The Federal Trade Commission is on a roll this week. This time, their refund administrator is mailing 41,934 checks, totaling over $1.1 million, to consumers as compensation for a deceptive “free trial” scheme for tooth whitening and other products sold by RevMountain, LLC; Anasazi Management Partners; and 59 related corporate defendants. The FTC first brought action against these defendants in August 2017, alleging their claims were deceptive, fine-print disclosures were hidden, and they used deceptive marketing tactics to charge consumers a nominal fee for their products while simultaneously charging them for two recurring subscription services at a cost of $100 per month per subscription.
Violation of the FTC Act and ROSCA
The FTC charged the defendants with violating the FTC Act and the Restore Online Shoppers’ Confidence Act through their ‘free trial’ scheme. After the initial complaint was filed, the U.S. District Court for the District of Nevada issued a temporary restraining order on July 25, 2017 against the defendants.
According to the complaint, the FTC alleged that a network of 78 companies and at least 87 websites lured consumers in through a low-cost trial ($1.03 plus shipping and handling). The defendants also used dozens of bank accounts to hide their ownership and to launder profits from the negative-option scam.
In addition, the FTC alleged that consumers were driven to the sites through affiliate networks via blog posts, banner ads and surveys. In some cases, consumers took surveys that were supposedly from Kohl’s or Amazon, and after completing the survey, they were given “rewards” which directed them to one of the deceptive websites in an attempt to sell them products in their “free trial” scam and enroll them in unauthorized subscriptions.
The FTC said the defendants tricked consumers into providing their billing information, charging them $100 a month unless consumers canceled within eight days. When consumers viewed the order confirmation page, they were tricked into signing up for a second $100 monthly subscription.
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Terms of settlement
Under the settlement order, the defendants are prohibited from future negative-option sales, including helping others with deceptive negative-option sales, directly or indirectly. Two of the defendants – Jennifer Johnson and Danielle Foss – are subject to other restrictions on negative-option marketing. The court imposed a judgment of $92,011,601.42, the amount lost by consumers from the “free trial” scam. The balance of the judgment will be suspended once the defendants’ assets have been surrendered, including money, vehicles, and proceeds from the sale of two homes.
“All of the defendants are prohibited from making misrepresentations about any good or service. They are also barred from profiting from consumers’ personal information collected as part of the challenged practices, and failing to dispose of it properly. In each case, the full judgment will become due immediately if the defendants are found to have misrepresented their financial condition,” the FTC said in an April 16, 2023 news release.
In the judgment, the defendants did not admit or deny any of the allegations. The order specified that the facts alleged in the complaint “will be taken as true, without further proof” in any future litigation by or on behalf of the FTC. The judgment also said the defendants must fully cooperate with the regulatory agency in any investigation related to the alleged transactions and deceptive behavior. Among other requirements, the defendants must submit a compliance report one year after the order, and they must notify the FTC about bankruptcy or insolvency filings.
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Consumer refunds for ‘free trial’ scam
The consumer refund checks were mailed by Epiq, the refund administrator, on April 25. The FTC advises consumers to cash the checks within 90 days of receipt. Consumers with questions can call Epiq at 1-888-574-7818.
Insider Take
Though this action was filed nearly six years ago, the final outcome is consistent with the current “no tolerance” policy enforced by the FTC. We applaud their efforts to shut down unscrupulous business schemes and scams and to provide refunds to consumers when possible. This is an important takeaway for subscription companies that utilize negative-option marketing. They must follow all rules and regulations about negative-option sales in the jurisdictions where they do business. The FTC has and will continue to crack down on those who fail to be transparent, use dark patterns to fraudulently garner business, and who put company profit ahead of ethical business practices.
The FTC provided the following infographic in their August 2017 complaint:
