Free Trial Scams And The FTC

by El Plumber (admin) on September 17, 2009

freetrial1 Free Trial Scams And The FTC

With all the Google Fortune and Acai Berry and Tooth Whitening “free trial” scams being intensely advertised all over the internet, it’s hard to tell truth from fiction.  I’ve seen tons of sites recently touting  this “free” thing or that “free*” thing, sometimes with an * and sometimes without, depending on how close the advertiser wants to skirt the already loose rules for what constitutes “free”

Yeah, the rules on the word “free” are surprisingly squishy, given the fact that the last time the FTC really officially said anything on the term “free” was back in 1971.  It mostly had to do with how one would represent Free in the context of Buy 1 get 1 Free deals and the like.  They didn’t have much ordering things to be shipped, negative option offers, let along the concept of what the internet would become.  Back then if you wanted something, you had to find a store that had it and buy it.

We couldn’t find any FTC documents or rules regarding the charging of exorbatant “shipping” and “handling” fees for downloadable content, and very little concerning the use of hidden negative option techniques.  For the most part, this section from the FTC guidelines on Negative Options sums it up:

Negative option marketing can pose serious financial risks to consumers if appropriate disclosures are not made and consumers are billed for goods or services without their consent. The FTC staff has issued a report presenting five marketing principles for avoiding deception in negative option offers on the Internet, which poses unique issues not present in print or telephone marketing…

The five principles address:

  • Disclosing material terms in an understandable manner, without making them unnecessarily long or inconsistent;
  • Making the disclosures clear and conspicuous by placing them where consumers are likely to look on Web pages, by labeling disclosures (and links to them) to indicate their importance and relevance, and by using easy-to-read fonts and colors;
  • Disclosing the offer’s material terms before the consumer incurs a financial obligation;
  • Obtaining consumers’ affirmative consent to the offer by, for example, having them click “I Agree” and without relying on pre-checked boxes; and
  • Not impeding the effective operation of promised cancellation procedures and honoring cancellation requests that comply with such procedures.

So there you have the five Commandments from the FTC regarding Negative Option Marketing.  Lets paraphrase them:

  1. Terms must be CLEARLY spelled out.
  2. Terms must be placed where people will see them and marked as important.
  3. Terms must be disclosed BEFORE charging people.
  4. Consent must be GIVEN by checking a box at the least, not automatically checked.
  5. Cancellation procedures must be available as stated.

Any offer must follow these five procedures at the very least.  Note there are no requirements on length of trial time, cost, and the like.  If you want to sell a Make Money with Google ebook to people for a 24 hour trial for $1, then whack them for $500 exactly 24 hours of them signing up and offering no refunds, that is within your rights as a business in the United States.  So long as everything is clearly spelled out in a manner that meets the five rules above.

The problem comes where these rules get mushy.  Is the bottom of a web page somewhere people will see them?  What about on the left just below the fold?  Is checking a box saying “I read the terms and conditions” sufficient or should you spell out the true cost next to the box.

The answer is in another FTC document regarding Clear and Conspicuous disclosures.

Disclosures that are required to prevent deception or to provide consumers material
information about a transaction must be presented clearly and conspicuously.
Whether a disclosure meets this standard is measured by its performance that is,
how consumers actually perceive and understand the disclosure within the context of
the entire ad. The key is the overall net impression of the ad that is, whether the
claims consumers take from the ad are truthful and substantiated.

In reviewing their online ads, advertisers should adopt the perspective of a reasonable
consumer. They also should assume that consumers don’t read an entire Web site,
just as they don’t read every word on a printed page. In addition, it is important for
advertisers to draw attention to the disclosure. Making the disclosure available some-
where in the ad so that consumers who are looking for the information might find it
doesn’t meet the clear and conspicuous standard.

Translation: Would a reasonable consumer (say, your Grandmother) understand she was signing up for a recurring charge? If not, your site is breaking the rules.

The problem is, the FTC has their hands full.  They have far more pressing problems than the $69.97 Google Fortune tricked out of you.  As long as these guys keep moving, the FTC is unlikely to expend more than some token resources to catch a small handful of them.

This explains why you see so many of these “Free Trial Offers” for Google Biz Kits and Acai and Reveritrol and Government Grants and everything else.  Pull $75 out of 20,000 wallets and you’ve just made a cool $1.5 MILLION dollars.  Advertise everywhere, get 1000 signups a day for 40 days, pay half to affiliates, promise customers refunds for just long enough to keep the feds off your back, then close down, pack up shop in Nevada, start all over again in Utah or California or Nevis or Trinadad, rinse, repeat.

Want to do something about it?  Your best bet is to do the following:

  1. Report them to the FTC, you might get lucky.
  2. Report them to the BBB.
  3. Report them to your local District Attorneys office.
  4. Contact your local “Hard Hitting Eyewitness News Team” and see if they want a nice financial scam story.
  5. Take matters into your own hands and find some Class Action Fraud Lawyers to go after them.  You might get lucky here too, become lead plaintiff and get more than you lost back.

References

  • www.ftc.gov/opa/2009/02/jab.shtm
  • www.ftc.gov/bcp/guides/free.htm
  • www.ftc.gov/os/2009/02/P064202negativeoptionreport.pdf
  • www.ftc.gov/bcp/edu/pubs/business/ecommerce/bus41.pdf

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