The Federal Trade Commission showed no love for an online lingerie marketer’s negative option membership program when it reached a settlement that requires AdoreMe to return more than $1.3 million to customers.
Membership in the New York-based entity’s VIP program entitled consumers to a discount on an initial purchase; free shipping for U.S. customers; and access to a “free personalized online showroom” of apparel for sale, including “VIP only” apparel, with “No obligation to buy every month, [and] no membership fee.”
But according to the FTC’s complaint, consumers were charged $39.95 per month unless they made a purchase or clicked an online button to “skip” buying that month within the first five days of the month. The company’s website told consumers, “If you do not make a purchase or skip the month by the 5th, you’ll be charged a $39.95 store credit that can be used anytime to buy anything on AdoreMe.”
Despite this promise, for a one-year period beginning May 2015, AdoreMe took unused credit amounts away from customers who cancelled their memberships or initiated chargebacks to dispute their transactions, the FTC alleged. Although the defendant stopped this practice in May 2016, it has yet to make full refunds to affected consumers, the FTC added.
The complaint charged AdoreMe and related entities with violating both the Federal Trade Commission Act and the Restore Online Shoppers Confidence Act by misrepresenting its store credit policy, failing to provide consumers with a simple mechanism to stop recurring charges, making it hard to cancel memberships (by limiting how cancellation requests could be submitted to its understaffed customer service department) and subjecting consumers to “drawn-out” cancellation processes.
The proposed settlement order prohibits the defendant from making misrepresentations in the sale of any good or service with a negative option feature and requires the company to provide a simple way for consumers to avoid being charged and to immediately stop any recurring charges.
In addition, AdoreMe must “promptly” send order confirmations without any upsells, additional product or service offers, or other advertising or marketing, and must not represent that any negative option feature is being offered on a free, trial, no-obligation, reduced or discounted basis without a clear disclosure of the costs and how consumers can avoid charges.
The order also imposes a $1,378,654 judgment that will be used to refund affected consumers.
To read the complaint and the proposed consent order in FTC v. AdoreMe, Inc., click here.
Why it matters: Companies that elect to use negative option marketing should ensure compliance with both state and federal law, as such membership programs are the subject of close scrutiny by FTC regulators and state attorneys general.