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The attorneys general from 22 states signed an $11 million settlement with a national flower delivery service and social networking site today to resolve allegations that the two companies misled consumers into buying subscription services they didn’t want.
Florists’ Transworld Delivery, Inc., its subsidiary FTD.com and online social networking company Classmates, Inc., allegedly violated state consumer protection laws by allowing third-party marketers to charge online customers who failed to expressly opt-out of a membership program, according to the New Jersey Attorney General’s office.
According to the settlement [PDF], the companies, which were previously subsidiaries of United Online, Inc., engaged in deceptive advertising and billing practices for nearly nine years.
“Businesses have a duty to be clear, direct and honest when advertising, and to respect consumer privacy laws by not sharing sensitive credit card and debit card account information without proper disclosure and/or consumer consent,” New Jersey’s Acting Attorney General John Jay Hoffman said in a statement.
In addition to New Jersey, states involved in the investigation and subsequent settlement include Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maryland, Maine, Michigan, Nebraska, New Mexico, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington and Wisconsin.
Tuesday’s settlement stems from a multi-state investigation that found FTD and Classmates took part in a practice known as negative option marketing.
Consumers who visited websites controlled by FTD and Classmates tell the AGs they were often sold “trial term” subscriptions for goods and services by third-party marketers using the companies’ websites.
The AGs alleged that those customers were not adequately informed that the subscriptions would renew automatically once the trial period ended, and that their credit cards would be billed for the renewal until the consumer actively canceled the subscriptions.
The investigation found that these deceptions were made possible because FTD and Classmates allowed sales and membership offers – such as discount clubs, travel rewards and insurance programs – by third-party marketers to pop-up during online consumer transactions.
In some cases, the pop-ups displayed FTD and Classmates logos, leading consumers to believe that they were still doing business with the two companies even when they weren’t.
Customers who signed up for the third-party promotions were typically charged an initial trial period.
When the trial period ended, a “free-to-pay” aspect of the deal was triggered. However, the investigation found that portion of the deal was not adequately disclosed, and resulted in consumers unwittingly being billed for paid memberships or subscriptions.
According to the investigation, in order to pay the third-party marketers, Classmates and FTD allegedly engaged in “data passing” – the sharing of consumers’ data including their personal billing information without properly disclosing the practice to customers.
In addition to allegedly being duped by the companies, customers tell the AGs that when they became aware of the added charges, they found it difficult to cancel their subscription.
Under the settlement, FTD will pay $8 million to the 22 states involved, while Classmates will establish a $3 million restitution fund for customers who were enrolled in the subscription service without authorization or were unable to cancel their subscription.
The New Jersey Attorney General’s Office reports that to be eligible for restitution, consumers must have purchased subscription services from Classmates between January 1, 2008 and May 26, 2015.
Despite agreeing to pay a combined $11 million in penalties and restitution, the two companies do not admit any wrongdoing or liability.
New Jersey Joins Multi-State Settlement Resolving Allegations That FTD, Classmates Inc. Engaged in Deceptive Ad Practices [New Jersey Office of the Attorney General]
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