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FTC Reaches $1.3 Million Settlement With Online Lingerie Marketer Regarding Consumer Deception In Negative-Option Program

An online lingerie marketer has agreed to settle charges brought by the Federal Trade Commission (“FTC”), claiming that the company engaged in deceptive conduct when it enrolled consumers in a negative-option membership program without fully disclosing how the ongoing charges may be applied, in addition to making it difficult for those consumers to opt out of the program.  The FTC charged the company’s subscription model and cancellation procedures violated Section 5 of the FTC Act and the Restore Online Shopper’s Confidence Act (“ROSCA”).

The FTC’s complaint alleges that AdoreMe Inc.’s (“AdoreMe”) “VIP” membership program, a subscription based platform, charged participants $39.95 per month, unless the participant did one of two things within the first five days of the month – either “shop” and purchase apparel from AdoreMe, or “skip” that month by clicking a button on AdoreMe’s website or app. The AdoreMe website stipulated consumers who failed to either “shop” or “skip” by the 5th of the month would be charged $39.95 “store credit,” that which could be redeemed “anytime to buy anything” on the AdoreMe website.

The FTC alleged, however, that the company’s written policy on store credits contradicted the explicit representation that the store credit could be used “anytime,” instead stipulating that unused credits would be forfeited if the participant’s VIP membership was “terminated for any reason.” Further, this policy was to apply regardless of whether the decision to terminate the membership was that of AdoreMe or the participant. The FTC claims that from at least May 2015 to May 2016, AdoreMe enforced this policy, and as such failed to “clearly and conspicuously disclose” this apparent limitation on use of the credit. AdoreMe stopped implementing their written store credit policy in May 2016. However, by this time it had already forfeited over $1.8 million from program participants, and at the time of filing the complaint, AdoreMe had failed to remit refunds to all affected consumers.

Additionally, the FTC asserted that AdoreMe made it difficult for participants to cancel their memberships in the VIP program. Specifically, the FTC claimed that the company achieved this purpose through a variety of tactics, including limiting the means by which consumers could submit membership cancellation requests, and by significantly under-staffing its customer service department thereby rendering it more difficult for consumers to submit requests and receive responses.

In response to the FTC’s charges, AdoreMe has agreed to a settlement that would see over $1.3 million returned to consumers either in the form of a payment to the government or in the form of refunds.   In addition, the settlement includes a prohibition against misrepresenting  a number of the features of its program.  For example, the settlement order provides that AdoreMe is prohibited from misrepresenting in the sale of any good or service with a negative-option feature, and from failing to provide a simple means by which consumers may opt out of the program and immediately cease any recurring charges.  The settlement will bar AdoreMe from making representations that a good or service is offered on a “free,” “trial,” “sample,” “bonus,” “gift,” “no obligation,” “discounted” basis, or words of similar import, denoting or implying the absence of an obligation on the part of the recipient of the offer to affirmatively act in order to avoid Charges.  Further, AdoreMe is required to clearly disclose any costs associated with program membership, specifying how consumers may avoid those charges.  Similarly, AdoreMe is obligated to provide an order confirmation reiterating the terms of the subscription program.   In terms of cancellation, for consumers who entered into a subscription agreement over the Internet or through other web-based applications or services, AdoreMe must provide a mechanism, accessible over the Internet or through such other web-based application or service that consumers can easily use to cancel the subscription and to immediately stop all further charges.

Takeaway: This settlement is particularly noteworthy as subscription-based services and product delivery continues to be a popular framework by which new and old companies alike are electing to sell products to consumers on an ongoing basis. Companies utilizing a subscription based model, or any type of membership program, need be aware of their disclosure requirements, in addition to the requirement to provide a simple path for consumers to opt out of such subscriptions and membership programs. Attempts to circumvent such consumer protection regulations may garner unwanted attention from the FTC.