FTC and DOJ Reach Settlement Banning Background Search Website From Negative Option Marketing

Client Alert

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) reached a settlement with MyLife.com, Inc., an online seller of consumer background reports, which bans MyLife from engaging in deceptive negative option marketing and includes judgments totaling $33.9 million against MyLife and its CEO, Jeffrey Tinsley.

The complaint, filed in July 2020, alleged that MyLife allowed website users to run free background searches for an individual’s name and then displayed search results falsely implying that the subject of a search might have records of criminal or sexual offenses. The criminal records would be visible only if the searcher purchased a MyLife subscription. The subscriptions were set up to automatically renew unless canceled, and, until 2019, subscribers wishing to cancel could do so only by calling MyLife’s customer service line. Subscribers who attempted to cancel reported not being able to reach a customer service representative, having their subscriptions renewed against their will, or reaching an agent but receiving a sales pitch to renew instead of help with canceling.

The complaint alleged that MyLife violated the Retail Online Shoppers’ Confidence Act (ROSCA), which generally prohibits charging consumers for goods or services sold in Internet transactions through a “negative option” feature. Negative option features are offers or agreements in which the customer’s silence or failure to take an affirmative action to cancel the agreement, or reject the goods or services, are interpreted by the seller as acceptance of the offer. To comply with ROSCA, a telemarketer must (1) clearly and conspicuously disclose the terms of the agreement before obtaining the customer’s billing information, (2) obtain the customer’s express informed consent before charging the customer, and (3) provide simple mechanisms for a customer to stop recurring charges.

The complaint alleged that MyLife failed to clearly and conspicuously inform customers of the material terms of the transactions, including that the full cost of the multi-month subscription would be charged immediately in a lump sum instead of in monthly payments, that MyLife would automatically enroll customers in subscriptions that would automatically renew unless the customer affirmatively acted to cancel the subscription, that customers wishing to cancel the subscription could do so only by calling MyLife’s customer service line, and that customers had to cancel before the end of the subscription period to avoid incurring additional charges. It also alleged that MyLife also failed to provide customers with simple mechanisms to stop recurring fees from being charged to them.

Further, the complaint alleged that MyLife violated the Telemarketing Sales Rule (TSR), which prohibits telemarketers from failing to disclose truthful material information regarding the transaction, when it provided customers with misleading or false statements or omissions regarding its refund and cancellation policies.

In addition to the ROSCA and TSR violations, the complaint also alleged deceptive sales practices in connection with the false or misleading representations regarding criminal records of the searched-for individuals, and violations of the Fair Credit Reporting Act (FCRA) for furnishing consumer reports to subscribers without reason to believe that the subscribers had legally permissible purposes for obtaining the information, and for failing to ensure that the information was accurate.

According to the terms of the settlement, MyLife and its CEO are permanently banned from marketing or selling any product or service that includes a negative option feature. They are also banned from misrepresenting their payment, renewal, cancellation, or refund terms, policies and practices; from engaging in violations of the FCRA alleged in the complaint; and from making misleading statements about searched-for individuals; and they are ordered to implement a monitoring program for FCRA compliance.

To read the complaint, click here.

To read the settlement, click here.

Why it matters: This action makes it clear that the FTC considers failure to make required disclosures to be deceptive and unfair sales practices. Companies using negative option features should review their policies and practices carefully to ensure compliance with ROSCA. At minimum, sellers using negative options should clearly and conspicuously disclose the terms before obtaining the customer’s billing information, obtain the customer’s express informed consent before charging the customer, and make sure customers can cancel recurring charges easily. Telemarketers, regardless of whether they use negative option features, should also review their policies and practices to ensure compliance with disclosure rules under the TSR.

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