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FTC Wins TRO in First Action under the Restore Online Shoppers' Confidence Act
Practical Law Legal Update 8-585-3226 (Approx. 5 pages)
FTC Wins TRO in First Action under the Restore Online Shoppers' Confidence Act
by Practical Law Commercial
| Published on 21 Oct 2014 • USA (National/Federal) |
The Federal Trade Commission (FTC) has announced that it obtained a temporary restraining order (TRO) against a group of marketers who violated the Restore Online Shoppers' Confidence Act (ROSCA) and other federal advertising laws.
On October 20, 2014, the Federal Trade Commission (FTC) announced that the US District Court for the District of Nevada granted it a temporary restraining order (TRO) to stop a group of marketers in Nevada and California from using deceptive and illegal free trial offers and health claims to sell dietary supplements.
In its complaint, the FTC alleged that Health Formulas, LLC and its related entities and principals violated various advertising and consumer protection laws, including the Restore Online Shoppers' Confidence Act (ROSCA). This is the first FTC action alleging violations of ROSCA, which prohibits marketers from charging consumers in an internet transaction, unless the marketer has:
- Clearly disclosed all material terms of the transaction.
- Obtained the consumers' express informed consent.
Specifically, the FTC accused the defendants of violating federal law by:
- Using deceptive weight-loss claims in telemarketing, internet, print, radio and television ads to sell numerous health and dietary supplements and weight-loss products.
- Tricking consumers into disclosing their credit and debit card information and then enrolling them, without authorization, into a negative option program.
- Debiting consumers' accounts on a recurring basis without their prior written authorization, after enrolling them in the negative option program.
In a negative option program, when a seller offers or agrees to sell goods or services, it interprets the customer's silence or failure to affirmatively reject goods or services or cancel the agreement as acceptance of the offer (16 C.F.R. § 310.2(u)). Once the defendants enrolled consumers in the negative option program, they violated the law by failing to:
- Provide the required disclosures for a negative option program.
- Provide a way for consumers to stop the automatic charges.
- Disclose material facts about their refund and cancellation policy.
In its TRO, the district court agreed that the defendants likely violated:
- Section 907(a) of the Electronic Funds Transfer Act (15 U.S.C. § 1693e(a)).
- Section 4 of ROSCA (15 U.S.C. § 8403).
- Section 205.10(b) of Regulation E (12 C.F.R. § 205.10(b)).
- The FTC's Telemarketing Sales Rule (16 C.F.R. §§ 310.1 - 310.9).
Advertisers and marketers should review this case and the relevant laws to ensure that their own business practices comply with FTC regulations and other federal laws. For more information on these laws, see Practice Notes: