are noteworthy because of the requirement that the cancellation method match the enrollment method. Such a requirement was considered when ROSCA was enacted, but was not included in the version that was passed into law. Recently, the FTC has been trying to work such provisions into its settlements, with mixed results. A marketer that does not allow consumers to cancel via the same method in which she orders probably will have the burden of proving its method works “simply.”
It is also worth noting that the FTC did not challenge Adore Me’s continuity disclosures or consent mechanism in the complaint. Those two things have been the focus of most of the FTC’s ROSCA cases. A review of the continuity disclosures used by Adore Me and the disclosures challenged by the FTC in other cases leads to the conclusion that the FTC requires much more rigorous disclosures and consent mechanisms for offers marketed with a free trial offer that converts to a negative option program than on programs that are offered as subscription models from day one.
Determining whether you have complied with the “clear and conspicuous” disclosure requirements of ROSCA and provided a “simple” cancellation mechanism is a tricky and somewhat subjective business. Marketers using continuity offers should consult with experienced legal counsel to help ensure they are not caught with their pants down.