Yesterday the Federal Trade Commission announced an agreement by AdoreMe Inc., a New York-based online lingerie retailer, to pay customers more than $1.3 million for deceptive business practices. The FTC alleges that AdoreMe enrolled customers in a negative-option VIP membership program that offered lingerie and other apparel with discounts and other benefits for $39.95 a month. Under the program, AdoreMe made cancelation of the VIP membership difficult for customers.

The FTC said AdoreMe customers who did not purchase an item or indicate they were skipping a particular month’s purchase by the fifth day of each month were automatically charged $39.95 which could be used ‘anytime’ as a store credit toward future purchases.

However, at least between May 2015 and May 2016, the company removed unused store credits from customers who had canceled their memberships or had contacted their financial institutions to file claims for chargebacks against AdoreMe. Though the company stopped doing this in May 2016, it has not issued full refunds to all customers affected by the practice.

The FTC charged AdoreMe with violating the FTC Act by its misrepresentation of its store credit policy, and also violating the Restore Online Shoppers Confidence Act (ROSCA) for not providing an easy way to cancel membership that included offering a simple mechanism to stop recurring payments.

‘The FTC alleges that for several years the company made it hard to cancel memberships, including by limiting how consumers could submit cancellation requests, under-staffing its customer service department, and putting consumers through drawn-out cancellation request processes,’ said the FTC in yesterday’s announcement.

Under the settlement order, AdoreMe is prohibited from misrepresenting its membership program with a negative-option feature and required to provide a simple way that is not difficult, costly, confusing or time consuming for consumers to avoid being charged and to immediately stop recurring charges. Other conditions of the settlement include:

• A judgment of $1,378,654 will be used to pay full refunds of unused store credits to affected customers.
• The company is prohibited from using any negative-option feature that is offered on a free, trial, no obligation, reduced or discounted basis without clearly disclosing costs and explaining how customers can avoid those costs.
• AdoreMe must promptly confirm consumer orders with appropriate disclosures without upsells, additional product or service offers, or other marketing or advertising.
• The company is prohibited from using customers’ billing information to secure payments without first getting the customers’ express informed consent.

To obtain express performed consent, for all written offers online or via web-based applications, AdoreMe must get consent through a check box, signature or other substantially similar method where the consumer must affirmatively select or sign to accept the negative option feature and no other portion of the offer. AdoreMe is required to disclose clearly and conspicuously and in close proximity to the check box, signature or similar method. Express performed consent can also be obtained orally, as specified in the settlement order.

AdoreMe is still offering the VIP membership program. This screenshot was taken this morning from AdoreMe.com:

We first covered the story in May 2016, when Lisa B. Dubrow, Esquire, reported that non-profit watchdog agency Truth in Advertising had filed complaints with the FTC, the New York Attorney General’s office, and the District Attorney’s office in Santa Clara, California.

Insider Take:

As Dubrow points out in several Legal Insider columns for Subscription Insider, negative option features and programs are receiving a lot of legal scrutiny, and rightly so, and state legislatures are taking notice. Companies like AdoreMe can avoid legal action by following industry best practices and ensuring they are compliant with any and all local, state and federal laws that govern such features and programs. As a simple rule of thumb, all subscription and membership programs should be transparent and should clearly and conspicuously display and disclose their terms and conditions, so consumers can make informed purchasing decisions.