The FTC Says "No" to a Negative Option Fraud

(MoneyWatch)  Hooray! The Federal Trade Commission is finally cracking down on companies that rely on negative option marketing to make their sales. Negative option deals, as you already know, take your silence as a "yes" and then bill you forever for something you probably didn't want in the first place. Here's how it works. You sign up for a freebie, but the vendor requires you to provide your billing information. Then it keeps billing you for your "membership" or "subscription" in perpetuity unless you write or call to say "no." Negative option marketers count on the fact that most people forget the whole thing and don't notice charges to their credit card or bank account for months. Back in September I wrote a post about negative option deals because the FTC planned to fiddle with its rules which right now are pretty feeble.

But something -- who knows what? -- has stiffened the agency's spine. In a recent case, the FTC cited NextClick Media and its owners for offering consumers a 10-day "free" trial of herbal products and stop-smoking patches with cutesy names like "Nicocure," "Stop Smoking 180," and "Zero Nicotine" but then, without warning them, charged $99.95 a month for enrollment in the company's smoking-cessation plan. Consumers had a right to be surprised when they got their bills because statements on the company's Web site asserted, "Your 10 day trial is absolutely free! Charges will only be made to your credit card if you find that StopSmoking180 is the product for you and you choose to continue with the stop smoking 180 program for a discounted membership price."

To get out of this deal, customers had to return the unused portion of the order. Before they could do that, they had to obtain an "RMA" number, which turned out to be unobtainable. The customer service number listed on the website delivered calls to a voice message saying the mailbox was full. Customers who were able to leave a message, received no reply. And forget about getting the RMA via the website. User names and passwords didn't work.

Negative options, alas, are not illegal (though I think they should be). But the FTC decided that in this case the free trial was anything but. In future, the company will either have to stop saying that it's offering one (maybe there's a patch for that -- the "Stop Lying 360 perhaps) or warn customers of its intention to bill them each month before asking for their credit card information. The company will also have to pay a hefty fine.

Lets hope that the FTC applies such standards to all free trials. Consumers should either have the option of joining the program after a genuine no-obligation free trial. Or they should be warned before giving out their credit card number that not saying "no" will result in a monthly bill.

At this point, however, it's hard to say whether NextClick will make either adjustment to its sales practices. In the settlement, in which the company admitted to no legal violations, the FTC also pointed out that NextClick's anti-smoking products don't work.