At FTC's Request, U.S. Court Hands Down Record $478 Million Judgment Against Marketers of Massive Get-Rich-Quick Infomercial Scams
This is a court judgment concluding a 3-year lawsuit brought by the FTC. Unlike most FTC actions, the defendants did not 'roll over' and stipulate to an order. Instead, the FTC had to file a motion for summary judgment and submit all of its evidence. The court ruled there was liability and no fact in dispute about liability. Effectively, this was a trial.
The difference is stipulations are often made, even if there is no liability, to avoid hassles, costs, and potential liability. This is a finding of actual liability and thus is a very important ruling.
In addition to getting hammered for $487 million overall, injunctions were issued including lifetime bans on certain marketing and 20-year disclosure periods to the FTC. Next up for defendants: bankruptcy court, where they will learn fraud issues may not be dischargeable.
A few of the issues where the court found liability:
- Claiming easy money from tax lien certificates and mortgage tax sales.
- Misrepresenting income claims from turnkey Internet businesses (note: biz opps are banned from the forum)
- Not clearly and conspicuously disclosing negative option features where a buyer is billed monthly unless they take steps to cancel the recurring billing.
A negative option feature includes a free trial after which the buyer is charged if they have not first canceled. Per the court's order it also includes continuity plans and automatic renewal plans. Each of these is common by forum sellers.
The court's order lays out a checklist and roadmap for appropriate disclosures to avoid legal problems. Disclose:
1. The amount of the first payment.
2. When the first payment will be made.
3. When future payments will be made (example: monthly)
4. The amount for future payments.
For trial periods:
1. When the trial period starts.
2. Length of the trial period.
3. Specific steps and means to take to cancel.
4. The date or time period by which a cancellation request must be received to avoid a charge.
5. All material conditions, limitations and restrictions on getting something for free.
(I see where this could include free - if signup to an email list, or functionality stops working after 30 days, demo, or possibly that another product such as an upsell is required to do something, or an upsell was involved in any income claims by the seller, etc.)
For automatically renewed memberships:
1. The fact there is an automatic renewal.
2. The length of each renewal period.
3. The manner in which a cancellation request must be made.
4. The date or time period by which a cancellation request must be received to avoid a renewal charge.
5. Contact information where a buyer can submit their cancellation request.