Paid Online Reviews, Misleading Offer Lead to $100,000 FTC Settlement

On April 3, 2019, a snack box subscription service and its parent company agreed to pay $100,000 to settle an FTC complaint which alleged that the companies (i) misrepresented that compensated customer reviews were independent; and (ii) inadequately disclosed key terms of their “free trial” program, which led to numerous consumers’ unwitting “automatic enrollment” in a six-month subscription plan.

The FTC’s complaint asserts that the companies misrepresented that certain customer reviews were independent when, in fact, reviewers had been compensated with free products and other incentives.  Additionally, the FTC claimed that the subscription company offered a “free” trial of its snack boxes on its desktop and mobile websites without adequately disclosing key terms of the offer—including that the company would automatically charge customers the total amount owed for six months of shipments if they did not cancel the trial within a specific amount of time.  The complaint alleged that this “negative option” automatic enrollment violated the Restore Online Shoppers Confidence Act by failing to: (i) adequately disclose material terms of the free trial offer before obtaining the consumer’s billing information; and (ii) get consumers’ informed consent before charging them.

The FTC says that it will use the companies’ $100,000 payment to compensate consumers who were deceived by the trial offers.  In addition to the payment, the Consent Order (which is still subject to final approval by the FTC) provides that the companies:

• Are prohibited from misrepresenting in the marketing or sale of products regarding the negative option feature of the “free trial” program;
• Must disclose all terms of any negative option feature and receive a consumer’s express informed consent before accepting billing information for payment;
• Must provide customers with “a simple mechanism”—which must not be “difficult, costly, confusing, or time consuming”—that can be used to cancel their subscription before the free trial period runs out and they are charged;
• Must take “all reasonable steps” to remove compensated reviews and endorsements which do not disclose that the reviewers received incentives in exchange for the review;
• Are prohibited from misrepresenting endorsers of their products; and
• Are required to disclose any material relationship or connection to consumers, reviewers, or endorsers of their products.

Public comment on the proposed consent order (available here) is due May 9, 2019.