Electronic Retailer - June 2011 - 14

INDUSTRY REPORTS

FTC Forum

Free Means Free
BY LESLEY FAIR Funny thing about free trial offers: They’re rarely free, but they often prove to be a trial for people whose credit cards are billed for transactions they didn’t expressly authorize. The latest in a series of law enforcement actions filed by the Federal Trade Commission demonstrates how important it is for businesses to use care when advertising their products or services as “free.” The FTC’s case centers on an international network of defendants spanning the globe from Utah to Cyprus. According to the complaint, they raked in more than $467 million from consumers in the U.S., Canada, the UK, Australia and

Don’t make an unqualified “free” claim when you really mean “free for now, but we’ll bill you later.” It’s as simple as that.
in continuity programs without their consent and then charged their credit cards or debit accounts for products they didn’t order. How did the defendants “disclose” the material terms of the transaction? show them. The FTC alleges that their evasion of credit card risk management systems was itself an unfair practice, in violation of the FTC Act. Of course, the case remains pending, but savvy electronic retailers know that when it comes to “free” offers, it’s always a good time for a compliance check-up. • “Free” means free. Don’t make an unqualified “free” claim when you really mean “free for now, but we’ll bill you later.” It’s as simple as that. • Disclose the details. If you intend to charge customers for future shipments, clearly and prominently explain how the plan operates before you seal the deal. Promoting a product as “free” and then burying the particulars will irritate customers and attract unwanted law enforcement attention. • Chargeback flack. Chargebacks are an inevitable occurrence for any retailer. What separates legitimate marketers from their less scrupulous competitors is how they respond. A business in it for the prosperous long haul will use chargebacks as an object lesson for improving their procedures and clarifying the nature of their promotions. Visit business.ftc.gov for more on the use of “free” in advertising. Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection.

New Zealand through an elaborate scheme of misleading product claims, unauthorized celebrity endorsements, forced upsells, undisclosed terms and conditions, unauthorized charges and ruses designed to evade the credit card industry’s risk management system. One hallmark of the scheme, says the FTC, were promises of “free trials” for acai diet products, teeth whiteners, money-making programs and other merchandise. The complaint alleges the defendants enrolled people 14

According to the FTC, they used every trick in the Fineprint Playbook, including tiny type, pale colors, dense blocks of text, and hard-to-find terms and conditions. Once bitten, consumers were twice stung by what the FTC said were the companies’ undisclosed refund policies. According to the complaint, the defendants took steps to conceal their sky-high chargeback rates by opening new merchant accounts in the names of people who couldn’t be traced back to them. In addition, the FTC says the defendants responded to concerns from merchant banks and payment processors by creating phony “clean” websites to

electronicRETAILER | June 2011

Electronic Retailer - June 2011

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