FTC Drops Hammer On Skin Care Sellers For Deceptive 'Risk Free' Trials
This article was originally published in The Tan Sheet
Executive Summary
A federal court issues a temporary restraining order in response to FTC's complaint citing seven individuals and a "maze of interrelated shell companies" for deceptive "risk-free" skin-care trial offers. Buried in fine print on the companies' websites were terms specifying charges for unsuspecting consumers, FTC says.
A Federal Trade Commission crackdown prompts a court order halting marketing by companies allegedly selling skin care products via deceptive "risk-free trial" offers, freezing their assets and appointing a receiver over their business.
Issued June 16 by the U.S. District Court for the Central District of California, the temporary restraining order targets seven individuals and 15 companies named in an FTC complaint as parties behind Auravie, Dellure, LéOR Skincare and Miracle Face Kit products sold online.
According to the court, the defendants "operate through a maze of interrelated shell companies owned or managed by a handful of individuals who conceal their identities or affiliation with one another from consumers and their financial institutions."
Meanwhile, FTC says they hoodwink consumers into providing credit card information to try products "risk free" for a nominal shipping and handling charge of under $5, then charge individuals for the full price of products – typically $97.88 – and enroll them in buying programs with recurring fees.
"If your company makes these types of offers, this case should serve as a reminder to check your marketing practices to ensure you are complying with applicable laws." – Gonzalo Mon, partner in Kelley Drye & Warren's Washington office
“Companies need to give clear, honest information about charges. If a company advertises a ‘risk-free trial,’ then that’s what it must provide,” says Jessica Rich, director of FTC’s Bureau of Consumer Protection.
FTC notes the defendants were marketing and selling skin care products through deceptive trial offers since 2010, if not earlier, using pop-up ads, banner ads and ad space on third-party websites to drive traffic to their own sites, where terms specifying actual costs of trial were in fine print.
"Consumers also are enrolled without their consent in subscription plans under which they are shipped more products and charged recurring fees. The defendants make it difficult to cancel the memberships, stop or avoid the charges or obtain a refund," FTC alleges.
Furthermore, the defendants misrepresented themselves as accredited by the Better Business Bureau with an "A-" rating. FTC says, "the company is not accredited and has a BBB rating of 'F.'"
U.S. District Judge George Wu notes the court is authorized to grant preliminary relief in the case because FTC's suit has merit that augurs success. "The FTC has established that they are likely to succeed in proving that Defendants collectively have engaged in a course of conduct to deceive consumers nationwide out of millions of dollars."
The temporary restraining order was issued ex parte, without the defendants' participation in proceedings. "This Court finds that Plaintiff has shown Defendants are likely to dissipate assets or destroy business documents, which would cause immediate and irreparable injury, loss, or damage to this Court’s ability to award effective final relief at trial or other disposition of this matter," Judge George Wu says.
Ultimately, FTC seeks a permanent injunction and consumer refunds for alleged violations of the FTC Act, the Restore Online Shoppers' Confident Act and the Electric Funds Transfer Act.
In a June 25 post on Kelley Drye & Warren LLP's AdLawAccess.com, partner Gonzalo Mon notes state attorneys general and class action litigants are targeting companies for deceptive free-trial and automatic-renewal platforms.
"If your company makes these types of offers, this case should serve as a reminder to check your marketing practices to ensure you are complying with applicable laws," Mon says.
FTC's Operation Full Disclosure initiative launched in September 2014 resulted in warning letters to 60 advertisers for touting "risk-free" or "worry-free" trial periods without clear and conspicuous disclosures as to costs consumers could incur, among other violations (Also see "FTC: All Advertisers Should Heed Lessons From “Operation Full Disclosure”" - HBW Insight, 3 Oct, 2014.).
Agency Chairwoman Edith Ramirez said FTC would continue to focus in 2015 on inadequate disclosures that can result in misleading advertising (Also see "FTC Prioritizes Health Claims, Disclosures Enforcement In Coming Year" - HBW Insight, 6 Oct, 2014.).