FTC and DOJ Reach Settlement Banning Negative Option Marketing Background Search Website | Manatt, Phelps & Phillips, LLP
The complaint, filed in July 2020, alleged that MyLife allowed users of the website to perform free background searches for an individual’s name and then displayed search results that falsely imply that the subject of a search may have a history of criminal or sexual offences. Criminal records would only be visible if the researcher purchased a MyLife subscription. Subscriptions were set to automatically renew unless canceled and, until 2019, subscribers wishing to cancel could only do so by calling the MyLife customer service line. Subscribers who attempted to cancel said they were unable to reach a customer service representative, renewed their subscription against their will, or reached an agent but received a sales pitch to renew instead of help with renewing. ‘cancelation.
The complaint alleged that MyLife violated the Retail Online Shoppers’ Confidence Act (ROSCA), which generally prohibits charging consumers for goods or services sold in Internet transactions through a “negative option” feature. Negative option clauses are offers or agreements in which the customer’s silence or failure to take positive action to rescind the agreement, or reject the goods or services, is interpreted by the seller as acceptance of the contract. ‘offer. To comply with ROSCA, a telemarketer must (1) clearly and prominently disclose the terms of the agreement before obtaining the customer’s billing information, (2) obtain the customer’s express informed consent before billing the customer, and (3) provide simple mechanisms for a customer to stop recurring charges.
The complaint alleged that MyLife failed to clearly and prominently inform customers of the material terms of the transactions, including that the full cost of the multi-month subscription would be billed immediately in a lump sum instead of monthly payments, which MyLife s ‘would automatically enroll customers in subscriptions which would automatically renew unless the customer affirmatively took action to cancel the subscription, which customers wishing to cancel the subscription could only do so by calling the MyLife customer service line, and that customers should cancel before the end of the subscription period to avoid incurring additional charges. He also alleged that MyLife also failed to provide customers with simple mechanisms to prevent them from being charged recurring charges.
In addition, the complaint alleged that MyLife violated the Telemarketing Sales Rule (TSR), which prohibits telemarketers from withholding truthful material information regarding the transaction, when it provided customers with misleading or false statements or omissions regarding its refund and cancellation policies.
In addition to violations of ROSCA and TSR, the complaint also alleged deceptive sales practices related to false or misleading statements regarding the criminal records of the wanted persons, and violations of the Fair Credit Reporting Act (FCRA) for providing consumer reports to subscribers without reason to believe that the subscribers had a legally permissible purpose for obtaining the information, and for failing to ensure that the information was accurate.
Under the terms of the settlement, MyLife and its CEO are permanently prohibited from marketing or selling any product or service that includes a negative option. They are also prohibited from misrepresenting their payment, renewal, cancellation or refund terms, policies and practices; to engage in the FCRA violations alleged in the Complaint; and making misleading statements about wanted persons; and are directed to implement an FCRA compliance monitoring program.
To read the complaint, click here.
To read the rules, click here.
Why is this important: This action makes it clear that the FTC considers failure to comply with required disclosures to be a deceptive and unfair sales practice. Companies using negative option features should carefully review their policies and practices to ensure compliance with ROSCA. At a minimum, sellers using negative options must clearly and prominently disclose terms before obtaining customer billing information, obtain express informed consent from the customer before billing the customer, and ensure customers can easily cancel recurring charges. Telemarketers, whether or not they use negative option features, should also review their policies and practices to ensure compliance with disclosure rules under the RST.