FTC Fines Company For Below-The-Fold Fine Print
A Web company that sold "online auction starter kits" and two of its executives have agreed to pay more than $500,000 to settle a complaint filed by the Federal Trade Commission.
The company, Commerce Planet, allegedly lured consumers into providing their credit/debit information by promising free seven-day trials to users who paid a nominal shipping fee. But buried in the fine print was a statement that users who didn't cancel within a short period would be billed monthly membership fees of $59.95, according to the FTC.
"Because the disclosure language appeared below the bottom of the screen, it was possible for consumers to complete the entire transaction without ever having seen it," the FTC alleged in a complaint filed with the federal court in the central district of California.
The FTC also alleged that Commerce Planet made it hard for users to cancel their subscriptions. "Consumers frequently were told there were no refunds," the complaint stated. "Consumers frequently had to call multiple times to cancel."
Commerce Planet, which agreed to pay $100,000, no longer sells the online auction kits. Those products offered assistance to people who wanted to sell merchandise on sites like eBay.
Executive Michael Hill, a company director, agreed to pay $230,000 and future proceeds from loans, which could bring the total to more than $900,000. And executive Aaron Gravitz promised to pay $192,000.
Hill and Gravitz also agreed that in the future they won't market products as "free" if they intend to charge users monthly fees. They also promised to disclose the amount that consumers will be billed, and the length of free trial periods. Neither admitted wrongdoing as part of the settlement.
A third defendant, Charles Gugliuzza, is contesting the charges.
The billing model used by Commerce Planet -- sometimes called a "continuity plan" or "negative option plan" -- has riled many online users who allege that they sign up for free products and then end up with pricey hard-to-cancel subscriptions.
In the most recent example, gaming developer Zynga -- which distributes its games on Facebook and other social networking sites -- came under fire for allegedly running ads from companies that use a similar model.