FTC Cracks Down on Free-Trial Marketers

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The Federal Trade Commission is preparing to crack down on free-trial marketers who charge unwitting consumers, as industry organizations moved to address consumer confusion generated by negative-option marketing practices.


FTC chairman Timothy J. Muris told The Washington Post in a report published yesterday that he would seek to change telemarketing rules to address free-trial offers. Complaints are rising about free trials that actually cost consumers money, he said.


"It's clear this is a growing problem, and we are being more aggressive," Muris said after the FTC reached a settlement with a Boca Raton, FL, discount club marketing firm accused of billing consumers without their knowledge.


Triad Discount Buying Service Inc. paid $9 million to settle the charges. About 275,000 consumers are eligible for reimbursement.


In negative-option marketing, it is incumbent on consumers to cancel an order or they will receive a charge on their credit cards, either at the end of a free-trial period or for an automatic renewal or continuity program.


A common problem with this practice arises when some consumers wrongly think they can't be billed because they haven't directly given any credit-card account information to the marketer. Consumers are unaware that many marketers obtain consumer credit account information before making the offer.


The Electronic Retailing Association is promoting a new set of advance-consent guidelines to address the issue. The guidelines, approved by the ERA board of directors Oct. 18 during the association's conference in Las Vegas, urge marketers to give clear disclosures about billing and to obtain affirmative consent from consumers before completing negative-option transactions.


Negative-option marketing has been around for decades, but technology has accelerated the rate at which business transactions are completed, said Elissa Myers, president/CEO of the ERA. The instantaneous nature of modern marketing leads to consumer confusion, and even legitimate marketers can get into trouble if they fail to be cautious.


"We tell consumers that they need to be savvy shoppers, and they need to be proactive," Myers said. "But in this busy life, you can't always do that."


The cornerstone of the ERA guidelines is the principle that "silence never equals consent," Myers said. Marketers must get consumers to say or do something to confirm that they are consenting to an offer, rather than just accept a lack of rejection as an affirmative.


The guidelines also call for marketers to provide more upfront disclosures to consumers, often surpassing what is required by law. For example, they call on marketers to include their telephone numbers in the descriptions of their billings printed on consumer credit card statements, when possible.


The ERA is requiring its 450 members, including Time-Life, to adhere to the guidelines. The Magazine Publishers of America organization also has endorsed the guidelines and is promoting them to its members. Other companies that have endorsed the guidelines include Bookspan, corporate parent of Book of the Month Club Inc., and MemberWorks, a membership club marketer.


Points set forth in the ERA guidelines include:


* Provide clear disclosures about the length of free-trial periods and cancellation methods.


* Receive affirmative oral, written or electronic consent to the negative-option plan.


* Make clear to consumers, when applicable, that the marketer already possesses their credit-card information.


* Send renewal reminders at least once a year, or as warranted, in the case of automatic renewals and continuity programs.


* Give automatic refunds, in the case of telemarketing calls, when a consumer disputes a billing and the marketer is unable to produce taped evidence of a call.


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