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March 13th, 2015
But Wait, There’s More: Infomercial Product Marketer Will Pay $8 Million to Settle
Have you ever wondered whether a late-night television infomercial offer was too good to be true? Advertising regulators wonder the same thing.
Last week, the FTC filed a complaint against Allstar Marketing Group ("Allstar"), direct marketer of "as seen on TV" products like the Snuggie, Cat's Meow, and Magic Mesh. the FTC alleged Allstar deceived consumers by failing to disclose handling fees for its "buy one, get one free" offers; and not giving consumers the option to decline the second "free" product. As an example, the FTC cited Allstar's offer for the Magic Mesh. Allstar advertised Magic Mesh for "just $19.95" but added an offer for a second, "free" Magic Mesh for consumers who "call now." According to the ad, consumers would "just pay separate processing and handling fees," resulting in "two Magic Mesh curtains for $19.95... less than $10 each." The ads failed to mention that Allstar charged $7.95 per item in processing and handling fees, nearly doubling the advertised cost of the Magic Mesh to $35.85. The FTC also noted that the automated telephone ordering process did not permit consumers to decline the second Magic Mesh, and did not, at any point, share with consumers how many products they ordered or the total cost.
The FTC's complaint alleged Allstar illegally billed consumers without their express consent, and failed to adequately disclose material terms of the offer. The complaint also charged Allstar with violations of the Telemarketing Sales Rule - for allegedly deceptive upsells of additional products or services marketed to consumers while ordering.
The FTC's settlement of the lawsuit requires Allstar to pay $7.5 million. Settlement of a concurrent NY State Attorney General action requires Allstar to pay an additional $500,000 in penalties, costs, and fees. According to New York Attorney General Eric T. Schneiderman, the settlement cost will "return money to thousands of consumers in New York and across the nation who believed they were buying items at the price advertised on television, but ended up with extra merchandise and hidden fees they didn't bargain for."
These regulatory actions serve as a reminder to marketers to clearly and conspicuously disclose any additional charges to an offer that may not be expected by consumers, especially if the items are characterized as "free." Also, marketers must always get their customers' actual consent before charging their credit cards and shipping them products.
For more information on these settlements, or any other advertising or marketing law issues, please contact Terri Seligman at (212) 826-5580 or firstname.lastname@example.org, or Claudine Wilson (212) 705 4842 or email@example.com, or any other member of the Frankfurt Kurnit Advertising Group.
Other Advertising Law Alerts
What the Advertising Industry Can Learn from Kim Kardashian’s Settlement with the SEC
On October 3, 2022, the Securities and Exchange Commission (SEC) announced that it entered into a $1.26 million settlement with Kim Kardashian over her social media promotion of the EMAX token without disclosing payment she received from token issuer, EthereumMax. The matter provides important lessons for advertisers. Read more.
October 10 2022
Get Ready for California’s New “Automatic Renewal” Rules
California recently amended its Automatic Purchase Renewals law. The amended statute - effective July 1st -- require marketers to provide consumers of automatic renewal or continuous service offers with more information and easier ways to terminate. Read more.
June 22 2018
“Made in the U.S.A.” Claims Continue to be Scrutinized
In 2016, California amended Section 17533.7 of the California Business and Professions Code ("Section 17533"), liberalizing the standard for selling products labeled "Made in U.S.A" to California consumers. Read more.
June 4 2018