Last week, the Federal Trade Commission took a bite out of healthy snack box company UrthBox and CEO Behnam Behrouzi, when it settled a complaint with the FTC for deceptive business practices. In the nine-page complaint, the FTC alleges the San Francisco-based company failed to disclose that customers were given incentives in exchange for positive online reviews, and they did not adequately disclose key terms of their free trial auto-renewal program to new customers. UrthBox will pay $100,000 to the FTC to compensate customers deceived by the free trials.
People should be able to trust that good customer reviews arent the result of companies secretly paying the reviewers, said Andrew Smith, director of the FTCs Bureau of Consumer Protection in an April 3 news release. As this case shows, we hold companies accountable for this kind of deceptive marketing.
According to the FTC, between 2014 and 2017, UrthBox offered store credit and/or free products in exchange for positive reviews on TrustPilot.com, Twitter, Instagram, Tumblr and Facebook. From January through November 2017, UrthBox provided incentives, including free snack boxes, to customers who posted positive reviews on the Better Business Bureaus website. However, the BBB requires customers who post reviews to confirm they have not received any incentives to write reviews, and many customers failed to do so. These practices violated the FTC Act by misrepresenting the positive customer reviews as independent, when they were compensated.
The FTC also alleges that, from October 2016 through November 2017, UrthBox offered a free trial of snack boxes with new customers paying a $2.99 fee for shipping and handling. However, UrthBox failed to disclose to customers that they must cancel by a certain date or they would automatically be enrolled in a six-month negative option subscription ranging in price from $77 to $269, depending on the size of the snack box. This practice also violated the FTC Act by failing to disclose key terms of the free offer.
In conjunction, UrthBox violated the Restore Online Shoppers Confidence Act (ROSCA) by failing to clearly and conspicuously disclose material terms of the free trial offer before asking for the customers billing information and by failing to obtain customers informed consent before charging them for the six-month negative option subscription.
In addition to the $100,000 settlement, which the FTC will use to provide refunds to affected consumers, the FTC is requiring UrthBox to change its conduct:
- UrthBox and Behrouzi are prohibited from misrepresenting endorsers of its products, and they are required to disclose any material relationship or connection to consumers, reviewers or endorsers of its products.
- UrthBox and Behrouzi must take all reasonable steps to remove any reviews or endorsements where the reviewer was compensated, unless UrthBox discloses that the reviewers received incentives in exchange for the review.
- The company is prohibited from misrepresenting in the marketing or sale of its products regarding the negative option feature. It must disclose all terms of that feature and get a consumers express informed consent before accepting billing information for payment of a product with a negative option feature.
- UrthBox must provide customers with a simple mechanism with which to cancel their subscription before the free trial period runs out, and they are charged.
UrthBox offers healthy snack options for a variety of subscribers, including a classic box and boxes that cater to gluten free, vegan and diet preferences. The boxes contain food, beverages and snacks that are non-GMO, organic and all natural. Currently, boxes range in price from $19.99 a month to $49.99 a month. Gift subscriptions for six months worth of snacks are priced from $149.99 to $269.99 for the six-month period. UrthBoxs Terms page on its website outlines the auto-renewal, cancellation, and 24-hour, new customer cancellation policies.
On Monday, we wrote about similar concerns with the auto-renewals of gaming subscriptions. The Competition & Markets Authority in the UK is investigating whether Sony, Microsoft and Nintendo have properly disclosed auto-renewal terms to subscribers. We are seeing this more often as subscription companies are getting tagged for not being transparent enough, in their efforts to attract and retain customers.
The bottom line is that deceptive business practices are not good for anyone. Duped subscribers lose trust in your brand, which means youre going to lose them anyway, and it can be a PR nightmare when they tell their stories online. It may take more time and cost more money to clearly and conspicuously post terms and follow the rules of the countries where you are doing business, but it is better for your business and your customers to do it right at the outset.